Finnair’s strategy has long been based on connecting Europe and Asia via the short northern route, using Russian air space. Following Russia’s invasion of Ukraine and the subsequent closure of Russian air space, flight times to Finnair’s Asian destinations are now considerably longer, weakening the profitability of the company.
Finnair has launched a new strategy that aims to return the company to profitability regardless of closed Russian air space. As Finnair is now faced with a different competitive situation and the weight of the different markets in Finnair’s business is changing, significant structural renewal is required to be competitive.
“The changes in our operating environment require a new strategy and significant renewal of Finnair, especially related to costs,” says Finnair CEO Topi Manner. “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.”
Finnair states that its new strategy focuses on “building a competitive airline, with the target of reaching the pre-pandemic comparable EBIT level of at least 5% from mid-2024”.
Finnair aims to create a more geographically 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. The new strategy will require the reduction in its current fleet. The airline also aims to reduce unit costs by approximately 15% from the 2019 level, which will include “enhanced digital offering, competitive products and customer choice”, but mainly personnel reductions.
Finnair says that it is start discussions with employees to adjust employment terms and potentially “outsourcing cabin service” and “certain operational activities”. The airline intends to make further savings through “contract negotiations with suppliers, structural changes in operations, and optimisation of premises”.
Finnair plans to leverage its various partnerships, most notably oneworld alliance and joint businesses, to strengthen distribution, network reach and product offering.
“The target is to build a leaner Finnair that can return to the pre-pandemic levels of profitability,” says Manner. “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.”
Regardless of the positive PR spin, the restructuring is a bold move for Finnair. Rapid growth followed by COVID-19 and the Russian blockade has torn up Finnair’s business model. The only way today to make money transiting east from Helsinki to much of Asia-Pacific is to send passengers to Heathrow and let oneworld fan them out across the globe though JVs. But this option may not be sustainable with the airline company as it is. Will Finnair go the way of SAS? It might. Right now Finnair has to contract at a terrific pace in order to come out of this, and that thankfully is what they are doing. In an uncertain world beware of the airlines quietly doing nothing and applaud those going all out to survive. Finnair needs some fair winds and luck at this point.