Big In Japan

In today's challenging operating environment, airlines are having to constantly review their business plans and even their corporate strategies to ensure that they are in good shape to ride out the storm.

The record €260 million annual operating loss recently announced by Finnair's oneworld alliance partner, British Airways, and widespread job losses elsewhere in the industry is testimony to the difficulty of the market conditions.

Few airlines have escaped untouched by events, and Finnish national flag carrier, Finnair, is no exception, although it remains unwavering in its goal to become a 'niche hub' for passengers travelling between Europe and Asia.

Indeed, Finnair has been Europe's fastest growing airline to Asia since 2001 and continues to expand its route network to the region, recently increasing frequency to Tokyo through the introduction of daily
flights (it previously operated four weekly services).

The additions mean that Finnair currently operates 60 weekly flights to Asia from its Helsinki-Vantaa hub as services to the region account for around 60% of its revenue.

Finnair is big in Japan, China and South Korea and a growing force in India and Thailand, according to CEO, Jukka Hienonen, who last year saw his airline handle 1.3 million passengers on its Asian routes.

Its list of 10 Asian destinations served non-stop from Helsinki includes Tokyo, Nagoya, and Osaka (Japan); Beijing, Hong Kong and Shanghai in China; South Korean capital Seoul and Bangkok in Thailand, although Finnair hasn't launched a new route to the region for a year now due to the economic downturn.

It is a market leading position, but Hienonen refuses to be drawn into making any big or bold statements about what the future may hold for his airline as he is more than aware that they may come back to haunt him if the global economy continues to nosedive.

"This is not the environment in which to be setting overly ambitious targets or predictions," says Hienonen. "It is time to be cautious and adopt sensible strategies.

"We are currently looking at no more than four months into the future because to look any further ahead is pointless really. What our forecast tells us is that the pace of decline is slowing down, but whether that is sign of a better future to come, I honestly don't know."

The caution that Hienonen mentions is the reason why Finnair has put the launch of any new Asian routes "on ice" until the global economy picks up again.

"When the time is right, we will expand our network by putting more Asian destinations on the map, but I
am unable to say when that will be as these are unprecedented times. What I can tell you is that it is our long-term ambition to operate daily flights to all our Asian destinations."

Hienonen readily cites Helsinki's location in the northeast corner of Europe as a key advantage for Finnair as it ensures the shortest routes to Asia.

For example, it takes 45 minutes longer to fly from Manchester to Tokyo via London than it does between the Japanese capital and Manchester travelling via Helsinki.

And the 11.55 hours flight time of the Seoul-Helsinki route is 45 minutes faster than Seoul-Frankfurt.
"Our geographical position means that almost every route between Europe and Asia flies over Finland and this makes Helsinki a very good place for an Asia-Europe hub," enthuses Hienonen.

"As well as the shortest routes we also offer the shortest connection times of around 30 to 40 minutes. We are able to do this because, compared with Heathrow or Frankfurt, Helsinki-Vantaa is a small, passenger friendly airport with few long walks."

Traffic on the Europe-Asia routes is a broad mix of business and leisure travellers and, according to Hienonen, demand has shown little sign of slowing down despite the Asia-Pacific region being one of the hardest hit by the global economic slowdown.

In fact, with the exception of Finnair's service to Mumbai, which due to poor load factors was removed from the summer schedules but will be re-introduced in the winter timetable, traffic on all of its Asia services is holding up well.

"We have had to make some capacity cuts to our European network, but demand to Asia has remained constant and, in some cases, increased, which is why we have introduced daily flights to Tokyo."

Finnair's position of strength in Asia is also helped by the fact that no Asia-Pacific based carrier currently flies to Helsinki - and it appears keen to keep it that way as it has formed codeshare agreements with Air China, Cathay Pacific and Japan Airlines.

And such has been their success that Hienonen admits that he would like to codeshare with Korean Air as well, but knows that Finnair's oneworld alliance partners and the Korean carrier's SkyTeam allies would veto the arrangement.

The situation effectively rules out any future agreements between Finnair and Korean Air, as Hienonen certainly has no wish to upset the applecart by falling out with its oneworld alliance partners.

"We are a proud member of oneworld and have benefited greatly from codeshare agreements and other synergies with our partner airlines," assures Hienonen. "I cannot imagine how a small airline such as ourselves could live outside an alliance these days and, indeed, we would like to do more with our oneworld partners."

The airline now codeshares with Cathay Pacific on flights between Hong Kong and Brisbane, Sydney, Melbourne and Perth in Australia in addition to Helsinki-Hong Kong, and Hienonen openly admits that he would like to explore ways of "deepening its relationship".

"Finnair has its own niche within oneworld as we are the only alliance member to have developed such a strong Asian network. It is not a core strategic growth area for British Airways or any other oneworld carrier, so it ensures that we complement and not compete against each others' networks.

"British Airways focuses very much on transatlantic traffic, which due to our location in the wrong corner of Europe is not big business for us, so we are quite happy to guide our customers towards its or American Airlines' services to North America and they feed traffic into our
Asia network.

"It is a similar story with Iberia, which concentrates its efforts on South America and has no direct flights at all to Asia, so we pick up quite a lot of traffic for Asia from Barcelona and Madrid."

Although cargo only accounts for 10% of Finnair's revenue, its Asian routes are among the most popular in its network for bellyhold freight shipments.

With all this talk of Asia, it is possibly all too easy to forget that Finnair does operate slightly closer to home as well, courtesy of hundreds of daily flights out of Helsinki to over 60 European cities.

However, Hienonen admits that Finnair "doesn't do short-haul particularly well", and believes that a possible future strategy for the airline could be to seek partnerships with smaller carriers to operate these services for them.

"We are not particularly good at flying short distances, partly because we don't have any more turboprops in our fleet, so it makes sense to develop partnerships with smaller airlines to provide these feeder services for us," says Hienonen.

"I believe they would probably be better equipped than us to do the job because they are 100% focused on short-haul services and have the aircraft to successfully operate these 'thin' routes."

Hienonen reveals that Finnair would only be looking for partners outside of Finland to operate these services and would possibly consider other Scandinavian carriers.

Finnair, which handled a total of 8.7 million passengers across its network in 2008, has a modern fleet of 70 aircraft (A330s, A340s, MD11s and Embraer 170 and 190s) - 50% of which are leased.

Hienonen insists that the strategy works for Finnair, as to own all its aircraft would "stretch the balance sheet and relying entirely on leased aircraft offers very little flexibility to the airline".

The airline is also committed to investing €400 million on upgrading its fleet this year through the addition of five A330s and two Embraer 190s this year.

The A330s are 20% more fuel efficient than the MD11s they will replace on long-haul routes to Asia. The leases on its B757s expires in 2010.

The Finnair CEO is certainly upbeat about the ongoing upgrade of its Helsinki-Vantaa base, where airport operator Finavia is investing millions of euros on a new international terminal.

Due to open at the end of the year, the complex will offer an assortment of new passenger friendly facilities for transfer passengers that include a luxury spa with runway views from both the sauna and Jacuzzi, which Hienonen believes will dramatically increase Helsinki's appeal to passengers flying between Europe
and Asia.

Helsinki-Vantaa handled 13.4 million passengers last year (+2.2%) with Finnair, perhaps unsurprisingly, accounting for around 60% of the total. The new terminal will have the capacity to handle 16 million passengers.

The Finnish national flag carrier will, of course, maintain its top dog status this year, although Hienonen has already braced the Finnish public for some bad news by announcing that he expects the airline to make a financial loss.

Once again, Hienonen is unwilling to give specific figures, but with business and cargo traffic both already down around 30% in 2009, there is no doubt that Finnair has enjoyed better starts to the year during its 85 year history.
The airline officially reported a first quarter loss of €25 million on a turnover of €515 million (-10%), leading Hienonen to declare that the "potential for profitability has run into sand".

Cost-cutting measures introduced by the airline in a bid to compensate for the decline in revenues includes making 600 staff redundant and temporarily laying off more than 6,000 others to save nearly €50 million.

While Hienonen acknowledges that there is no reason for extreme optimism right now, he is in no way downbeat, as he believes that Finnair's current cautious approach to route development and reducing its overheads is the right strategy for today's market conditions.

Indeed, he is confident that Finnair has a bright future if it maintains its route development focus on Asia when the global economy picks up again.

"We are down to earth at Finnair and know that we don't have the population base to become a British Airways or Lufthansa, but we truly believe that there is a niche for a Europe-Asia carrier which might be somewhat bigger in size than we are today," he says.

Will it always be the little brother of SAS? Ever the diplomat, Hienonen chooses his words carefully when replying.

"It depends what measurement you use," he muses. "If you take the number of aircraft or employees, SAS is roughly three times bigger than Finnair. But if you talk market value on the stock exchange, I believe ours is higher than SAS. We don't want to become big, but we would like to be profitable and I believe that the best
way for us to stay and succeed in this business is with the corporate strategy that we have now."

Source: Routes News

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