IN COMPETITION, QUALITY AND STAYING-POWER ARE DECISIVE
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 freight customers. In addition to Finnair's own route network, the services offered by partners inside and outside the oneworld alliance form a worldwide network that fulfils all of its customers' air transport needs.
The scheduled passenger traffic business requires networking on many levels. Prerequisites for providing high-quality service are reliable processes and highly developed systems. Finnair remains among the elite of European airlines in operational and service quality, even though the operating environment is becoming more challenging. At the same time, however, financial health must be kept in good shape.
A number of external indicators show that year after year Finnair has maintained its position as Europe's most reliable airline. In terms of punctuality on arrival, an important factor for passengers, Finnair was ranked first in a 2003 comparison survey of European airlines. Finnair is also the company least likely to cancel its flights.
Route network lives on demand
The biggest changes in the route network during 2003 took place in Asian traffic. During the SARS epidemic, Finnair temporarily adjusted its Asian capacity, but services began to be restored in late summer as demand recovered.
A route to Osaka was opened in June and in September Finnair became the first airline to fly between Northern Europe and Shanghai. Finnair currently operates more than 20 flights per week to Asian destinations. A sixth MD-11 wide-bodied aircraft, which will come into service in spring 2004, will enable flight frequency to present destinations to be increased.
Demand in Asian traffic grew in 2003 by around 20 per cent, despite the severe cuts in capacity due to SARS. Growth in the final months of 2003 was nearly 40 per cent compared with the previous year. Two thirds of passengers on Finnair's Far Eastern flights are Asians, one fifth Scandinavians and the remainder from other parts of Europe. The Finnish market accounts for only ten per cent of Asian traffic demand.
The Scheduled Passenger Traffic division provides direct links from Helsinki to 30 international destinations. The European route network acts as a good extension to Asian links. Partners, meanwhile, have increased the number of passenger and cargo destinations in Asia and Australia.
Finnair's passenger volume was less than seven million in 2003, compared with seven and a half million at the turn of the millennium. Traffic performance measured in passenger kilometres has grown, however, which is explained by an increase in the average length of flights.
Price reform a response to market change
A slower than expected pick-up in the world economy has had the impact of increasing customers' price consciousness. This trend has accelerated the entry into the market of budget airlines. The traditional airlines' reaction to the new challengers has been reflected in their pricing structures and in intensified competition.
In response to customers' needs, Finnair implemented a major reform of domestic and European tickets in autumn 2003. The old rules-based pricing was discontinued in favour of flight-specific pricing according to supply and demand. Customers can buy outbound and inbound flights in different travel classes. Now flexible routings are also possible. The new pricing has had a positive impact on Finnair's price image and on demand.
The significance of business class as a basis for pricing declined as a result of the new pricing system. Most of Finnair's Eastern Europe flights were switched to a one-class service. The routes in question are those on which business-class demand was low.
At the same time Finnair discontinued the payment of travel agency sales commission, enabling flight ticket pricing to become more transparent. Finnair introduced service fees, which had already been used in travel agencies for a number of years. In the other main market areas, travel agency sales commission has been reduced or abandoned completely.
The new flight pricing and service fee model means that customers can exercise their influence more easily on the price of their journey and on the service they receive. For the airlines, the change will bring significant cost savings. Moreover, travel agencies' income is now based on work done, not on percentage sales commission on falling ticket prices.
Quality maintained at a high level
Declining revenues in air transport has also led to a critical examination of production costs. Safeguarding competitiveness has required the introduction of measures to cut unit costs.
In Scheduled Passenger Traffic's personnel structure the priority is now on volume-linked tasks. The utilization of operational staff has been enhanced by, among other things, a new crew management system.
Service concepts have been streamlined to cut costs. The cost-cutting measures have been implemented to have the minimum possible impact on passenger comfort. In connection with the changes, customer feedback has been closely monitored and adjustments made accordingly to meal and other services. As measured by various indicators of operational and service quality, Finnair is still one of the best European airlines.
The European route network fleet has been renewed according to plan since 1999. Airbus A320 series aircraft have replaced ageing DC-9s. At the end of 2003 the Airbus fleet consisted of 25 aircraft. Four more Airbus aircraft will be added to the Finnair fleet during 2004.
Customers covered by improved systems
The membership of the Finnair Plus frequent-flyer programme grew in 2003 by more than 13 per cent to exceed 600,000 members. Credit card cooperation with American Express ended in September and MasterCard became the new Finnair Plus credit card partner at the beginning of 2004. The frequent-flyer customer relationship management system is currently being renewed. At the same time, the range of special offers is being diversified and their targeting made more precise.
The use of electronic tickets (e-tickets) grew by more than half compared with 2002. Of all the tickets written for Finnair flights, nearly one in two is now written as an e-ticket. E-tickets account for more 80 per cent of domestic tickets. The use of electronic tickets will now increase mainly in international traffic and in e-ticket cooperation between airlines.
Direct sales of tickets via the Internet nearly doubled compared with 2002. Internet bookings accounted for nearly ten per cent of all journeys sold in 2003. The price structure reform implemented in the autumn had the effect of sharply increasing the number of Internet bookings in the latter part of the year. The structure of the service fees introduced means that customers can chose between self-service or personal service.
New operating models in subsidiaries
In an environment changing at an accelerating rate, Finnair has taken steps to take advantage of the liberalization trend in European air transport.
In the Scandinavian market Finnair began budget airline operations towards the end of 2003. The 85 per cent majority shareholding acquired in the Swedish airline Nordic Airlink has proved to be an excellent step in the Group's growth strategy.
Through a low-cost operating model, Nordic Airlink offers services more cheaply than its competitor, which operates with a heavy cost structure. According to its new business philosophy, the company will focus on those routes in Scandinavia which have high passenger volumes and little competition.
Nordic Airlink, whose home base is at Stockholm Arlanda, offers price-conscious passengers with seven MD-80 aircraft good links to Oslo, Copenhagen, Gothenburg and Luleå. This year new routes will opened. Frequent flights from these cities' main airports provide an excellent alternative for business and leisure passengers alike.
The Estonian company Aero Airlines AS, which began operating in spring 2002, is the other Finnair subsidiary engaged in flight operations. Since its founding, Aero Airlines has flown between Tallinn and Helsinki. At the end of 2003, the company broadened its operations to routes in Southern Finland. In this way Finnair is able to operate its short-haul turbo-prop routes in a more cost-effective way.
Aero Airlines flies with two ATR-72 turbo-prop aircraft. The number of aircraft will be increased during 2004. The Baltic states' entry into the European Union in May 2004 will open up a new market for Aero Airlines.
A continually developing logistics expert
Finnair's cargo operations, namely Finnair Cargo Oy, became part of the Scheduled Passenger Traffic division at the beginning of 2004. Most of cargo is carried on scheduled flights, so the merging of passenger and cargo traffic into the same division was a sensible step. Finnair Cargo Oy began 2003 under the leadership of its new managing director, Juha Kinnunen.
Cargo operations suffered from worldwide over-capacity, while demand has remained below the level of 2000. The war in Iraq had a rather minor impact on cargo operations. On the other hand, particularly on Asian routes, the capacity cuts in scheduled services due to the collapse in passenger demand caused by the SARS epidemic reduced cargo volumes significantly.
The opening of new routes in summer and autumn to Osaka in Japan and to Shanghai in China increased cargo traffic between Asia and Europe. The sixth MD-11 wide-bodied aircraft will bring additional cargo capacity during 2004. Plans also exist to expand cargo aircraft traffic on Asian routes.
The profitability of cargo traffic on North Atlantic routes was improved by cancelling an old agreement for cargo flights with an external cargo flight company. The capacity lost as a result was replaced through wider cooperation with the Emirates airline. In addition to North American capacity, strategic cooperation also covers traffic to the Persian Gulf region and to India.
Cargo flight capacity to Germany and the UK was transferred to traffic between Vienna and Helsinki. This will strengthen Finnair's opportunities to offer good links via the Helsinki Gateway between the cargo markets of Eastern Europe and Asia. Due to the shift in focus of the European cargo market to Eastern Europe, The European centre for Finnair's cargo sales was transferred from London to Frankfurt.
The company introduced a Revenue and Yield Management system, which was perceived to be necessary to optimize cargo revenue in passenger traffic. The reconciles supply and demand at the market price.
For the management of customer relationships, Finnair Cargo Oy introduced a new sales management system. An information system to improve customer service will also be introduced during 2004. The new system will improve tracking of cargo consignments along the entire logistics chain, not only during air transport. |