LONDON – In the last couple of days, Finnair has made announcements regarding Russian airspace closures due to the Ukraine Crisis.
Based on the way that their network is set up, this is going to create some significant turbulence looking ahead, particularly on its long-haul network.
On February 27, the airline braced itself for significant network changes in the wake of the Russian invasion.
As it stands, the carrier is canceling services to the following destinations between February 28 and March 6 (Finnair, 2022):
- Seoul
- Osaka
- Tokyo
- Shanghai
- Guangzhou
- Moscow
- St. Petersburg
It is probably expected that these cancellations will be extended beyond March 6, and will continue as long as the crisis continues to unfold.
Because of this, the airline has withdrawn its financial “guidance related to Q1 2022 and the operational environment in H2 2022” (Finnair, 2022a).
Significant Issues Ahead for Long-Haul Network
A large chunk of Finnair’s revenue comes from the Asian destinations listed above.
The carrier did say that services to Bangkok, Phuket, Singapore, and Delhi are still in operation, but are significantly rerouted to avoid Russian airspace (Finnair, 2022).
Such “access to Russian airspace is a key selling point for Finnair, which boasts the fastest flights between Europe and Asia thanks to a bilateral agreement that allows the airline to fly over Siberia” (Blake, 2022).
Because of this, “Finnair flies some 80 routes through Russian airspace per week” (ibid).
Before the invasion took place, Finnair’s CEO Topi Manner believed that “the Asian market [will] open towards the summer”, although this guidance will probably change looking ahead (Moller, 2022).
Shares in the carrier fell 25% yesterday as “the carrier said any Russian airspace closure would notably hurt its air traffic between Europe and Asia, which plays an important role in its network” (Dow Jones Newswires via Marketwatch, 2022).
“Asian traffic accounted for just under 40% of Finnair’s revenue last year”, meaning this would throw Finnair off the cliff edge the longer that this crisis goes on (Pohjanpalo, 2022).
Whilst it does have significant operations Westbound, Asia is where it’s at for Finnair.
Changes To The Business Model Needed?
An example of why the change of business model would be needed is through the increased flight times that Finnair had to deal with on the Asian routes it still has in operation.
Take AY141 from Helsinki to Bangkok on February 28. The flight time was a whopping 11 hours and 32 minutes flight time (RadarBox, 2022).
Then take AY141 from February 22. The flight time was recorded at nine hours and 12 minutes, which is nearly two hours shorter than the February 28 rotation.
Whilst that may not seem like a lot, it ultimately costs Finnair more money in fuel and operational costs, thus hitting the purse strings in the pursuit of profit.
Manner did concede in an article with Aerotime that this does make such flights unsustainable (Bryan, 2022):
“We are implementing our contingency plan as the situation has a considerable impact on Finnair”.
“Bypassing the Russian airspace lengthens flight times to Asia considerably and, thus, the operation of most our passenger and cargo flights to Asia is not economically sustainable or competitive”.
Via a map generated by AviationSource, you can see clearly the routings that Finnair would have to take to make it to the southern areas of Asia.
More countries could be added to the list over the next few weeks if the situation in Ukraine continues to deteriorate, which would make the Finnair model even less sustainable.
What can Finnair do now?
At this stage, it is too early to call what Finnair is going to do due to the fluidity and volatility of the crisis.
That being said, the airline will probably shift its focus away from Asia and focus on more strength within the Americas as well as continuing to provide lifelines to Asian destinations that are just about unaffected by the airspace closures.
With the airline also suffering drastically from COVID-19, the airline may not be in a strong enough position to adapt that quickly, which would provide further damage down the line.
Finnair may very well have to adopt the same approach that it has done with the COVID-19 pandemic whereby it will have to sit tight and wait for this all to play out.
Whether that is going to be short or long-term, obviously remains to be seen at this stage, but if any decisions are yet to be made, they need to be made now.
References:
- Finnair (2022), Finnair anticipates airspace closure and cancels partly its flights to Asia and flights to Moscow and St Petersburg for one week, https://company.finnair.com/en/media/all-releases/news?id=4196563 [Last Accessed 1/3/22]
- Finnair (2022a), The potential closure of Russian airspace would have significant financial impacts on Finnair; the company withdraws its guidance and is preparing for a prolonged situation, https://company.finnair.com/en/media/all-releases/news?id=4196920 [Last Accessed 1/3/22]
- Blake, M. (2022), Finnair Pauses Asia Routes Following Russia Invasion of Ukraine, The Points Guy, https://thepointsguy.co.uk/news/finnair-asia-flights-grounded-russia-ukraine/ [Last Accessed 1/3/22]
- Moller, G. (2022), Finnair expects the Asian market to open towards the summer, Scandasia, https://scandasia.com/finnair-expects-the-asian-market-to-open-towards-the-summer/ [Last Accessed 1/3/22]
- Dow Jones Newswires via Marketwatch (2022), Finnair Shares Slide 25% as Airline Warns of Hit From Russian Airspace Closure, MarketWatch, https://www.marketwatch.com/story/finnair-shares-slide-25-as-airline-warns-of-hit-from-russian-airspace-closure-271646042932 [Last Accessed 1/3/22]
- Pohjanpalo, K. (2022), Finnair Faces Wipeout of Asia Business on Russia Flight Bans, Bloomberg, https://www.bloomberg.com/news/articles/2022-02-27/finnair-faces-wipeout-of-asia-business-on-russia-flight-bans [Last Accessed 1/3/22]
- RadarBox (2022), Finnair AY141 Helsinki-Bangkok, https://www.radarbox.com/data/flights/AY141/1738567593 [Last Accessed 1/3/22]
- Bryan, V. (2022), Finnair shares continue to fall as Russian airspace closure bites, AeroTime, https://www.aerotime.aero/articles/30344-finnair-hit-by-russian-airspace-closure [Last Accessed 1/3/22]
