Finnair's Scheduled Passenger Traffic division is responsible for regular passenger and cargo traffic. Scheduled Passenger Traffic is the largest of the Group's divisions and it represents 80 per cent of the Group's external turnover. Finnair's scheduled passenger traffic service is based on comprehensive service provision to passengers and cargo customers.
In addition to the scheduled passenger traffic operations which fly under the Finnair brand, the division consists of the Estonian feeder-traffic operator Aero and the Swedish company flynordic, which is applying the budget airline concept in the Scandinavian market. The result of Finnair Aircraft Finance Oy, which manages the Group's aircraft fleet, is reported as a part of the Scheduled Passenger Traffic division's result.
Powerful responses to changes in the operating environment
Air travel has returned to a growth track after years of falling demand. Overcapacity in air transport has resulted, however, in severe price competition and a decline in average prices. Improving profitability has required strict cost discipline.
Enthusiasm for establishing new airlines is evident in the emergence of tens of new companies in European skies alone. The threshold of entry into the business has become lower, as aircraft and professional staff are available on attractive and flexible terms. The challenges set by profitable operations have also led, of course, to a long list of companies which have ceased operating.
The price of fuel represented an unforeseen factor on the cost side during 2004. Finnair's additional fuel bill last year was 55 million euros, despite the implementation of a price hedging policy. Aviation fuel accounts for 12 per cent of Finnair's costs.
External shocks of the past years and other non-airline industry-related uncertainty factors have made the operating environment unsettled. In these conditions, Finnair has created the provisions for its survival in its own focussed operations and solutions. The strategy works and financial health has been cared for.
Consistent, long-term activity in the present conditions requires financial health and an effective strategy, as well as flexibility and an ability to adapt quickly. Finnair has applied these remedies together with its strong brand recognition and reputation for reliability among customers.
In autumn 2003 Finnair moved from defence to offence by reforming its pricing on domestic and European routes. A flight-leg -based pricing system was introduced that has brought more clarity, flexibility and choice for both business and leisure travel. At the same time customers were given the opportunity to select their outbound and inbound flights flexibly in terms of both price and routing. In spring 2004 the new price concept was extended to cover long-haul routes as well.
With the aid of the price reform, Finnair has managed to clearly increase load factors and market share more than other European airlines. Due to the price reform and to overcapacity, the average price has fallen in scheduled passenger traffic by a fifth. In 2004 the fall in the average price halted and n 2005 the average price is expected to remain at the previous year's level.
Passenger numbers reach a new record
The strategic expansion in the Scandinavian and Asia markets increased passenger numbers all areas of scheduled passenger traffic in 2004. Passenger load factors improved right across the network. Growth of demand was the highest among European airlines. The total number of passengers carried by Finnair Group airlines passed the eight million mark for the first time in the company's history.
Asian traffic grew in 2004 by more than 40 per cent compared with the previous year. Even if the effects of the SARS epidemic in 2003 are taken into account, the net growth for the year was still 15-20 per cent. Through the addition of a sixth Boeing MD-11 wide-bodied aircraft, traffic was boosted by increasing the flight frequency on the Osaka and Shanghai routes from three to five return flights per week. The next new destination is Guangzhou in China. The route, which Finnair will fly three times a week, will open in September 2005.
Finnair's scheduled passenger flight destinations in Asia are Beijing, Hong Kong and Shanghai in China, Tokyo and Osaka in Japan as well as Bangkok in Thailand and Singapore. Finnair flies to China twice a day and to Japan and Bangkok in Thailand daily. In North America the only all-year-round destination is New York.
New operating models bring profitability and growth
Finnair's Scheduled Passenger Traffic division handles domestic trunk routes, most European traffic and long-haul traffic. For turbo-prop traffic to neighbouring countries, Finnair founded the Estonian subsidiary Aero in 2002. The Nordic countries' leading budget airline flynordic operates in the Scandinavian market. In addition, cooperation enables the Finnair network to be supplemented by domestic and international partners, especially the oneworld-alliance.
The Swedish subsidiary flynordic, then named Nordic Airlink, was acquired for the Finnair Group in autumn 2003. All of the company's shares were transferred to Finnair at the beginning of 2004. Finnair has developed flynordic into the leading airline in Scandinavia to apply the new operating model.
flynordic flies from Stockholm Arlanda to Copenhagen, Oslo, Gothenburg, Kiruna, Luleå and Umeå. The next stage of operational expansion will see the opening of new routes from Scandinavia to elsewhere in Europe this year. The network expansion will be achieved mainly with present resources, which will improve the utilisation of the fleet's seven Boeing MD-80 aircraft fleet.
flynordic flies to the main airports of its destination cities. This factor, together with the easy accessibility of flight booking and auxiliary services, has attracted business passengers in particular to flynordic's flights. In 2004 the Swedish state procurement office, after a competitive tender, assigned flynordic to most-favoured status in the travel arrangements of state officials on several routes. In its first year of operation, flynordic carried 725,000 passengers, which was significantly above its target level.
The Estonian subsidiary Aero is a feeder-route company with a lighter cost structure. Aero's operating structure has turned a loss-making sector turned to a better direction in terms of profitability. In 2004 Finnair transferred its entire turbo-prop traffic to Aero, which operates the routes with eight ATR 72 aircraft. In Finland its network covers the south of the country. In addition to the Helsinki-Tallinn route, Aero flies from Helsinki to Riga in Latvia and to Vilnius in Lithuania as well as, in the summer, to Kuresaare on the Estonia island of Saaremaa. Aero's domicile is Tallinn, Estonia.
Fleet one of the youngest in Europe
Finnair has renewed half of its 69-strong fleet of aircraft in the past five years. The fleet operated by the Finnair Group's airlines is one of the youngest in Europe.
In September 2004, the acquisition of 29 Airbus A320 series aircraft was completed. During the programme, which began five years earlier, Finnair obtained for European and domestic trunk routes three different sizes of aircraft, allowing capacity to be adjusted according to demand on each flight.
The fleet modernisation continues in September 2005 when the first of twelve E170 aircraft ordered by Finnair is delivered. By the end of the year, four of the new 76-seat aircraft will have arrived, with a further six to come in 2006 and two more in January-February 2007. Finnair has options for eight additional aircraft.
The Brazilian Embraer E170 jet aircraft represents modern aviation technology. It is in terms of passenger comfort equivalent in standard to large passenger aircraft. The Embraers will reduce operating costs in terms of various cost factors, such as operating fees and crew costs. The investment programme will reduce the number of types of aircraft in Finnair's fleet, as the Boeing MD-80 aircraft and the ATR 72 turbo prop aircraft will be withdrawn. Due to new technology, the Embraer's eco-efficiency will also support Finnair's environmentally positive objectives.
Bringing simplicity and comfort to travelling
Finnair set as its target to be the best in a comparison of European airlines' business class service levels in 2005. By listening to and implementing customers' wishes, this target was already achieved in 2004. Tourist class service has also in the top three in the comparison.
The target in 2005 is to continue the refurbishment of the cabins of the long-haul Boeing MD-11 aircraft. The modernisation work includes the introduction of lie-flat seats in business class, which enable passengers to rest lying down. The new seat design also gives passengers more privacy for rest and working.
Finnair is the first airline in Europe to refurbish the business class cabins of its entire intercontinental fleet. Economy class service is also being improved in long-haul traffic.
Growth in the use of e-tickets and e-business as well as the development of electronic services is increasing flexibility in the handling of travel matters and generating cost-savings for airlines at the same time. More than half of Finnair's scheduled passenger traffic passengers now use e-tickets. In domestic traffic the utilisation rate is already 90 per cent.
In the latest development step in electronic services, Finnair became in October 2004 the first airline in the world to introduce a mobile phone service in which check-in is performed in advance with a text message. The new service quickly became very popular. The service only requires customers to answer the text message before the flight. After receiving confirmation, Finnair sends to the mobile phone a further confirmation message containing the necessary departure gate and seat number information.
Check-in by text message is a new service offered to members of the Finnair Plus frequent-flyer programme. The service allows frequent flyers to go direct to the departure gate, bypassing the normal check-in process. All of Finnair's international flights departing from Helsinki and Stockholm fall with the scope of the check-in message service.
One third of the Finnair Plus frequent-flyer programme's award flights are booked via the internet. A customer relationship management system that is functionally more flexible and more cost-efficient will be introduced in summer 2005.
To improve the use of frequent flyer points and the availability of travel offerings directed at Finnair Plus customers, a new service, Plus Departures, was launched in September 2004. Plus Departures are flight offers to selected scheduled traffic destinations which are varied monthly and which can be purchased with Plus points or a combination of points and money.
Asian traffic accounts for half of cargo traffic
During 2004 the air cargo business recovered slowly from a period of lower demand caused by the crises of previous years. Growth of the Asian market continued strong. Instead, the sector is troubled by demand weighed towards capacity heading from Asia to Europe.
Cargo capacity scaled according to the high demand of the Asian market has created overcapacity in the opposite direction, from Europe to Asia. This has led to a sharp fall in load factor and cargo prices in the sector.
Revenues grew significantly in 2004 from their 2003 level. The strong rise in the price of aircraft fuel was compensated for by separate surcharges, which improved the profitability of operations. Asian traffic accounts for one half of cargo route revenue. Cargo and mail loads on Asian routes grew by a third compared with the previous year.
Most of Finnair's cargo and mail is carried in the holds of passenger aircraft. In developing cargo services, cargo aircraft links to Central Europe and the Persian Gulf area as well as to Asia and North America have been added since autumn 2003 through cooperation with partners. In Europe, Finnair Cargo has cargo aircraft links from Helsinki to Vienna and Luxembourg. In long-haul traffic, the cargo aircraft links are between Dubai, Gothenburg and New York as well as from Helsinki to Hong Kong. In the summer of 2004, cargo aircraft traffic was suspended due to low demand.
Traffic on the Guangzhou route, which opens in September 2005, will allow growth and an expansion of activity to a new market area in Asia. A new cargo aircraft link to China is also being planned.
In 2005 air cargo business will continue to be adversely affected by world-wide overcapacity, but a recovery in the global economy will improve demand. Finnair's cargo revenue is expected to grow due to improving demand and new partnership opportunities. |