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- Finnair Plc
Tietotie 11 A (Helsinki Vantaa Airport)
- Main hub
- Helsinki-Vantaa Airport
- Business model
- Full Service Carrier
- Domestic | International
- Airline Group
- Part of Finnair Group
- Joined Alliance
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CSA Czech Airlines
The national carrier of Finland, Finnair is based in Helsinki and is majority-owned by the Finnish government. The airline and its subsidiaries dominate the domestic and international air travel market in Finland. Finnair’s network includes regional services within Finland and Scandinavia as well as flights to Europe, Asia, United States and Canada. Finnair is a member of the oneworld alliance.
Location of Finnair main hub (Helsinki-Vantaa Airport)
Finnair share price
1,288 total articles
104 total articles
Europe's airlines: 1H2014 results season shows improving trend, but cost reduction is the key driver
Europe's airlines appear to be following a course to improved profitability, based on the 1H2014 results of the largest publicly quoted airline groups. Profits remain slender in most cases, but margins are improving in aggregate. Individually, financial performance varied widely, with LCCs both leading (Ryanair) and lagging (Norwegian) the operating profit margin rankings in 1H2014.
The European market offers volume growth, but is characterised by price pressure, with RASK falling for the majority of the larger airline groups and this points to the need for additional caution in capacity growth. The LCCs collectively enjoyed higher growth than the FSCs in 1H2014 and also achieved a more stable RASK performance (although not in all cases).
Profit improvement is largely being achieved through cost savings and CASK reduction. Although fuel prices are high on a longer term historic perspective, they are enjoying a period of relative stability and this has helped the cost picture. Although Europe's airline sector remains only thinly profitable, these 1H results hold out the prospect of better full year results in 2014 versus 2013.
Malaysia Airlines (MAS) plans to increase focus on regional operations as it starts to implement capacity and job cuts as part of a new recovery plan. Cuts to the long-haul network are expected as the group’s new strategy aims to leverage partnership and its membership in oneworld.
The changes could create a void In Malaysia’s long-haul market and persuade AirAsia X to reconsider services to Europe. But it could also lead to an opening for oneworld partners such as British Airways and Finnair to enter the market, possibly as part of a joint venture with MAS.
The new strategy, which also includes a focus on premium services and improving yields, is not actually new. MAS tried to implement a similar strategy as it entered oneworld in early 2013. Then it became distracted over the last year and started pursuing ambitious growth at the expense of yields. A second attempt at the same strategy has a better chance of succeeding as this time it comes with the job cuts that MAS has needed for years. But there will still be challenges.
Finnair improved its load factor in 2Q2014 after a dip in 1Q and made further progress with its cost reduction programme. It has reached agreement with many employee groups over further cost efficiencies, but did not reach full agreement with flight attendants. Management's consequent decision to begin implementing plans to outsource part of its cabin services activities displays a commendable resolve to achieve the necessary savings.
Nevertheless, in the words of CEO Pekka Vauramo, "the second quarter of 2014 was difficult".
Weak market conditions meant that unit revenue declined more rapidly than unit costs and the airline fell into loss in 2Q2014. It now expects a significant operational loss for FY2014, which would mean a second year of falling results.
A new MoU between Air China and the Lufthansa Group to establish a joint venture covering Europe-China routes still awaits many – in fact, nearly all – details. But it is not difficult to see this JV enhancing the position of each airline, assuming it meets EU competition requirements. Competitors will seek to grow existing JVs while establishing new ones. In some instances they will be responding to the Air China-Lufthansa JV, and in other instances they have been ready but held off due to an uncertain regulatory environment. Allowing another JV potentially increases the pressure for more to follow.
But more immediately, and closer to the purposes of Air China and Lufthansa, the JV will at least partly remove lingering tensions between Air China and Lufthansa Group, the two largest carriers between Europe and China. Air China has overshadowed Lufthansa, with more growth to come as Air China sits astride what will be the world's single largest aviation market. But Air China requires precious beyond traffic that Lufthansa can control, as well as more extensive international experience. Between them, the two account for 35% of Europe-China flights, and 84% of Germany-China flights.
For Lufthansa, a China JV adds to those in Japan and North America, while this is the first long-haul JV for Air China. Meanwhile Gulf carriers are not this JV's primary target; their access in China is relatively restricted and routes to Europe via the Gulf are circuitous.
China's "Go West" economic drive continues to deliver results as United Airlines becomes the latest international carrier to open service to China's west via a 787-8 service from San Francisco. Much growth is still to be unlocked from the growing economic prosperity of Chengdu and neighbouring Chongqing, but now Beijing is considering a new economic development plan that will boost the economy, and ultimately air services, of other regions.
The so-called "Silk Road" plan focuses on areas outside of China's eastern coast that has seen strong economic growth. Many of the regions under the "Silk Road" plan were former posts on the historic Silk Road. This includes Xi'an, the eastern terminus of the Silk Road, which is already experiencing international and long-haul growth. Xi'an's only scheduled (albeit seasonal) long-haul route is from Finnair, which launched service from Helsinki in summer 2013. China Eastern plans to launch Xi'an-Moscow service while Hainan Airlines will launch a Xi'an-Paris service.
Chengdu and Chongqing are also expected to fall under the "Silk Road" plan, ensuring growth continues there. Urumqi, already a hub for West Asia, will also likely feature in the plan and continue to grow. New regions including Gansu (home to Lanzhou) and Tibet (Lhasa and Xining) will also likely benefit, boosting their international services.
European airlines face overcapacity & resurgent labour. Recent profit warnings make alarm bells ring
A recent bout of profit warnings from a number of European airlines are ringing alarm bells and providing a reminder of the fragility of profitability in the industry. Airlines of different sizes, shapes and geographies have been prompted to announce a lower outlook for 2014 earnings, including Lufthansa, Finnair, Aer Lingus and Icelandair. Notably, these are all legacy carriers.
Although the details differ in each case, two broad themes emerge from these announcements. The first relates to signs of overcapacity in some markets, leading to revenue weakness. This is also linked with the growing competitive threat posed by alternative business models to Europe's legacy carriers, whether by LCCs on short-haul or Gulf carriers on long-haul.
The second theme is the impact that labour has on profitability, whether damaging it through industrial action, or assisting it through cost savings.