Finnair to Shrink
Quite simply, Finnair‘s world has changed. The airline, which for years managed a functional if not-very-profitable business flying between Europe and Asia, can’t ride that pony anymore. The indefinite closure of Russian airspace to European carriers has added as much as 40 percent to the journey times of its Asian flights from Helsinki, increasing fuel costs and shattering crew and aircraft efficiencies. Most importantly, the Siberian airspace closure robs Finnair of a unique and potent advantage: specifically, its ability to fly out and back to key Asian cities from Helsinki within the same day. That’s great for aircraft utilization, and something rivals, including Lufthansa and SAS, were unable to do from their respective hubs. Complicating matters, meanwhile, is the fact that China’s borders remain largely closed, while Japan’s reopening is just beginning. Alas, Finnair has little choice but to radically rethink its business strategy.
Inevitably, that means another round of cost reductions at Finnair. It also means shrinking the airline’s fleet. And it means relying less on Asia, though cities like Tokyo, Seoul, and eventually Beijing, will remain part of the network. Finnair mentioned that flights to Bangkok, Guangzhou, Hong Kong, Phuket, Shanghai, and Singapore are still profitable despite the extended flying times, with extraordinarily high passenger and cargo yields offsetting the additional costs. But keep in mind that before the pandemic, Finnair flew to no fewer than 19 East Asian cities, according to Diio by Cirium, including secondary markets like Chongqing, Sapporo, and the Thai resort destination Krabi. Many of these routes are likely gone forever, barring an unlikely reopening of Russian airspace. It all means Finnair’s network will become more geographically balanced and less weighted to Asia.
Finnair is limited on how much more it can do in North America. But the airline can and will “look to the south,” as CEO Topi Manner put it, highlighting the potential of India. With this in mind, Finnair announced a new strategic partnership with Oneworld alliance partner Qatar Airways, which joins International Airlines Group, Japan Airlines, and China’s Juneyao as close Finnair allies. The carrier hopes to position Helsinki as a gateway between North America and India, which makes sense geographically but might be challenging economically — the market is intensely competitive with numerous hub options, Dubai among them (though Moscow was a competitive option that no longer exists). Frankfurt is another popular North America-India connecting point. Finnair will have its eyes on the Middle East as well, where Qatar Airways can help (expect a new Mideast route announcement soon).
Finnair is less keen on maintaining the experimental U.S. nonstops from Stockholm that it launched during the pandemic. It will perhaps continue to lease planes and crews to other airlines, including current customers Lufthansa and British Airways, which has proven to be a “good and profitable move during the summer,” Manner said. However, none of this will come close to replacing what had been a formidable Asian advantage for Finnair. A new, if less compelling advantage, could be Helsinki’s smooth operations, which it contrasts with congested and disruption-prone hubs like Amsterdam, Frankfurt, and London Heathrow.
None of this, however, will be easy. Finnair struggled to produce even meager profit margins throughout the 2010s, even with its Asian ace card. Wisely not trying to overpromise, the airline told investors last week that its goal is to merely recapture its modest pre-pandemic operating margins, which in 2019 were 5 percent. Summing things up, Manner stated: “Asia routes have been among the most profitable in our network … we don’t have this unique geographical advantage anymore. And that means … we need to compete on markets that are less regulated and more competitive, and we will be also meeting competition with lower cost structures.”
In Other News
- Lufthansa and its pilot union, Vereinigung Cockpit, reached a tentative accord last week that averted a planned strike on September 7 and 8. The deal followed a one-day strike on September 2 that resulted in the cancellation of the majority of Lufthansa’s flights that day. While details of the agreement were limited, Lufthansa said before the announcement that it would make an improved offer to Vereinigung Cockpit. The union had demanded a pay increase of 5.5 percent backdated to July 1, and an 8.2 percent raise in 2023 in response to inflation.
- European discounter Blue Air suspended flights on September 6 after its accounts were frozen by the Romanian government in a dispute over its debts, reported Bloomberg. The airline hopes to resume flights on September 12 but that is not guaranteed. Competitors Ryanair and Wizz Air have both have in offering assistance to Blue Air passengers. Ryanair offered “rescue fares” on 12 routes, while Wizz unveiled plans to expand its presence in Romania. Hungary-based Wizz will add five Airbus A321 aircraft to its Bucharest base that will allow it to add frequencies and launch three new routes on December 2: Bucharest to Athens, Larnaca, and Prague.