Finnair's top priority to ensure its survival remains the disposal of its loss-making short-haul operation as the troubled flag carrier approaches the end of a first quarter that is expected to be characterised by a continuation of the heavy losses that have dogged it for four straight years.
Mika Vehviläinen - who joined the carrier as chief executive in 2010 after a lengthy career with struggling national technology champion Nokia - says its long-haul operation, focussed on routes between Helsinki and Asia, is cost-competitive.
But, he adds, the short-haul operation feeding those Asian routes is 20-40% too expensive and finding a solution is critical. The airline announced earlier this year that it was seeking an external partner to which it could outsource those flights, but a deal remains elusive.
The Asian routes - which are expanding with the May 2012 addition of Helsinki-Chongqing, which Finnair claims will be the first non-stop from Europe to the Chinese city - are being sold as the ideal way to reach Asia from secondary cities. As Vehviläinen sees it, a passenger originating in, say, Hamburg is better off flying east to Helsinki for a connection to Asia, rather beginning the journey with a southwards flight to Frankfurt for a longer-distance Lufthansa service. About 40 million passengers fly yearly from Europe to Asia, and half go from hubs like London, Frankfurt or Paris; Finnair, said Vehviläinen, is selling its services to the other half.
Today, with 75 services per week to Asia, Finnair's frequency ranks third in Europe, behind Lufthansa and Air France-KLM, and it is a Finnair objective to fly twice as often by 2020. Helsinki, he stresses, is Finnair's principal strong card: "One competitive advantage that is impossible to copy is our geographic location."
However, while the Helsinki hub concept has echoes of Emirates' drive to make its Dubai home the natural stopping-off point for Europe-Asia traffic, Finnair has been pursuing this strategy for at least a decade and today operates just 15 Airbus A330s and A340s, and has 11 A350s on order. Emirates, by contrast, has built an all-long-haul fleet of 172 aircraft in active service with another 243 on order and 137 options, according to Flightglobal ACAS data.
Vehviläinen agrees that growth has been limited, but notes that passengers heading for more southerly Asian destinations may be served by an Emirates flight through Dubai. Finnair's natural market is for traffic to Japan, China and, at a southerly extreme, Singapore. Passengers for India, for example, fall naturally in the Emirates domain: "I'm not that excited about our prospects in India down the road."
In any case, he ads, Finland and Dubai have very different national agendas, and the two carriers take different views on "the balance between profits and growth".
Profits, of course, are Finnair's big problem. In 2011 the carrier lost €112 million ($149 million) before taxes on revenue of €2.26 billion. Revenue was up 12% on 2010, but that's just 3.5% greater than 2007's sales, so in real terms the airline has shrunk over the past five years.
Indeed, over the past decade Finnair has been profitable just three times, in 2002, 2004 and 2007. Cumulatively, the last ten years have seen the carrier, which is 70% owned by the Finnish state, lose €233 million.
Finnair clearly has a mountain to climb if it is to stay in business. Apart from the dismay that government and taxpayers must feel when reading the raw financials, the airline's culture has not earned it unquestioning love in its home market. At this week's annual general meeting, chairman Harri Sailas referred to a media furore over special remunerations granted to key personnel in 2009, but urged shareholders not to be distracted from the "battle for Finnair's existence and future". Said Sailas: "The recent news coverage can easily bury the positive change going on in Finnair and its culture."
Vehviläinen, too, reminded shareholders that there are problems beyond costs and revenue: "We must restore Finnair's profitability and vitality."
Source: Air Transport Intelligence news
