Finnair plans extensive outsourcing to make up for financial losses

Next year’s plane purchase in jeopardy if profitability does not improve

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“All of the punishments that were on offer have come, but even that does not seem to have been enough. Another crisis just came from the world”, lamented Jukka Heinonen, CEO of the Finnish airline Finnair, while assessing his company’s current situation.
      The punishments that he was referring to were the two blows that had a serious effect on the viability of commercial aviation last year - the sharp rise in fuel prices and declining demand for services - especially by high-paying business travellers.
     
The latest crisis is the spread of swine flu, which is making passengers more reluctant to travel.
      The bird flu threat six years ago had its greatest impact on travel to Asia, a region which is considerably more important for Finnair than Mexico, the origin of the current swine flu epidemic. Hence Heinonen says that it is difficult to assess the impact of the latest pandemic threat.
      However, the impact will certainly not be positive.
     
Heinonen described the numbers of the early part of the year as “bad”, “frightening”, and “extremely ugly”.
      Turnover declined by ten per cent to EUR 516 million, and the company’s most closely-watched indicator, the corrected business profit, collapsed from EUR 7.8 million last year to a negative EUR 47.5 million.
      Finnair’s biggest problem is the decline in the number of passengers paying high prices for their tickets.
     
The number of passengers has not changed much, but travel in business class declined by 30 per cent from a year earlier.
      In air freight, both volume and revenue declined.
      Such developments would have called for massive cuts in costs, but Finnair was not able to achieve them.
     
The gap between earnings and costs continues to grow, in spite of an ongoing cost-cutting programme aimed at saving EUR 50 million. The effort will include temporary layoffs of up to 6,000 employees.
      Heinonen says that savings need to be achieved in basic structures. The key word is outsourcing.
      It is outsourcing that is the focus of the long-term dispute between pilots and the company. The Finnish Pilots’ Association is afraid that outsourcing will lead to a loss of jobs, and wants to retain its right to veto any outsourcing of flight operations.
      Attitudes are unyielding on both sides, and no solution is in sight yet.
     
Weakened profitability could also threaten Finnair’s plans to buy new aircraft.
      Funding exists for next year’s planned purchases, which are worth EUR 300 million. They include three Airbus A330 wide-body planes and two Embraer E190 feeder aircraft. However, it appears that under present conditions, the new planes might not be needed.
      “Next year we have to see whether or not to apply the brakes in this respect”, Heinonen says.


Previously in HS International Edition:
  Finnair to lay off its entire cabin crew staff for two weeks as cost-cutting measure (3.12.2008)
  Slump in aviation not slowing Finnair investments (30.3.2009)
  Finnair cuts over 120 jobs (16.1.2009)

Links:
  Finnair Press release 28 Apr 2009: Finnair´s full year result will be a loss

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