Finnair Growth Plan Readies Nordic Carrier for Consolidation

  • CEO targets profitability gains as Asian network expands
  • Business-class upgrade comes with a Scandinavian twist

Finnair Oyj Chief Executive Officer Pekka Vauramo’s expansion strategy and push upmarket are helping to position the Nordic carrier for further merger activity within the European aviation industry.

“Consolidation moves on,” Vauramo said in an interview in Helsinki on Monday. “We are a small carrier and there are not too many national carriers in Europe left. It will, in one way or another, affect us at one point.”

Vauramo is meanwhile seeking to shape Finnair into a stronger potential partner. The carrier, an ally of acquisitive British Airways parent IAG SA in the Oneworld group, has five Airbus Group SE A350s after becoming the jet’s first European operator, with two more due this year. It will also keep eight A330s instead of selling them in order to boost frequencies and add new destinations.

Finnair’s strategy has established it as an important niche player, the executive said, with Helsinki acting as a hub for flights to and from the rest of Europe and Japan, South Korea and northwest China. The plan exploits the city’s position on the shortest great-circle routes between the regions.

Keeping more A330s will allowing the carrier to double capacity on Asian routes two years earlier than planned, it told analysts and investors at a capital markets day Wednesday.

Guangzhou, Dublin

Vauramo, based in Hong Kong before joining Finnair as CEO three years ago from Finnish cranemaker Cargotec Oyj, said about 80 percent of new long-haul capacity will be focused on Asia, and the rest on North America. He’s also boosting a network of European feeder flights.

Destinations added recently include Guangzhou, China, and Fukuoka, Japan, with more flights to Chicago. Short-haul additions include Dublin and Edinburgh.

Finnair is targeting capacity growth of up to 10 percent annually through 2018, measured in available seat kilometers, with a net increase of 30 seats on its A350s versus the A340s it’s phasing out, along with a reduction in unit costs.

The carrier has a return on sales target of 6 percent for the three-year period through 2017. It plans to lift lucrative ancillary revenues from items such as lounge access, meals and rental cars by almost half to about 15 euros ($16.72) per passenger by 2018, according to the investor briefing.

Margin Concern

While Finnair is growing, it must also improve its financial performance, Vauramo said. The carrier had an operating margin of only 1 percent in 2015, and is expanding just as European rivals lift capacity to tap lower fuel costs. That’s led to a slump in fares across the region.

Vauramo is also working to improve standards with a business-class overhaul featuring menus from Finnish chefs and what he calls a Nordic experience. “Every airline has had a very tight focus on costs,” he said “But we feel that there is room for good service. Service that really stands out.”

The Finnish government, which owns 55.8 percent of Finnair, said May 12 it was mulling a sale of state assets. The airline wasn’t included, and its shares fell 20 percent through Monday, before gaining 5 percent Tuesday.

The stock traded 0.4 percent lower at 4.76 euros as of 4:06 p.m. Wednesday, valuing the company at 610 million euros.

The state is required to maintain a 50.1 percent stake, though the law could be changed and the European Union allows full ownership of airlines by carriers from within the bloc.

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