Finnair struggles to convert Europe-Asia niche into sustainable profit as revenue outlook weakens

A recent profit warning by Finnair highlights the challenge in converting an operationally successful niche strategy, based on capturing Europe-Asia connecting flows via its Helsinki hub, into sustainable profit. In spite of the advantages of its geographic location for this strategy, its strong performance on punctuality and reliability and a well regarded brand, Finnair has perhaps lacked scale to compete profitably in the global market. In addition, its short haul feeder operations have felt the sting of LCC competition. Against a weak revenue backdrop, it is rightly prioritising cost savings in 2014.

The long haul operation should benefit from the newly commenced joint venture with JAL and BA on routes to Japan and there is at least some aspirational legitimacy in Finnair's confidence that it can tap into China's vast potential. Moreover, from 2016, Finnair will become the first European operator of the A350, providing it with a considerable unit cost advantage over its existing A340 fleet. Meanwhile, it has crucial negotiations to conclude over labour cost savings and must also make a decision about short haul fleet renewal.