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.
