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.