Finnair makes contingency plans to reduce its number of scheduled flights

Setbacks in China traffic have reduced load factors

Finnair CEO Jukka Hienonen

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The sharp rise in costs due to soaring fuel prices combined with a decline in demand has been causing severe stress to the balance sheets of the world’s airlines.
      Even the Finnish national carrier Finnair, which just six months ago was still basking in the success of its Asian expansion strategy, is now threatening to slide into the camp of the suffering majority.
     
On Tuesday, the company made public its scheduled traffic and load factor figures for the month of May, which, according to the president and CEO Jukka Hienonen, were “nothing short of gruesome”.
      On Tuesday the Finnair leadership also carried out negotiations with the personnel representatives on the subject, which look inevitably like leading to cutbacks in the supply of flights.
      “The market as is it cannot sustain our growth factor. We cannot continue with our present growth strategy”, Hienonen warns.
     
So far there is talk of only a minute decrease of a couple of percentage-points' worth to the capacity. This can be taken care of by removing individual flights from routes that are covered several times a day.
      In the future, stronger measures may come into question. “If we are forced to implement cutbacks equalling the average European overcapacity of 7-10 per cent, personnel reductions will also follow”, Hienonen adds.
     
According to the statement issued by the company: "Finnair scheduled traffic increased by 7.0% compared to May last year. Due to clearly weaker than expected growth in demand the number of passengers carried on scheduled flights decreased by 3.1% and was 554,939. Passenger load factor in scheduled passenger traffic was 62.4%, 8.0 percentage-points lower than last year."
      Load factor is the key issue here. Basically it means the number of seats being occupied on the planes, and it obviously does little good to anyone to increase the number of flights but have them taking off half-full.
     
Finnair’s most important Asian destination China suffered unexpected setbacks.
      Snowstorms spoiled the New Year traffic. After that came the unrest in Tibet and the earthquake, which affected business travel severely.
      This wasn't all: on the eve of the Olympic Games China has tightened its visa policy. In the name of solidarity, passports were removed from all the country's civil servants after the earthquake.
     
All this reflected adversely on the demand statistics of Finnair, the third-largest European airline to fly to China. Load factors in the Asian traffic were down by more than 10%-points.
      Given that China is the area on which the carrier has pinned much of its expansion plans and where it has recently introduced a good deal of new capacity (which initially boosted the company's revenues handsomely), these recent difficulties will obviously make the management sit up and take notice.
      All the same, Finnair is better off than many of its rivals. A large share issue was carried out successfully just before the branch ran into difficulties. Also, for an airline, Finnair’s balance sheet remains exceptionally firm.
     
In Europe there are still a few strong players in the airline business, but in the present climate they have no desire to buy out any of their weaker rivals.
      It is widely anticipated that companies will start to fall in the autumn.
      Of the 11 largest U.S. airlines, seven are expected to have empty coffers by the end of the year, if the price of fuel remains at its present level.
     
But from everything bad, something good has also emerged. Finnair’s punctuality, which took a hit recently, has improved in the course of the spring.
      And apparently delayed luggage numbers, which caused furrowed brows earlier this year, are no longer as alarming as they were.
      An Association of European Airlines survey in February had shown the airline sliding down the rankings, to the point where it was only 18th in Europe for late baggage arrivals.


Previously in HS International Edition:
  Finnair slides down European lists on punctuality (5.2.2008)
  Finnair pilots launch industrial action - overtime ban takes effect from late Tuesday night (4.6.2008)
  Finnair reports good profit for 2007- sees potential for more investments (6.2.2008)

Links:
  Finnair press release: Scheduled traffic grows, but at clearly lower load factors (10.6.2008)

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