While Finnish mythologists might point out that the god of the sky, Ukko, is also the god of thunder, Finnair's tempestuous passage of late is rooted less in folklore than harsh economic reality.
Finnair has staggered through the six years since its balance sheet was hammered by the global financial crisis of 2008-09, swaying between heavy losses and tantalising – but relatively small – profits.
Breaking out of this faltering stop-start cycle is chief executive Pekka Vauramo's primary objective and, three years after he took the helm, there is evidence that the flag carrier has regained a degree of stability.
"We're growing," says Vauramo. "And we haven't grown for many years."
Tom Campbell
Finnair has spent much of the past decade enmeshed in seemingly interminable restructuring schemes. Although passenger numbers have risen steadily, the company has been engaged in a long-term battle to slash its cost base, with a series of savings programmes that tended to keep Finnair frustratingly within reach of sustainable profitability but not quite managing to stake a firm hold.
But Vauramo is optimistic. Finnair's financial performance had improved for eight quarters in succession by last September. Its bid to emerge as a lighter, more efficient carrier has been reflected in the modernisation of its fleet and particularly the introduction of the Airbus A350.
Finnair was one of the first customers to select the A350, signing for the original version of the aircraft – with expectations of taking it in 2011 – before Airbus redeveloped the twinjet as the XWB family. The airline became the inaugural European operator when its first A350-900 arrived in 2015.
"The main thing is the customers like it. It's quiet and spacious," says Vauramo. "And we're happy on the fuel-consumption side. We're flying more but fuel burn hasn't increased by 7-8% – only 3-4%.
"That difference really comes from the A350s."
CORE FOCUS
Finnair's evolution into a leaner operation has involved focusing on core activities. Ten years ago, it shifted away from ground-handling operations, and the simplification subsequently spread to other businesses.
It axed its unprofitable heavy maintenance operation in 2011 – part of its Finnair Technical Services arm – initially intending to focus on higher-margin engine services and component repair. But having established that it did not have the scale in the sector to compete effectively, it opted just a year later to outsource these operations as well, retaining only its line maintenance work.
Around the same time the carrier chose to participate in a start-up freight airline, intending to capitalise on a cargo market, notably on Asian routes, which it had predicted would recover following the 2008-09 slump.
Finnair Cargo held a 40% share in the freight carrier Nordic Global Airlines, established with a small Boeing MD-11F fleet. But the persistent drag of overcapacity in the freight market and the pressure on cargo pricing undermined Finnair Cargo's business case for using dedicated freighters. With the trend towards increased use of hold capacity on passenger aircraft, notably the A350, the demise of Nordic Global became inevitable. The airline ceased operations in 2015, after just four years.
Vauramo, who joined Finnair from a division of freight-handling engineering firm Cargotec, points out that the airline's cargo arm remains central to its operation. Hold freight accounts for close to a fifth of revenues on intercontinental routes.
Finnair is underscoring this importance with the construction of a new Nordic cargo hub terminal at its Helsinki Vantaa base, set to open early this year, and concentrating on higher-yield specialised products, rather than simply bulk freight. The terminal will feature advanced logistics automation to help keep its handling costs competitive.
The shedding of non-core activities has also led to Finnair's distancing itself from catering operations.
Stripping back Finnair to two streams – its airline division, which accounts for about 90% of revenues, and its travel services arm – has halved the company's headcount over the past eight years, from some 9,600 personnel to just 5,000.
"When it comes to size, I think we're fairly close to what we want to be," says Vauramo, although he adds: "There's always some fine-tuning to be done."
Asia underpins the business strategy of this trimmer Finnair. Vauramo believes the politico-economic shift to Asia is the strongest of the trends influencing air transport, and the carrier has an objective to double Asian traffic by 2020 from its 2010 baseline, leveraging the geographic position of Helsinki to offer fast European-Asian connections.
"We've an advantage with the model we have. If you look at developments in aviation, traffic across the Atlantic has very intense competition," he says. "Asia's a different market, it's sustainable."
Asia has become the focus of the A350 network, with the aircraft having been deployed on routes including Bangkok, Beijing, Hong Kong, Shanghai and Singapore, and Tokyo service due this year. The carrier has also chosen to put the A350 on its connecting service from Helsinki to London Heathrow, as a product improvement for Asian transfer traffic.
Finnair is intending to capitalise on its strategic efforts in Asia and believes it has an opportunity to accelerate its growth in the period to 2018 if market conditions remain favourable.
"Nothing is for granted," says Vauramo, however, pointing out that leisure traffic originating from China slowed last year as a result of security concerns in Europe. He is also aware of the upturn in fuel prices – although they still remain relatively low – and capacity growth is still putting pressure on yields, especially on the Atlantic, at a time when Finnair's modernisation ambitions necessitate higher expenditure.
"It's hard to cut costs faster than the impact of ticket prices," Vauramo states, stressing that growth is vital to ensure the top line rises as costs increase.
While the A350 is replacing older types in the fleet, Finnair's decision to push harder for expansion is evident in its decision to hold off this year's planned withdrawal of two A330s. It will use the type on a new route to San Francisco – the airline's fourth US destination – for the summer season.
Its choice to be an early A350 customer has meant having to cope with minor technical snags and an operational learning curve. But Finnair has been more concerned with erratic delivery schedules, which have forced the airline to wet-lease aircraft because, says Vauramo, it would rather maintain the schedule than cancel flights.
"The main issue is, since we're growing, making sure we have enough pilots available," he says, pointing out that the airline needs to train A330 crews for A350s destined for routes including Singapore and Miami.
"We can't send pilots [to train] early," says Vauramo. "If we've no aircraft, the training expires."
Finnair is having to juggle its crew resources, suspending its Chongqing route for the first five months of this year and using wet-leased A330s from Oneworld alliance partner Iberia to serve Miami – all of which brings unwanted additional costs.
HOME MARKET
Its long-haul facelift has also required adaptation of its crucial feeder network. "The home market in Finland is very small and we need to find connecting traffic," says Vauramo.
The nature of the market, he believes, offers a degree of protection from low-cost carriers, about which he is "not overly concerned".
"So much of our European traffic is tied with the long-haul operation," he says. "Markets in the east are not free skies. It takes a long time to negotiate, and [competitors] won't set up overnight."
Developing a feeder strategy, however, has not been a straightforward affair. As part of a drive for lower costs, Finnair established a joint-venture carrier, Flybe Nordic, to serve thin regional routes. Flybe Nordic, which had emerged from feed agreements with the UK's Flybe and local ATR operator Finnish Commuter, expanded to take over a greater proportion of Finnair's loss-making short-haul business – including its Embraer regional jet fleet.
But a weakening Finnish domestic market put pressure on the venture, especially its scheduled operations, and losses spurred Flybe to abandon the operation in 2014, after three years, selling its 60% share to Finnair for a token sum.
Finnair has maintained the carrier – now branded as Norra, Nordic Regional Airlines – after finding new majority partners in the form of Finnish investors. The airline operates some 24 aircraft for Finnair under contracted flights.
"Our aim is to stay owners in a company that's profitable," says Vauramo. But he acknowledges that Norra's evolution has been problematic – a situation partly caused by Finnair's own expansion, with Norra pilots sapped by crewing demands of the mainline carrier, resulting in a spate of flight cancellations and a struggle to restore reliability.
"We've had issues with domestic flights," says Vauramo. "But we're in much better shape with the domestic flights than we used to be."
Finnair has steered away from increasing dependence on smaller aircraft types, opting instead to revamp its short-haul fleet with higher-capacity aircraft.
The carrier has analysed its feeder operation to explore whether it could justify doubling to four the number of daily connection banks at Helsinki.
But it has concluded that – rather than expand the number of destinations, which would have required more aircraft – a better strategy would be to pursue market share in a tighter concentration of routes, and upgrade the Airbus fleet that serves its European network.
The carrier is to begin a modification programme this year to raise the seat count on more than 20 Airbus A320-family jets, increasing it by around 4%, without detracting from comfort. Finnair is also lifting its feeder capacity through the lease of additional Airbus A321s from the first half of this year.
Vauramo is overseeing installation of wi-fi on the long-haul and Airbus single-aisle fleets as part of a broad connectivity and digitisation strategy for Finnair, intended to increase productivity.
But for all of Finnair's efforts to position itself as a sleek, modern carrier, its corporate structure remains something of a European anachronism. It remains state-owned, with 58% of shares held by the government, and is still effectively a standalone operation, having remained outside the waves of consolidation, with partnerships largely centred on its Oneworld links.
Vauramo is "very happy" with Finnair's Oneworld joint-venture activities on the North Atlantic and Japanese routes, adding that they were "good moves" at the time they were made. "We're satisfied with where we stand. It's an important part of the business," he says.
While Vauramo has previously described state control as a "barrier", he appears to have softened his view. "We don't see that as limiting at all, in the way we do things," he insists. "We're focused on a strategy of growth in Asia, and I don't think ownership changes that strategy.
"We've been able to re-fleet, and add capacity on European routes as well. We haven't seen any restriction."
DRIFTWOOD WARNING
Chairman Klaus Heinemann warned three years ago that Finnair needed to be open to alternative ownership and avoid becoming "market driftwood". Unlike the owners of neighbouring Scandinavian operator SAS Group, however, the Finnish government has not indicated any desire to relinquish control of Finnair.
But the airline's cost-cutting efforts, insists Vauramo, will protect the company against sudden changes in the operating environment and place it in a strong position should consolidation options emerge.
"Consolidation hasn't really taken place [in the Nordic region]. We're expecting something to happen. If consolidation hits this part of the world, we'd need to see very quickly whether we're a part of it or not," he says.
"I think it boils down to hubs. A big problem in consolidation is the number of hubs. I'm not sure which is willing to shut down – but I think Helsinki won't be on that list."
According to Finnish legend, Ukko is also the deity of the harvest. If the sky-god can promise calm conditions and a favourable climate, there is a chance he might also allow Finnair to reap the returns for which it has waited so long.
Source: Cirium Dashboard
