FINNAIR on Wednesday announced it intends to “balance” its route network and downsize its fleet as part of the strategic turnabout necessitated by the closure of Russian airspace.
The Finnish majority state-owned airline stated that the measures are an attempt to reduce its unit costs by 15 per cent from the level of 2019 and restore its earnings before interest and taxes to the pre-pandemic level of at least five per cent as of mid-2024.
Topi Manner, the chief executive of Finnair, said the airline must create substantial additional cost savings to restore its profitability to pre-pandemic levels. The airline has introduced cost savings of roughly 200 million euros in the past 30 months.
“We need savings that are similar in scope,” he commented to Helsingin Sanomat. “We’re talking about an ambitious target because we’ve created very significant cost savings during the pandemic.”
The flag carrier had based its old strategy on its ability to offer convenient connections from Helsinki to Asia. The strategy, however, has been undone by the airspace restrictions imposed by Russia, with distances between its main hub and key destinations increasing by 30–40 per cent. Its new strategy is designed to restore profitability regardless of airspace restrictions.
“The changes in our operating environment require a new strategy and significant renewal of Finnair, especially related to costs,” he stated in a press release on Wednesday.
Finnair revealed it is initiating talks with staff representatives about changes in the terms and conditions of employment, and evaluating other measures such as outsourcing cabin crew services on certain routes and outsourcing certain operational activities and functions to improve the efficiency of shared functions.
Cost savings will also be sought through contract re-negotiations with suppliers, structural operational changes and optimisation of the use of premises.
Finnair outlined that its new flight network will be geographically more balanced and connect Europe to Asia, India, the Middle East and North America via Helsinki Airport. The network will also include a “strong” domestic presence.
“No single market will become our replacement for the Asian market,” Manner specified for Helsingin Sanomat.
In Asia, the airline will continue to operate flights to Bangkok, Hong Kong, Shanghai, Singapore, Seoul and Tokyo. Flights to Beijing, in turn, are to be resumed following the easing of coronavirus restrictions in China.
“We’ll maintain connections to the most important cities in Asia, but decrease flying to so-called category-two cities in Asia. It isn’t possible to make these routes profitable because the distance to these destinations is 30–40 per cent longer when you have to go around Russian airspace,” he stated.
Before the pandemic, Finnair offered flights to almost two dozen cities in Asia.
The Middle East will become an increasingly important market for the airline, as suggested by the long-term strategic partnership it announced last week with Qatar Airways. The partnership will establish 28 weekly flights to the main hub of Qatar Airways, Doha, from four destinations in Europe.
Manner pointed out that before the pandemic the airline did not operate as many weekly flights to mainland China.
“The Doha route will be very important for us and, in general, the importance of hubs in the Middle East will be highlighted in the new geopolitical situation,” he said to the daily newspaper.
Finnair also announced a plan to downsize its 80-aircraft fleet to optimise the fleet for the new network. The airline has revealed that it had about 80–85 per cent of its pre-pandemic capacity in use in the fourth quarter of last year.
The extent of the fleet reduction will depend on demand for flights and, for example, the re-opening of China.
Minister for European Affairs and Ownership Steering Tytti Tuppurainen (SDP) on Wednesday said a strong and profitable Finnair is important for Finland.
The Finnish state, she tweeted, is prepared to consider its role in revitalising the company on the condition that also other stakeholders participate in the effort to renew the company. The state holds 55.9 per cent of shares in Finnair.
Aleksi Teivainen – HT