Market risk
The air transport business is sensitive to both cyclical and seasonal changes. Competition in the sector is intense and the decline in average ticket prices has been considerable due to over-capacity and the changed market situation. Airlines are cutting their prices in order to increase volumes, achieve sufficient cash flow and maintain market share.
Finnair has successfully responded to these challenges by reforming its pricing structure and by permanently reducing its cost structure. Pricing of domestic, Scandinavian and European flights has been changed to flight-based pricing determined by management of supply and demand. Finnair's strengths are service quality, an extensive route network as part of the oneworld alliance and the advantages of cooperation acquired through strategic partnerships.
A change of one percentage unit in the average price level or unit revenue of scheduled passenger traffic services affects the Group's operating profit by around 10 million euros. Correspondingly a change of one percentage unit in the load factor of scheduled passenger traffic services also affects the Group's operating profit by around 10 million euros.
To improve profitability, a division of labour has been effected between the parent company and Aero Airlines in traffic between Helsinki and Tallinn as well as on routes within Finland. By acquiring a majority shareholding of the Swedish airline Nordic Airlink, the company aims to expand its operations in Scandinavia. Nordic Airlink will be developed into the leading budget airline in the Nordic countries.
Variation in industry supply and demand also affect the market value of aircraft. Finnair manages the residual value risk related to aircraft ownership by leasing approximately half of the fleet under operative lease agreements of different duration. Aircraft leasing also allows for flexible capacity control in the short and long term. |