Finnair To Shrink & Cost Cut Its Way To Profitability

Finnair To Shrink & Cost Cut Its Way To Profitability

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Finnair is having an especially tough time at the moment, and the airline has just outlined its new strategy to return to profitability.

Why Finnair is struggling so much

Obviously airlines around the globe had an incredibly tough time during the pandemic, though fortunately in many parts of the world travel demand has recovered nicely.

Pre-pandemic, Finnair’s long haul network consisted mostly of flights to Asia, given Finland’s advantageous location for connecting passengers. At this point that strategy has proven to be a huge disadvantage:

  • China continues to remain closed to most travelers, so it’s anyone’s guess when Finnair can again have a substantial network to China
  • More significantly, with Russian airspace closed to Finnair, the economics of flying to most points in Asia don’t make sense, as major detours are needed

At this point Finnair is having to plan for this being an issue in the long run, since there’s no indication that anything will change. When it comes to the carrier’s long haul network:

Finnair will start flying from Nordic cities to Doha

Finnair announces a new strategy

Finnair has today formally announced a new strategy that’s intended to help return the airline to profitability, regardless of whether or not Russian airspace reopens to Finnair. Here’s how Topi Manner, Finnair CEO, describes this decision:

“The changes in our operating environment require a new strategy and significant renewal of Finnair, especially related to costs. We have, however, an excellent foundation to build on: our excellent, differentiating product, strong safety culture, strong brand, our high-quality execution capabilities, our commitment to sustainability and our track record of adapting and renewing ourselves.”

“The target is to build a leaner Finnair that can return to the pre-pandemic levels of profitability. Reaching this will require profound change throughout the company. Especially during the hard pandemic years, the Finnair team has proven its ability to adapt and renew under the most challenging circumstances, and I am confident that we will reach our target as we now continue this journey. Together we can rebuild a Finnair that employees, customers and all Finns can continue to be proud of.”

With Finnair’s new strategy, the airline hopes to reach the pre-pandemic EBIT level of at least 5% by mid-2024. The company outlines the following steps needed to achieve this:

  • A geographically more balanced network connecting Europe to Asia, India and the Middle East, and North America via Finnair’s home hub Helsinki, including a continued strong domestic presence
  • A reduction of the fleet to optimize for the go forward network
  • Significantly strengthening unit revenues through enhanced digital offering, competitive products and customer choice
  • Further leveraging various partnerships, most notably oneworld alliance and joint businesses, to strengthen distribution, network reach and product offering
  • Reducing unit costs by approximately 15% from the 2019 level to be competitive in all markets
  • Building a sustainable balance sheet that allows the company to invest in the future
  • Being among sustainability leaders in the aviation industry

The press release indicates that “the support of all key stakeholder groups is needed” to make this a success, and notes that “the unit cost reduction target covers all cost categories, including personnel costs.” Finnair management will start discussions with employees, including adjusting employee terms, and evaluating other cost measures, such as route-specific outsourcing of flight attendants.

Could we see cost cutting with Finnair lounges?

My take on Finnair’s new strategy

Essentially Finnair’s plan to return to profitability is to shrink, cut costs, and increase revenue. Of course that sounds great, but that’s easier said than done. A few thoughts:

  • It sounds like Finnair plans to get rid of some planes; I imagine that will be focused on long haul planes, so I’m curious if the airline gets rid of A330s or A350s
  • How much more can Finnair really cut costs? This can’t be good for the passenger experience…
  • Finnair has already historically outsourced cabin crew jobs for many routes, so it doesn’t sound to me like that will be a big change over the previous system
  • It seems to me like Finnair’s best option would be to focus more on North Atlantic flying, given that Finnair is part of the oneworld transatlantic joint venture, which offers revenue sharing and schedule coordination between American, British Airways, Finnair, and Iberia
  • While Helsinki isn’t a huge market, it’s a lovely airport to connect at, and if flying oneworld I’d much rather connect in Helsinki than London
Maybe Finnair will focus on its transatlantic joint venture

Bottom line

Finnair is pursuing a new strategy, as executives at the airline can no longer rely on Russian airspace reopening to European airlines. Finnair is planning to shrink, cut costs, and increase revenue, which of course is easier said than done. I’m curious to see what changes come to Finnair.

What do you make of Finnair’s new strategy?

Conversations (28)
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  1. ron Guest

    ask Pan Am, Eastern, Frontier, USAir, Braniff, TWA how shrinking to profitability went???

  2. Jim Guest

    “Significantly strengthening unit revenues through enhanced digital offering, competitive products and customer choice”

    Why does every airline seem to use this phrase? It usually precedes nickel and diming every product and service subsequently providing a bland product where you longer can tell what airline you are flying.

  3. Alex77W Guest

    With population of 630k in Helsinki and 5.5m in the entire country, there is no customer base to support a sizable airline. It is also not a top tourist destination and the wages are generally high. I simply do not see how Finnair would survive. Covid-19 and the closure of Russian airspace (and also connecting air traffic to/from Russia) caused a closure of many Finnair routes and those will not be coming back. They simply...

    With population of 630k in Helsinki and 5.5m in the entire country, there is no customer base to support a sizable airline. It is also not a top tourist destination and the wages are generally high. I simply do not see how Finnair would survive. Covid-19 and the closure of Russian airspace (and also connecting air traffic to/from Russia) caused a closure of many Finnair routes and those will not be coming back. They simply have airplanes and the main airport in a wrong place.

  4. Kira Guest

    Having travelled many times UK to Singapore on various carriers - Finnair is my favourite. Excellent business class product, great airport in Helsinki. It will be a shame if they let this route go. Sadly they are not promoted enough as an option for Australians flying to Europe.

  5. Rik Guest

    I don't know if Russia actually closed its airspace. Rather, airlines from Europe, the US, Canada, etc. don't want to pay overflight fees to the Russian government.

    1. riku2 Guest

      The EU banned Russian airlines from EU airspace. Russia replied by doing the same to EU airlines flying over Russia.

  6. Paul K Guest

    The good times are over without Russian airspace. Finnair should ramp up U.S. flights. Shedding aircraft, personnel reduces them to an Air Baltic with long haul routes. With only 5 million population, will the socialist Finnish government continue, like the old Alitalia and current SAS, to inject endless cash to keep it aloft? Might a mega merger of Braathens, Air Baltic, Wideroe, Atlantic Airways, Norwegian, Norse Atlantic, SAS, Finnair and Icelandair be the answer for...

    The good times are over without Russian airspace. Finnair should ramp up U.S. flights. Shedding aircraft, personnel reduces them to an Air Baltic with long haul routes. With only 5 million population, will the socialist Finnish government continue, like the old Alitalia and current SAS, to inject endless cash to keep it aloft? Might a mega merger of Braathens, Air Baltic, Wideroe, Atlantic Airways, Norwegian, Norse Atlantic, SAS, Finnair and Icelandair be the answer for northern Europe?

    1. Brian Gasser Guest

      Except the profitability of transatlantic service tanks outside the summer months. If you are traveling from JFK/BOS/IAD/PHL you are going to have to take a pretty big detour through Helsinki to eventually to LHR, CDG, Frankfurt, or Rome. I think customers would expect a very discounted ticket for that inconvenience.

  7. TravelManager Guest

    I have flown them on several Central Europe to USA trips this year and really like the airline. I realize that they are going through a tough time but love the ease of transiting Helsinki and the Platinum Wing of the FinnAir lounge is a great place to spend a couple hours between flights. Their onboard soft product is already below BA, so I hope they don't cut that. If they try to turn into...

    I have flown them on several Central Europe to USA trips this year and really like the airline. I realize that they are going through a tough time but love the ease of transiting Helsinki and the Platinum Wing of the FinnAir lounge is a great place to spend a couple hours between flights. Their onboard soft product is already below BA, so I hope they don't cut that. If they try to turn into a LCC then corporate flyers will just end up switching to larger full service carriers

  8. NJP11 Member

    As a Oneworld flyer based in the Northeast being able to bypass LHR would be huge, but timing for them is unfortunate as I don't see North Americans going to Nordic countries during winter and because of Russia it's less than ideal for connections to Asia. That being said come Spring I think a flight to Boston could do well at least seasonally.

  9. DLPTATL Diamond

    I wonder if DL will pick up some more second-hand A350s and have a third sub-type.

  10. Bob Guest

    Ben writes: "While Helsinki isn’t a huge market, it’s a lovely airport to connect at, and if flying oneworld I’d much rather connect in Helsinki than London"

    You do realize how much further out of the way HEL is a connecting point for most of Europe from the US as compared to LHR, right?

    Some examples:
    * ORD/VIE: going via HEL adds 600 miles compared to LHR
    * DFW/CDG: going via HEL adds...

    Ben writes: "While Helsinki isn’t a huge market, it’s a lovely airport to connect at, and if flying oneworld I’d much rather connect in Helsinki than London"

    You do realize how much further out of the way HEL is a connecting point for most of Europe from the US as compared to LHR, right?

    Some examples:
    * ORD/VIE: going via HEL adds 600 miles compared to LHR
    * DFW/CDG: going via HEL adds almost 1500 miles compared to LHR
    * ORD/MXP: going via HEL adds more than 1100 miles compared to LHR
    * ORD/PRG: going via HEL adds around 600 miles compared to LHR
    * DFW/DUS: going via HEL adds 1100 miles compared to LHR
    * DFW/LIS: going via HEL adds around 1600 miles compared to LHR
    *etc...

    How much extra travel time is worth a slightly better connection experience?

    1. Luke Guest

      Ben probably wasn't referring to connections with final destination in Europe. For going eastbound such as Asia not much difference vs LHR

    2. Luke Guest

      And for Europe I'll still take the extra distance if it makes huge difference in charged taxes/fees on award redemption versus the one world thief BA (and the wasted time with security check, etc probably offsets the extra flying time)

    3. Rik Guest

      Plenty of folks connect from America to Europe, going backwards via Istanbul.

  11. Memento Guest

    This explains why Finnair cancelled my outbound and inbound flights between Chicago and Helsinki. They have not yet cancelled my long haul flight to And from Singapore. So I am guessing they prefer their A350s. Now I have to find a different airline for my long planned trip. Doubt this will help their bottom line.

  12. Daniel from Finland Guest

    I couldn’t help laughing at their ”excellent product” and ”strong brand”. No matter how much I like Finnair, there’s no denying that their soft product is far from excellent – it’s not even mediocre anymore, after all the recent cuts.

    And they’ve done everything possible in the past nine months or so to destroy their brand – bad contract staff being one of the main brand anti-ambassadors. Everchanging schedules, lots of cancellations and not honoring...

    I couldn’t help laughing at their ”excellent product” and ”strong brand”. No matter how much I like Finnair, there’s no denying that their soft product is far from excellent – it’s not even mediocre anymore, after all the recent cuts.

    And they’ve done everything possible in the past nine months or so to destroy their brand – bad contract staff being one of the main brand anti-ambassadors. Everchanging schedules, lots of cancellations and not honoring EC261 reroute obligations don’t exactly contribute to a strong brand in my books.

    1. Andrew Diamond

      I have to agree. Even in good times (Sep 2021), I was surprised that my paid-business fare on HEL-LAX required at 150 euro seat fee to pick seats. They brought the worst of economy up a cabin, which really strikes me as a LCC move.

    2. Andrew Diamond

      I should mention: I didn't pay the fare and decided I wouldn't likely be taking Finnair again for paid J. They didn't make money *and* made a bad impression. I have to question their strategy, given that...

  13. Ralph4878 Guest

    No more gummies in the galley, I guess!
    Finnair's service already feels streamlined - I wonder what else they can cut in terms of their soft product without losing their cultural flair. There's something about the Marimekko amenity kits that, while not as nice as some other airlines' kits, feel very on-brand for AY; the blueberry juice, menus, and iittala glassware (though Italian), also bring a culinary and visual branding to the airline that...

    No more gummies in the galley, I guess!
    Finnair's service already feels streamlined - I wonder what else they can cut in terms of their soft product without losing their cultural flair. There's something about the Marimekko amenity kits that, while not as nice as some other airlines' kits, feel very on-brand for AY; the blueberry juice, menus, and iittala glassware (though Italian), also bring a culinary and visual branding to the airline that would be sad to lose. Here's hoping the new J seats save them a lot on fuel...

    1. uldguy Diamond

      Iittala is not Italian. It is a Finnish brand and company, with products designed and made in Finland.

    2. KingBob Guest

      Correct. I snagged about 8 of the Iittala votives (in 8 different colors) when I was there this past summer and as noted on the boxes, "Made In Finland".

  14. uldguy Diamond

    The State of Finland still owns a majority stake in Finnair. The State, and the company, together need to decide what they want Finnair to be. It's a high cost airline, headquartered in a high cost, out-of-the-way country. Their ability to shrink themselves to profitability is limited. The way I see it, their primary job is to "fly the flag" in the same manner as Qatar, Royal Jordanian, etc. Unless they plan on operating multiple...

    The State of Finland still owns a majority stake in Finnair. The State, and the company, together need to decide what they want Finnair to be. It's a high cost airline, headquartered in a high cost, out-of-the-way country. Their ability to shrink themselves to profitability is limited. The way I see it, their primary job is to "fly the flag" in the same manner as Qatar, Royal Jordanian, etc. Unless they plan on operating multiple daily flights from the Nordic countries to Doha (and where is the market for that?) their fleet utilization rate will tank and that too will increase costs. Their cost cutting has already led to lower service standards which are becoming increasingly noticeable. I wish them luck but I don't see their efforts being successful.

    1. Ralph4878 Guest

      Agreed on your first thoughts.
      That said, QS, I would argue, hardly exists to "fly the flag" - like Emirates and Eithad, their bread and butter is providing profitable long haul-to-medium and long haul connecting services, not serving as an ambassador to a tiny country whose domestic demand is small. Sure, the soft product has touches of Qatari flavor, but I would hardly consider QR's operational modus operandi to "fly the flag" - it's...

      Agreed on your first thoughts.
      That said, QS, I would argue, hardly exists to "fly the flag" - like Emirates and Eithad, their bread and butter is providing profitable long haul-to-medium and long haul connecting services, not serving as an ambassador to a tiny country whose domestic demand is small. Sure, the soft product has touches of Qatari flavor, but I would hardly consider QR's operational modus operandi to "fly the flag" - it's to make money, first and foremost.

    2. uldguy Diamond

      By fly the flag I mean their first responsibility is to represent and connect Finland with the rest of the world. The State of Qatar would be nothing if it weren’t for Qatar Airways. Qatar Airways put the country on the map, and frankly that is the primary role of Finnair too. I’m not comparing the service levels of the two companies, just their reason for existing in the first place. Finnair still is 45%...

      By fly the flag I mean their first responsibility is to represent and connect Finland with the rest of the world. The State of Qatar would be nothing if it weren’t for Qatar Airways. Qatar Airways put the country on the map, and frankly that is the primary role of Finnair too. I’m not comparing the service levels of the two companies, just their reason for existing in the first place. Finnair still is 45% owned by non government shareholders so they are between a rock and a hard place. They need to satisfy all of their shareholders and that is not going to be an easy task.

  15. Maryland Guest

    Considering the geopolitics, it appears to be a realistic practical strategy. Perhaps a bellwether. Best to plan for the worst & hope for the best?

  16. BG Hill Guest

    Not sure if they are upgrading their award system due to cooperation with Quatar, but Finnair's J award availability to/from Asia (Singapore/Tokyo/Bangkok and HK from next year) recently completely disappeared whereas a couple of weeks ago one could always find some availability. If this continues will be very disappointing for those who bought points from them during their promotion.

    1. Felix Guest

      I would not be surprised. I mean they have just eliminated the Dubai Sweetspot, which would have worked with Doha as well.

      It's not only people who where buying points but also those who took advantage of the 3x points promo in June. I have two returns booked earning me 2x 90k points and Finnair Platinum (= OneWorld Emerald).

      Honestly, this was so generous, that a devaluation got likelier.

Featured Comments Most helpful comments ( as chosen by the OMAAT community ).

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Luke Guest

And for Europe I'll still take the extra distance if it makes huge difference in charged taxes/fees on award redemption versus the one world thief BA (and the wasted time with security check, etc probably offsets the extra flying time)

5
uldguy Diamond

Iittala is not Italian. It is a Finnish brand and company, with products designed and made in Finland.

4
uldguy Diamond

The State of Finland still owns a majority stake in Finnair. The State, and the company, together need to decide what they want Finnair to be. It's a high cost airline, headquartered in a high cost, out-of-the-way country. Their ability to shrink themselves to profitability is limited. The way I see it, their primary job is to "fly the flag" in the same manner as Qatar, Royal Jordanian, etc. Unless they plan on operating multiple daily flights from the Nordic countries to Doha (and where is the market for that?) their fleet utilization rate will tank and that too will increase costs. Their cost cutting has already led to lower service standards which are becoming increasingly noticeable. I wish them luck but I don't see their efforts being successful.

3
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