Other than, say, Ukraine International Airlines, almost no non-Russian airline has been hit harder than Finnair with the increasing isolation of Russia. It’s not that Finnair cares much about Russia itself but rather, the airline needs to use its airspace. With that no longer being an option, Finnair has made the wise move to pivot instead of waiting around for the situation to improve.
Take a look at Finnair’s route map from summer 2019. You can see three main thrusts for the airline.
First, there is all the north-south flying that takes Finns down to vacation spots. There is also regular intra-European flying for business purposes buried in that blue blob. The second thrust is much smaller, and it’s over the Atlantic. Finnair used to serve only JFK, but it has now grown its footprint into other markets, including some flying from Stockholm to the US which appears to be gone for now. Third, you can see a massive operation flowing into Asia.
Finnair struck gold geographically when it realized that its Helsinki hub was just about the perfect way to get Europeans to Asia. To show this, the above map isn’t really helpful. Let’s say someone was flying from Madrid to Tokyo. It looks far out of the way above. Fortunately we have the Great Circle Mapper to show why that’s wrong.
The great circle route shows that it is 3 miles longer to go via Helsinki vs flying nonstop. It may not be as perfect as that for every route, but no matter where someone is coming from in Europe, it isn’t that far out of the way to get to most places in East/Southeast Asia via Helsinki.
Finnair realized this long ago, and this network has been the airline’s long-haul bread-and-butter; its key differentiator as compared to most European airlines. It has been a very good niche for many years, but not anymore thanks to the one-two punch of the pandemic and Russia’s invasion of Ukraine.
In 2019, Finnair served 7 airports in China, 8 when you include Hong Kong. Those airports have been effectively off limits for passenger travel since the pandemic began with little change expected. Cargo remains important, of course.
With China out, Finnair could still maintain a large operation into other parts of Asia like Japan and South Korea as well as places in Southeast Asia… but then, Russia invaded Ukraine.
The West immediately rose up with sanctions and other efforts to put pressure on Russia to back off. Russian airspace was generally closed to airlines in western countries. That had limited impact on US airlines — mostly focused on India service — but for European airlines, this was a huge problem for Europe – Asia service.
At Finnair, this put a dagger in the heart of the airline’s plan to make it the quickest way to get to Europe. For example, here’s how Sunday’s flight from Helsinki to Tokyo had to go.
That’s the long way around, and it certainly hurts Finnair’s ability to offer short total travel time options, especially compared to other European hubs which are situated further south, better able to route traffic that way.
This situation isn’t likely to change any time soon. Even in the unlikely event that Russia did pull out of Ukraine, the invasion has already scared Russia’s other neighbors. That includes Finland, which was now begun the process of joining NATO. It seems unlikely that Finnair will regain Russian overflight rights, and certainly not in a timely manner.
With that in mind, Finnair has decided it has to act. It put together a new plan for the airline to try to return to profitability.
To be clear, Finnair still thinks its old plan to Asia was the best for the airline in terms of profitability, but that plan is no longer an option. Finnair can’t just shift its assets and instantly make the same level of money again, so it has to adjust to a new, lower revenue-generating reality.
With that in mind, here is the basics of the plan:
- Diversify the long-haul network to have more Middle East, India, and North America
- Try to squeeze more out of oneworld and joint ventures to fill airplanes
- Lean on “digital offering, competitive products, and customer choice” to help increase unit revenues
- Reduce unit costs by 15 percent, including getting labor to take pay cuts
- Shrink the fleet to deal with this new, smaller opportunity
All in all, this isn’t a bad plan. I like to see an airline not wait around and hope thing will just get back to normal when all signs point to that not happening. Finnair is being realistic here, though it’s unclear if all partners — including labor — will play along. Ultimately, the opportunity for Finnair is just not what it would be in a geopolitical paradise, so revenue will drop and cost cuts will be needed.
With all these cuts, Finnair thinks it can get back to a mere 5 percent margin by mid-2024. That is not an unreasonable goal by any stretch. This is a clear plan, and the goal of a modest profit could be in reach if all goes right. Whether or not that happens, we will find out down the road. One thing we do know is that Finnair is in trouble, but it is trying to take things into its own hands instead of waiting for things to improve. That’s the right way to handle this.
32 comments on “Finnair Has a Plan to Find a New Niche”
I’m really not sure how they will squeeze more out of Oneworld…
Norwegian is back, and along with Ryanair, is eating Finnair’s lunch on European routes
Additionally, routes from Helsinki to somewhere like Mumbai or (even worse) Delhi have a very long diversion to avoid both Ukraine and Russia. There may be some local demand to India from Finland, Stockholm and Estonia… but for anywhere else the great circle routes to link almost anywhere else in Europe to India really doesn’t do Finnair any favours
Finland is high on my list of places to visit, as I get the impression that the country is beautiful and the people friendly.
Question… Before COVID and Russian sanctions hit, did Finnair transport many people between the US East Coast and the Middle East or India?
Similar to the MAD-NRT vs MAD-HEL-NRT example shown above, using the GC Map (and assuming that one can overfly Russia/Ukraine), it looks like a stopover in Finland would add minimal distance (only a few miles) compared to, say, IAD-BLR or JFK-DEL direct. HEL would be close to the halfway point for US Northeast to India, and (again, if Russian/Ukraine airspace ever returns to “normal”), both segments of a routing like that may be potentially within the claimed range of the 321XLR, depending on winds.
Kilroy – Not a lot. Here’s the passengers per day each way by destination on the JFK – Helsinki flight for full year 2019 thanks to Cirium’s ARC/BSP data.
Europe 179.88 Asia 9.99 Middle East 1.79 South America 0.93 Caribbean 0.89 Central America 0.24 Australasia 0.02
Thanks, Cranky.
In a situation such as what is happening in Rusha & the nut job that is Putin, FinnAir is unfortunately a victim of it’s geographic position. Now it is being forced to come up with a workaround that makes it’s longhall options less competitive than it’s peers.
I wonder if they could flood the west coast with “good” Europe options for a decent price.
No ULCC strategy, but more “mid range”.
Sell lie flat biz class for ~$1500 OW (sfo-lhr,cdg,mad,fco).
Sell sky couches in coach
Free checked bags for everyone
One way fares.
Don’t nickel and dime, but come up with unique “value” options to get SFO/LAX/SJC/SEA/LAS to tourist sites in Europe.
TAP of the north?
They seem to often have good business class fares and allow free stopovers for a few days in Lisbon and Porto.
I recently flew SEA – HEL – (somewhere in Europe) and it was a good experience. Glad to have them as a OW option up here in the PNW for flying to Europe. Better experience than BA and their LHR monster.
Fin – The problem with that is… they are a member of the American/BA/Iberia joint venture. So, they can’t very easily price like that without causing problems for partners. They could always try and pull away from the joint venture, but that seems to be the opposite of what they want to do now.
@Brad is LEVEL part of that JV? Can Finnair “learn” from their neighbors and create their own whatever that may be called airline, and get away from JV pricing on selected routes? I would assume that can also help with labor cost etc. The drawback would be unhappy JV partners and fat chance things not working great?
Wany – Yes, LEVEL is a part of it, and really, Aer Lingus is too. So there must be a way to work this out, I suppose.
While this sounds great, I guess they need to negotiate this with their transatlantic JV partners (AA and IAG) before getting to creative.
Not clear why they would have a cost advantage for doing so. Stopping in HEL adds substantial additional distance to routes from the US West Coast to any of the destinations you mentioned. The major transfer hubs (LHR, AMS, CDG, FRA) are all “on the way” between the US West Coast and the major tourism cities, while HEL is substantially “out of the way”.
Any airline in the US or Europe could run this playbook (and some have tried, to varying degrees), but no one has made it stick. You’d need a compelling story why Finnair has specific advantages that e.g. Norwegian, WOW, Icelandair, etc. didn’t.
Agree with you on this. Ignoring winds/ETOPS/etc considerations and just focusing on distance added for a 1-stop trip vs nonstop, as a connecting point from the US, HEL really works best for destinations in Eastern Europe, Eastern Med, and to the south/southeast of there, such as Athens, Cairo, the Middle East, and India.
The challenge is that at present the routings to those destinations from HEL generally require significant additional miles/time to avoid Russian & Ukrainian airspace.
Interestingly enough this was part of their Asia Strategy – cheap business class Europe to/from Australia. Codeshares on QF, CX, JL and JQ to complete the trip via NRT, BKK, HKG, NRT etc. Not sure what the numbers were like I certainly used it a few times and there was always a good number of people doing the same on the flights I took. Always a lot cheaper than a 1 stop routing and HEL made it reasonably competitive time wise.
I’ve been using them for that strategy. This summer I wanted to take the family to Europe and avoid BA/LHR and their baggage and fee mess. Redeemed some miles for the family both ways and for me getting out there. After exploring the prices I found that round trip fares to NYC for business class were around $1600 starting in Helsinki, quite a bit more originating in NYC. I bought 3 RT tickets forming the starting point of my next three vacations. Getting to Helsinki gets me most of the way there, I like the city and the hotels are reasonably priced and it’s a good jumping off point. Ideally there would be a reasonably priced west coast option since I am based there but I work in NYC frequently so just stacked some business trips up to coincide. Long way of saying I completely agree with you and much like the Icelandic airlines encouraged stopovers I think Finnair could do the same with HEL.
Another fun fact from Great Circle Mapper. A flight from SFO-HEL is shorter than a flight from SFO-LIS.
LIS-SFO is a looong flight. Much longer that you expect it to be.
Since the press release is from 9/7, have they announced some specific destinations that they will add in the Americas to balance their network better and replace costly/impossible Asia flying? I know they added SEA and I think DFW earlier this year.
What does their 2023 route map look like (compared to 2019)?
Oliver – No, nothing has been announced that I’ve seen.
Finnair should consider (logically) coming back for good to Canada. Especially in that context.
Maybe with long range narrow body ??
For quick reference, in July Finnair had load factors at DFW of 80% for arrival and 95% for departure.
Source for this is DFS tower.com, a site run by a guy here in Dallas. He takes the published traffic numbers from the city and compares that to the flights that actually come and go and adds up the seats available compared to the pax.
The flip side to this story must be the benefits that Turkish is realizing with practically all Europe-Asia traffic having to fly over its territory.
Finnair has to be commended for how quickly it pivoted in the midst of an environment that is likely to be the norm for the near-term.
I would imagine that, in time, there will be some increase in NATO related traffic.
So, in taking advantage of OneWorld, does anyone expect them to start routes to MIA or (to a lesser extent) CLT? MIA might be a hidden gold mine for them for transit to South America or the quick trip north to MCO for the winter tourist trade. Either way, OneWorld leverage would count for a lot there. CLT would assist for transit traffic anywhere in the southeast US, which is the biggest gap Finnair would have right now in terms of US coverage (ORD and DFW fill in the gap in the west). They added SEA recently to take advantage of Alaska’s hub; would it make sense to abandon SFO and transfer those flights to SEA and LAX?
Yeah, Finnair’s in trouble, but they’re being very realistic about the situation, and this is one case where their labor would probably understand if sacrifices had to be made. They’re Finns. They have an institutional memory of 1939 and are well aware of a certain 1300 km border their country has. They know who to blame.
I suspect SFO is valuable for high tech companies. Nokia isn’t what it once was, but I think it is still a country with a lot of tech companies and startups. Rovio, anyone? And it seems they need more TATL destinations, not fewer.
I suppose you may mean Miami to other European cities, but Finnair already does fly to Miami seasonally.
Great analysis. I think the strategic partnership announced with QR is worth a mention, especially as AY will feed into DOH not only from HEL but also from CPH, ARN and possibly in future OSL.
Pretty brutal. Geopolitics changed HEL from an ideally-located scissor hub into basically a dead-end. Not a lot Finnair can do about it, other than shrink down to an airline focused on O&D traffic, rather than an ME3-style scissor hub operation.
The new “best” routes to Asia (both South Asia and East Asia) seem like a tremendous benefit to Turkish Airlines – IST is located almost exactly on the “corner” that the Europe-Asia routes need to pivot on to avoid Ukraine and Russia. The ME3 benefit for similar reasons, though with somewhat less ideal geography.
FYI, the title of the article when displayed in a News aggregator is “Finnair Has a Plan to Find a New Niche – Cranky Flier”, which is like implying that Brent is the niche market xDDDD
I’m hoping for the best. Russia has never been a reliable partner, so any hope of regaining airspace there has to be a very long-term goal. The American market is underserved and done properly, growth there is possible.
Another problem is that the costs of everything in Finland are high. It might work well domestically, but competing in the world market is tough. They found their niche in the Asian market, but that has suddenly become more costly. Two areas I see as necessary: Management and labor will have to take a haircut in salaries and wages. And they need to abandon with those expensive, unnecessary environmental wacko plans such as going “green” in every category. They are impractical and do nothing more than make one element of society feel good.
The Finns have perseverance and SISU. If any majority government owned airline can pull it off, it would be FINNAIR.
It looks like the NYT took your article and made it their own…. maybe something to look into?
https://www.nytimes.com/2022/10/20/business/economy/finnair-helsinki-airport-russia.html