Finnair Oyj (HEL:HEX/LSE:0EG8) reported a 38% increase in passenger numbers in March compared to February. While the result was positive, a full recovery is still a long way off for the airline.
The flag carrier of Finland says passenger numbers are up, but Omicron and the war in Ukraine have been hitting numbers. Following Russia’s invasion of Ukraine, Finnair withdrew financial operational guidance for the first half of 2022. The airline depends on routes connecting their Helsinki hub to destinations across Asia, flying across Russian airspace. With Russian airspace closed, Finnair has rerouted flights, adding additional time and fuel costs to their operations.
Struggle to return to profitability
“With jet fuel prices remaining high, Finnair will struggle to return to profitability across their core network,” explained Allegra Dawes, a senior airlines analyst with Third Bridge. “Third Bridge experts highlight that the airspace closure will further delay the slow recovery of Europe – Asia air traffic. While Covid restrictions remain in parts of Asia, a significant proportion of their routes depend on business travel which has been slow to recover.”
Third Bridge experts have also highlighted Finnair’s success in allocating capacity to cargo flights during the pandemic. Robust demand for air cargo capacity enabled Finnair to continue operations to most Asian destinations despite the longer flight time and higher costs.
Cargo can be a great get out of jail free card for airlines which have that capacity. This is not something many of the smaller, discount airlines which fly regional routes seem to be able to capitalise on. As we noted in our analysis on Armchair Trader pick Turkish Airlines, investors should not underestimate the capacity of cargo to bring important revenues in when passenger traffic is impeded by Covid restrictions.
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Finnair stock almost halved in last 52 weeks
Shares in the airline have been trending down over the past year. 52 weeks ago they were priced in Helsinki at around €0.77, but can now be had for as little as €0.49. Many investors exited the stock in late February as the Russian invasion of Ukraine commenced, rightly anticipating that this would hammer the airline’s trans-Russia operation.
Investors should not underestimate the important of the Asia routes for Finnair. The airline was regularly used by travellers from China to access Europe, as they would transit through Helsinki onto other European routes.
Value buyers are in
There has been some value buying on the stock in March, which has helped to reverse the price, which bottomed in early March at around €0.40 and is now testing €0.50. Six brokers follow the share; all have it as either a sell or a strong sell.
This one is really all about the geopolitical risk. Finnair has the underlying fundamentals to be able to rally quite considerably if there is a solution to the conflict in Ukraine and China finds a way to contain the pandemic, which has now locked down several cities. Before the Russian invasion, forecasts for Finnair earnings were very bullish indeed: take those double whammies off the table, and we could see the shares easily hitting €0.80. But it is very much a buy and wait story right now.