HELSINKI — Airlines have battled through a terrible time over the past few years as the COVID pandemic upended travel and lockdowns grounded fleets. But few have endured as much as Finnair, which continues to face a closure of airspace over Russia after its neighbor invaded Ukraine, cutting off a main route for the airline and choking business from its key Asian markets.
While major airlines recover from the pandemic slump, Finland’s flagship carrier is changing course to cope with its Russian airspace challenge, focusing on Asian megacities like Shanghai and exploring expansions in other regions.
Jenni Suomela, vice president for global sales and channel management, told Nikkei Asia recently that while Asia was “very important” and “at the core of Finnair’s strategy still,” the company last September reformulated its strategy when it became apparent that Russia’s war in Ukraine was unlikely to end soon.
“When we talk about the more balanced network, [Asia] is not the only thing that we do,” Suomela said at Finnair’s headquarters, overlooking Helsinki’s airport. “And that’s also a mindset change within Finnair.”
Celebrating 100 years of operations this year, Finnair wants to leave the past few years behind. After years of basing its growth strategy almost entirely on its role as a transit hub between Europe and Asia, Finnair is now looking also at expanding in Europe and the Middle East.
Finnair used to boast the fastest connection between key Asian cities and Europe, but these flights now take 10% to 40% longer because its planes can no longer fly over Russia. Helsinki-Tokyo service that used to take around nine hours, now grinds on for around 13. This means higher labor, navigation and fuel costs.
In the third quarter of 2022, Finnair made its first profit since 2019, before the pandemic struck. It has kept up the trend, posting earnings of 138.6 million euros ($148.4 million) for April-June, its second quarter, from a net loss of 279.5 million euros a year earlier. The airline is aiming for a profit margin of 6% by the end of 2025, up from the current 5%.
“We were able to operate one aircraft to Asia and back within 24 hours prior to the pandemic, and that’s clearly lost now,” Suomela said. “It has an impact on how much we can operate, it takes more aircraft to do the same thing than it took previously.”
The added challenge is rising competition from Chinese airlines, which continue to fly over Russia. “We actually don’t have a level playing field,” Suomela said.
Before the pandemic, Finnair was expanding into second-tier cities across Asia, particularly in China. It is now concentrating its efforts on the megacities because of increased costs and flight times. From flying to 21 Asian destinations in 2019, it now only lands in 11. It has also dropped flight frequencies to its remaining Asian destinations.
“Now we are more focusing on the selected big megacities where we are really aiming at having a daily product at a minimum,” Suomela said.
A priority for Finnair is Shanghai, where it hopes to increase its current two weekly flights. “That will be something that we are really looking to add as soon as the time is right,” Suomela said.
Finnair’s Asia capacity in the second quarter of 2023 remains at roughly half of what it was in the same quarter of 2019. Passenger revenue from Asia as a share of the total dropped to 31% in the first half of this year from 43% four years ago.
With passenger demand still weak, Finnair is exploring partnerships and benefiting from cargo expansion. It has new partnerships for routes to Asia and the Middle East.
Leasing agreements with British Airways, Lufthansa Group’s Eurowings Discover and most recently Qantas — all airlines under the oneworld code-share partnership — allow Finnair to better utilize idle aircraft.
While cargo was a lifesaver during the pandemic and still contributes revenue, passenger traffic is still the main profit driver. Finnair is keeping a close watch on trends in China and Japan, with Suomela saying the company is watching closely whether increases in short-haul travel demand are signals that “big demand toward international travel is kicking off.”
Suomela added, “The yield development has also been favorable versus 2019, so that is supporting the profitability of Asian operations.”
A key target market is the premium traveler, an important segment in Asia where much of the global wealth is now concentrated. During the pandemic, Finnair invested 200 million euros to upgrade its long-haul cabins, particularly its business class. It also created a new premium economy segment and refreshed its economy class.
It offers little luxuries like blueberry juice and Finnish designer blankets. A marketing campaign features Finland’s Moomin cartoon characters that are popular in South Korea and Japan.
Suomela said that while the South Korean market has “recovered really nicely,” with consumers keen to travel and willing to pay more than they did in 2019, Japan’s leisure sector recovery has been slow.
“We just need to be a bit patient,” she said, referring to Japan. “We are seeing really good signals now. That month-on-month growth continues on the leisure side.”
Source : Nikkei Asia
