“The easiest way to become a millionaire is to start out a billionaire then go into the airline business,” is one of the best-known quotes of Sir Richard Branson, the owner of Virgin Atlantic. The bottom line is that airline business is not very profitable. The average profit margin is only 3 per cent. The industry has been facing major challenges since the first Gulf war and many airlines have gone bankrupt since. The medication for the aviation crisis that started with the first Gulf War has been alliance-building and privatisation. Finnair took the former pill but has so far been rejecting the latter.
Our national airline is feeling out of sorts with the changed market situation. The struggle with the problems of comparatively high production costs has included, for example, the outsourcing of ground handling. Nevertheless the average unit cost is still too high considering the company’s poor results in the last years. Among other ‘classic’ airlines Finnair has been powerless against the low cost carriers’ increasing market shares.
Ryanair’s CEO, Michael O’Leary, was asked whom he considered the best airline boss. He answered that they were all bad. In his opinion good managers would not be working for an airline. Yet, ‘good’ is always relative. Finnair’s CEO Mika Vehviläinen has shown some talent in organising his private housing. He sold his apartment to the insurance company Ilmarinen, whose CEO is the chairman of Finnair’s board. Then the airline rented the apartment for Vehviläinen. Mika now lives rent-free. At the same time he is trying to convince his employees of the significance of giving up benefits.
Jarmo Aaltonen from Helsingin Sanomat makes a sarcastic reference to African state-owned airlines. Some of them have a tradition of functioning as the escape fleet for local politicians in case of a rebellion. Joking aside, there are only emotional or political arguments against privatisation in Finnair’s case. Even Antti Potila, the company’s former CEO, went pro after he had left the company in the late 90s.
Privatisation as such is not a virtue, especially when done badly as in the case of British Rail in the mid-90s. The prices went up, the quality down. Mismanagement and short-term profit maximisation led to several mishaps, fatal accidents and eventually to bankruptcy in 2002.
It is significant to point out that non-profitable state-owned airlines cause major market distortion. A good example is Alitalia whose balances have been in deficit for decades. At the same time it has been merrily operating and occupying market share. Finnair is not Alitalia, but similar tendencies can be identified.
Every reform starts in the leadership. If the management fails to set an example, there is a good chance that its reform strategy will fail. Even if Vehviläinen’s apartment arrangement is legally defensible, its moral aspect isn’t. Whether Finnair’s current management will be capable of reforming the company, will show. Either way a company never profits from image damage. The Germans say ‘a fish always rots from the head down’. Private fish may rot too, but they are more likely to be profitable. Which is good, in case one does not prefer sponsoring management housing with taxpayers’ money.
The writer has worked in the airline industry for over 10 years.