Published on May 10th, 2015 | by Jim Lee0
Finnair announces the next phase of its strategy review
On 7th May, Finnair announced that as part of its annual strategy review, its Board of Directors approved a new vision and updated the company’s mission and strategic targets. The new vision is to be expressed, for example, in easy-to-use digital services, in the enhancement of Business Class services and with operations that are based on quality, reliability, safety and design inspired by Nordic pure nature at the airport, in lounges and on board.
Finnair’s mission is now to offer passengers a unique Nordic experience and the smoothest, fastest connections in the northern hemisphere via Helsinki, with the best network to the world from its home markets. The strategy is based on the growing markets in Asia, with fast connections between Europe and Northeast Asia and an aim to double Asian traffic by 2020 from the 2010 level. It intends to deliver a unique customer experience and achieve world-class operations based on a quality service, and cost-efficient, punctual operations.
To achieve these strategic objectives the company Board of Directors has approved six strategic implementation areas for 2015 – 2017: These are Intercontinental growth with Northeast Asia focus, customer excellence, people and Finnair culture, digitalization, funding and capital structure and world-class operations.
From October 2015, Finnair will enter a new phase as it becomes, the first European operator of the next-generation Airbus A350XWB aircraft. Finnair aims to maximize the competitive advantage and ensure funding for the fleet investments in order to achieve its strategic objectives. Key financial objectives include increasing the target level of adjusted gearing from maximum of 140% to maximum of 175%, an EBIT (earnings before interest & tax) margin 6% over cycle, an EBITDAR (earnings before interest, taxes, depreciation, amortization and rent) margin minimum of 17% over cycle and a ROCE (Return on Capital Employed) minimum of 7%.
The Finnair board had previously approved an investment program for bringing Wi-Fi connectivity to the majority of its wide-body and narrow-body fleet. The total value of the investment is approximately €30 million. Finnair will introduce its first onboard Wi-Fi service in autumn 2015, with the arrival of the first Finnair A350 XWB aircraft. In 2016, the company will start Wi-Fi installations in Finnair’s Airbus A330 long-haul aircraft as well as its European short-haul Airbus fleet. Installations are expected to be completed by 2018.
Finnair now also offers more hand-baggage only fares on flights to Europe and the Middle East. With effect from 5th May, ‘Finnair’s Light’ ticket type, a hand-baggage only fare, is being offered on flights throughout the network in Europe and the Middle East, with the exception of Russia. All other ticket types continue to include checked baggage. ‘Finnair Plus’, Platinum, Gold and Silver members, as well as members of equivalent oneworld loyalty programs in the Emerald or Sapphire tiers, are entitled to one extra piece of checked baggage, in addition to that which is provided by their ticket type. If needed, checked baggage may be purchased in advance or at the airport. As with other airlines, the prepayment baggage charge is considerably lower than the airport baggage charge. Further information about Finnair tickets is available here.
Finnair’ Dublin operation
Finnair returned to the Helsinki-Dublin route this summer having last operated the route in October 2007. Embraer 190, OH-LKG recommenced services on the route (the AY929/30), on 30th March which is being operated as a daily (except Tuesday) service. On Mondays, Wednesdays, Fridays and Sundays, the service operates in the morning, departing Helsinki at 07:25 arriving in Dublin at 08:35. The return service, the AY930 departs Dublin at 09:15 and arrives back in Helsinki at 14:15. On Thursdays and Saturdays the AY929 arrives in Dublin in the evening at 17:25, having departed Helsinki at 16:15. The return service, the AY930, departs Dublin at 18:05 arriving back in Helsinki at 23:05. Total flight time between Dublin and Helsinki is less than three hours and the flight is timed to connect with services to 12 destinations in Asia. Total flight times between Dublin and Beijing, for example, is just over 14 hours, Dublin to Tokyo is just over 15 hours, Dublin to Hong Kong is 13 hours and 25 minutes and Dublin to Bangkok is 15 hours and 25 minutes.
At the ribbon cutting event to mark the inaugural flight, Finnair announced that the new route will operate year-round at a three per week frequency (Tuesday, Thursday & Sundays) over the winter.
Fredrik Charpentier, Finnair’s Sales Director for the UK and Ireland said the airline was “delighted to be linking with Dublin and looked forward to welcoming passengers on board its direct services while also offering the fastest and most convenient connections to Asia.” He added that by extending the new service into the winter, Irish passengers would have the opportunity to visit Finland “during this magical season and witness such sights as the Northern Lights in Finnish Lapland”, while also continuing to have convenient connections via Helsinki to destinations throughout its network.
Fancy an Airbus A350 flight?
Finnair is the European launch customer for the Airbus A350 XWB aircraft with 19 of these aircraft on order. It expects to receive the first four by the end of this year. Another seven will be delivered in 2016 and 2017, with the remaining eight to be delivered between 2018 and 2023. Finnair plans to phase out its A340 aircraft by the end of 2017. China will be the first destination for these aircraft, with Shanghai being served daily from 25th October 2015, with Beijing following on 21st November, also daily. Before long-haul A350 operations begin, Finnair will conduct crew familiarisation flights throughout Europe during October. These regularly scheduled commercial services will be operated as usual within the Finnair network, just with an A350 rather than the usual narrow body aircraft. The first commercial flight will be on 5th October to Rovaniemi in Lapland, followed in the next two weeks by other European cities such as Brussels, Hamburg, London, Stockholm and Vienna. The full list of planned crew familiarisation flights is published here.
2015 first quarter results
Finnair’s revenue in the first quarter of 2015 was on a par with the corresponding period in 2014 at €540.4 million while profitability improved substantially, although the operational result showed a loss of €28.4 million. Unfortunately, the substantial appreciation of the dollar against the euro diluted the benefit gained from the fall in the price of jet fuel and significantly increased other dollar-denominated costs. Finnair, on these figures, seems to moving in the right direction, despite the fact that the result is still not at the level they are striving to reach. The long-haul fleet renewal will significantly improve the cost-competitiveness and customer experience for long-haul passengers. Increased ancillary sales are also visible in the first quarter figures, although its share is still small. Finnair estimates that, in 2015, its capacity measured in available seat kilometres (ASKs) will grow by approximately 3% while revenue will remain at the 2014 level. When calculated with the same accounting principles as earlier, its unit costs, excluding fuel at constant currency will decrease from the 2014 level. The lower price of jet fuel and the full impact from the completed savings program are supporting the financial performance of Finnair 2015. For a summary of Finnair Group’s interim report (1st January – 31st March 2015), see here.
Finnair closes the transaction acquiring Flybe Nordic
On 31st March, Finnair closed the transaction to acquire Flybe UK Ltd’s 60% ownership of Flybe Nordic on an interim basis, for a transaction price of €1. Flybe Nordic will transfer to Finnair’s ownership but Finnair is in discussions about the continued ownership of Flybe Nordic. Finnair and StaffPoint Holding Ltd and G.W. Sohlberg Ltd., signed a Memorandum of Understanding (MoU) on 7th January. Under this arrangement StaffPoint and GWS together own 60% of Flybe Nordic shares. Flybe Nordic owns fully the Finnish subsidiary Flybe Finland, which operates with a total of 26 ATR and Embraer aircraft, a substantial part of Finnair’s domestic and European routes. Flights operated by Flybe Finland will continue normally.
On 30th December 2014, Finnair signed an MoU with Doric Asset Finance GmbH & Co. KG (Doric) for the sale and leaseback of six ATR72 aircraft. The transaction was concluded in late March. The value of the transaction was approximately €80 million and it had a positive impact of approximately €30 million on Finnair’s operating profit in 2015. The leases are for an average of eight years. On 17th December 2014 Finnair signed another MoU with GOAL German Operating Aircraft Leasing GmbH & Co. KG (GOAL), for the sale and leaseback of three Embraer 190 aircraft. The transaction was concluded during March. The value of the transaction was approximately €60 million at current market value and the transaction is not expected to have a significant impact on Finnair’s 2015 operating result. The aircraft lease agreements between Finnair and GOAL expire on average after eight years. The aircraft included in these two arrangements are currently operated by Flybe Finland, to whom Finnair subleases the aircraft.
Other operational matters
From 17th April to 23rd April Finnair once again leased a Boeing 787 aircraft from LOT Polish Airlines, to support its Helsinki to New York JFK operation (the AY005/6), substituting for an Airbus A330-300 during this period.