During Finnair Capital Markets Day 2019, the airline’s Chief Executive Officer, Topi Manner, started his speech by stating that the goal of the carrier now is to deliver “sustainable, profitable growth,” as the airline moves forward from its previous phase of accelerated growth. Finnair is in a curious position – while it’s home market is fairly small, as Finland only has more than 5.5 million people living in the country, the airline and its main hub, Helsinki Vantaa Airport (HEL), became a connecting point between Europe and Asia.
“We are also a big, small airline in a sense that we are big enough to do things, (but) we are small enough to get them implemented,” the airline’s CEO said, adding that “we are agile, we are known to have made courageous and determined decisions,” like the decision to become the launch customer for the Airbus A350 in Europe. Previously, Finnair also became the global launch customer of the ATR 72 and the MD-11.
Some of these bold decisions are also to be made going forward, notes Manner. So, where does Finnair go next?
Helsinki to Asia
Helsinki (HEL) became a connecting point between Europe and Asia for Finnair and it would further strengthen ties between Finland and Asia, as the shortest northern route is available due to the optimal geographical position of Helsinki, the airline’s CEO stated.
In the past five years, Manner noted, Finnair doubled its capacity to Asia. Interestingly enough, 50% of the carrier’s revenues come from transfer passengers, while local traffic contributes 30%. 73% of the transferring passengers are from Asia, the airline’s data shows. And Finnair plans to grow further in the continent by focusing on Asian megacities, such as Beijing, China or Tokyo, Japan, where the company plans to further increase frequencies, rather than adding more destinations in Asia.
Its current business model allows it to be placed “between the giant airlines on one hand and low-cost carriers on the other hand,” Manner says. But low-cost carriers, namely Norwegian Air Shuttle, offer no resistance to Finnair in Scandinavia – the only two destinations the long-haul low-cost carrier serves are Thailand, namely Bangkok (BKK) and Krabi (KBV), meaning Finnair has absolutely no pressure from the lower price point. The only other local competitor in Northern Europe is Scandinavian Airlines System (SAS), which flies to Beijing, Hong Kong, Shanghai and Tokyo.
Cabin and fleet changes
he Finnish airline announced that it would introduce Premium Economy class cabin to further diversify its product on board in 2020. Finnair’s costs (ex. fuel) have been growing faster than its revenues, the company’s presentation highlighted, with the former growing by 6.1% since 2014, while the latter has grown 5.5% since 2018. A premium economy cabin would allow Finnair to cater to the demand of the passengers and offer more comfort, as the Senior Vice President of Customer Experience, Piia Karhu, has highlighted by stating that over 50% of leisure and business class passengers responded that they would “very likely or extremely likely” travel on the newest cabin offering. For Finnair itself, Premium Economy “makes for very valuable real estate,” Karhu said, as the airline is able to sell Premium Economy seats from one and a half to two times higher than basic economy prices, improving yields.
The airline plans to invest between $3.8-4.4 billion (€3.5-4 billion) into its fleet and other assets until 2025. Some of that investment would go into the growth, but most of it would be dedicated to the replacement of its aging fleet. The average age of Finnair’s 83 aircraft is 10.2 years, with its narrow-body fleet, especially the Airbus A319 (eight aircraft) and the Airbus A320 (10 aircraft), being by far the oldest aircraft that the carrier operates, with an average age of 18.6 and 17.4 per aircraft, respectively, planespotters.net data shows. As of October 30, 2019, Finnair only has five Airbus A350 aircraft on order and no other jets planned, Airbus Order and Deliveries file states.
Over the next six years, the Helsinki-based company plans to operate 100 aircraft in total, with approximately 30 of those being wide-bodies. Ole Orvér, the Chief Commercial Officer of the company, did not specify any concrete plans about Finnair’s future fleet, however, stated that while the airline was happy with its current narrow-body fleet, not necessarily the same could be said in the future.
“Going forward, we will have something that brings low cost, efficient operations and of course a customer proposition that works,” Orvér said, but whether Finnair will switch to a single type of short-haul aircraft, he was reluctant to answer, stating that it is purely down to price.
Evolving Finnair partnerships and networks
During 2019, the airline announced new partnerships with Fiji Airways and China Southern Airlines (ZNH) to further increase capacity and route offerings into Asia, including its existing oneworld alliance agreements with Cathay Pacific, Japan Airlines, Malaysia Airlines, SriLankan Airlines and Qantas.
Furthermore, the Finnish carrier plans to operate more than 100 weekly flights to Asia in Summer 2020. Newest destinations in 2019 include Beijing’s newest airport, Daxing International (PKX), Sapporo, Japan (CTS), while Busan, South Korea (PUS) and Haneda International Airport (HND) in Tokyo, Japan are set to be inaugurated in March 2020.
Currently, the airline has two main time banks when long-haul flights depart – between 5 and 10 AM and between 3 and 7 PM, with some flights departing around midnight. In 2020, Finnair plans to offer midday departures, to allow smoother connections for transferring passengers. Following the expanded time banks, the airline will utilize its assets in a more efficient way, notes Ole Orvér.
All in all, Finnair’s goals are clear as the snow up in Lapland – expanding into the ever-growing Asian market and securing crucial slots and time windows to land or depart from the busiest airports in the region. Finnair will hold the monopoly on direct flights between Busan (PUS and Sapporo (CTS) for now, as no other European airline serves these two Asian cities. However, the question remains how sustainable this model is long-term, even if the airline secures the limited capacity into the future, as current industry trends are shying away from the hub-and-spoke model and instead focusing on point-to-point traffic.
Nevertheless, the current conditions that Finnair operates in, including its top of the line wide-body fleet of 14 Airbus A350 and eight Airbus A330 aircraft, allows it to be the dominant airline on the Siberian air corridor, a crucial junction between Europe, China and Japan. The fact that most of its passenger revenues come from transferring travelers, mitigates the risk of low-cost carriers putting a strain on the airline’s earnings on intra-European flights, as passengers are fed through its hub in Helsinki to connect either to or from Asia.