STRATEGY SHOWS ITS METTLE
A year ago we were hopeful that by now we might have a gentle tail wind to help us along. But it never came to pass; 2004 was not an easy year. Despite the wind in our faces, we kept our financial health in good shape, however. With our own decisions and actions we have created the foundation for Finnair's vitality into the future.
The industry has long suffered from overcapacity. There have been dozens of bankruptcies in Europe and there are more to come. The fact that the total result of European airlines has not been in profit since 1998 speaks for itself. Particularly in northern skies, last year brought historically hard competition, which led to a collapse in prices. Many airlines' load factors are far below profitability levels. During the last eighteen months, eight new companies have entered our domestic market, of which four have already ceased operating. The chances for those that are left to operate profitability in this market are questionable.
Despite a difficult market climate, our profitability clearly improved from a loss-making 2003, but it still remained modest. Prices fell sharply, but we correspondingly cut unit costs through an uncompromising cost-cutting programme and unyielding effort. With good planning and flexible use of resources we achieved significant productivity improvements within the Group. This environment does not give anything for free. The heaviest burden was the steep rise in the oil price, which devoured our hard-earned savings.
Many of our strategic decisions have proved to be right. We decided to move from defence to attack in spring 2003. Our price reform has given us the necessary flexibility in a competitive situation and has increased our market share. Our budget airline flynordic immediately validated its place in the Scandinavian market in its first year of operation by carrying 725,000 passengers. The concept works. The next step is to continue expanding with new routes.
The expansion of Asian traffic that we initiated in 1999 has shown its strength in recent years. In scheduled passenger traffic one in four euros we earn comes from Asian passenger and cargo business. Our network, which is based on traffic between European and Asian destinations, enables Finnish customers to fly direct to major centres in the Far East. Our chosen strategy has also to a large extent secured the jobs of more than one thousand Finnair employees.
Just before the turn of the year, we passed the eight million passenger mark for the first time in Finnair's history. Growing passenger volumes are indicative both of a recovery in demand for air travel and of customers' confidence in Finnair. Finnair's volume growth and load factor are indisputably among the best in Europe.
Leisure Traffic's result for last year was historically good. Demand for leisure travel and the supply of package tours were in balance. This led to an improvement in the average price as the number of last-minute offers has declined significantly.
The year ended amidst the shocking aftermath of the catastrophe in Southeast Asia. Our organisation began to act immediately to the emergency, from the first moments of this natural disaster. In the Finnair Group there was no lack of volunteers, and thousands of Finnair employees were stretched to their limits. Evacuation was greatly supported by the selfless actions of tour guides and other volunteers in the devastated areas.
The evacuation of thousands of Finns from the areas affected showed our organisation's desire to take care of our customers and act responsibly. Finnair is the airline of the Finns, and that was the basis of our actions when on Boxing Day we began on our own initiative to help those in distress.
High operational quality has created for Finnair a reputation as Europe's most punctual and reliable airline. Our service has been ranked in various surveys among the absolute elite of European airlines. Product superiority will also be a vital distinguishing factor for us in the future!
During these turbulent times for the airline industry we have been able to renew our fleet. Our five-year programme to acquire 29 Airbus A320 series aircraft was completed in September. The decision made last summer to acquire 12 Embraer E170 aircraft continues the fleet renewal process. The arrival of the new aircraft will reduce the number of types of aircraft we have.
Despite our major investment programmes, the company is virtually debt-free. Our balance sheet and financial position are strong, in contrast with many other airlines around us. This gives us the staying power required in a rapidly changing industry.
Change will continue in our industry and it will require from us a capacity to renew. Improvement in profitability from the present level is the most important short-term target. An effective strategy and strong corporate image create a solid foundation. I believe that with the recovery in demand and improvements in operational efficiency we have what it takes to achieve a clear improvement in the result during the current year.
I would like to thank our customers and our shareholders for the trust they have shown in our company and also for the valuable contribution of our employees towards the fulfilment of common objectives.
Keijo Suila
President and CEO |