Currencies undermine Finnair’s nascent profitability in Asia

Finnair Oyj said a declining yen helped plunge the carrier to a first-quarter loss as exposure to Japan weighed on earnings, sending the shares down the most in 1 1/2 years.

“The biggest negative issue during the first quarter was yen’s weakening,” Ville Iho, Finnair’s interim chief executive officer, said at a briefing today. Most of the company’s sales in Japan are made in the local currency, he said.

Finnair posted its first annual profit since 2007 last year after building its Helsinki home base into a hub for travel into Asian markets including Japan. The yen has fallen 10 percent against the euro since the start of the year as the Bank of Japan pledged to end two decades of economic stagnation and 15 years of deflation by boosting money supply. It is the worst performer of 16 major currencies tracked by Bloomberg.

Finnair fell as much as 9.5 percent, the biggest intraday decline since October 2011. Shares in the Vantaa, Finland-based carrier traded down 7.7 percent at 2.63 euros by 5:24 p.m. in Helsinki, paring this year’s gains to 11 percent. Volume was more than double the three-month daily average.

Th carrier’s fuel bill grew as the U.S. dollar gained as much as 3.2 percent against the euro last month and is 1.4 percent higher year-to-date.

Worst Possible

“This is the worst possible scenario for Finnair, a double effect which seems to continue in the second quarter and perhaps yet in the third,” Pasi Vaeisaenen, an analyst at Nordea Bank AB, said by phone. “This means tens of millions on an annual basis. Currencies jeopardize Finnair’s earnings improvement possibilities for this year.”

Finnair reported a first-quarter net loss of 15.8 million euros ($20.6 million), narrowed from 19.3 million euros in the same period in 2012. Sales grew slightly to 593.3 million euros. The carrier maintained its guidance for a full-year profit.

Newly appointed CEO Pekka Vauramo is set to continue a cost-cutting drive upon his arrival on June 1. The company plans to trim costs by 140 million euros through 2013 and 200 million euros by the end of next year.

Editors: John Bowker and Robert Valpuesta.

To contact the reporter on this story: Kasper Viita in Helsinki at [email protected]. To contact the editor responsible for this story: Christian Wienberg at [email protected].