Finnair presents personnel with hard choice

Temporary pay cut, or hundreds of lost jobs

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The Finnish national carrier Finnair, which has fallen into a deep profitability crisis along with the whole aviation sector, has presented its entire personnel with an exceptional and difficult choice.
      The seven unions representing nearly 10,000 employees have been asked to say if they will agree to a fixed period of lower pay to achieve the target of a five per cent cut in personnel costs, or alternatively will the airline have to achieve the savings by cutting up to 500 jobs.
      Negotiations are to be continued on Monday, and Finnair wants its answers to come within a fortnight.
     
Three different alternatives have been put forward for achieving the goal. In option A, the entire personnel will agree to a 5% pay cut from the beginning of October this year to the end of 2009. The move would bring savings of about EUR 25 million, and the employees would see their net income reduced by 3-4 per cent.
      In option B, pay hikes that have already been agreed upon would be frozen for the same period. Savings would add up to about EUR 20 million.
      Both options would contain a back door clause; if the company’s economic development exceeds certain parameters, the pay that has been withheld would be restored.
     
Finnair has some previous experience of this.
      In 1991, the company implemented option B, in which pay was frozen for 13 months in spite of increases that had been agreed upon. Things got better, and the entire amount of withheld pay was returned to the employees in 1995.
     
Then there is option C, which Finnair says it will have to implement if personnel reject options A and B.
      In the third scenario, Finnair would cut 400 jobs. The total effect of this would be 500 people leaving the company, as Finnair has already decided on a reduction of 100 jobs as part of organisational changes that have been agreed upon.
      Personnel manager Anssi Komulainen, who put the options forward to the various personnel groups, said that the proposals were not rejected out of hand, at least not yet. “Crisis consciousness among people at Finnair has clearly grown.”
     
Consciousness of the problems is very high indeed in an industry that has had little good news lately. The International Air Travel Association (IATA) raised its estimate of combined losses of its member airlines to 5.2 billion US dollars (EUR 3.6 billion) this year, and USD 4.1 billion next year.
      Finnair’s most recent quarterly result was still in the black, but profits were 81 per cent lower than at the same time last year. Profitability needs to be boosted in a company that has to renew its fleet.
     
While the price of oil has fallen by 26 per cent in recent times, the nearly 10% increase in the value of the dollar against the euro has offset some of the benefit; cheaper oil has boosted Finnair’s bottom line by EUR 65 million, but a stronger dollar has weakened the result by EUR 20 million.
      “Asian services are a life saver for us”, says Finnair CEO Jukka Hienonen.
      Then again, there are also problems with Asia. The Olympics were a disappointment. Forty per cent of seats on flights to Beijing were left unsold. The Asian market, an area of rapid expansion for the carrier, was showing signs of faltering already in the second quarter of this year (see linked article).
      The cuts in personnel costs aim at savings of EUR 25 million, duplicating savings on the same level that have been achieved elsewhere.


Previously in HS International Edition:
  Finnair makes contingency plans to reduce its number of scheduled flights (11.6.2008)
  Finnair CEO denounces price dumping by competitors (8.8.2008)
  Finnair to commence personnel negotiations over axeing of up to 500 jobs (13.6.2008)

Links:
  Finnair Group

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