Finnair Oyj Business Information, Profile, and History

Company Perspectives:

Finnair is committed in its business operations to profitable, value-creating growth. Operational efficiency and product quality are at the highest level among European airlines. This provides a good foundation to continue the good start that has been made on increasing traffic in strongly growing markets.

History of Finnair Oyj

Based in Helsinki, Finnair Oyj is the national airline of Finland and the fifth oldest airline in the world. Operating passenger and air freight services throughout Finland and the Baltic region, Finnair also provides regular and seasonal service to Europe, North America, and Asia. The airline's route network for scheduled air traffic includes 16 domestic and 50 international destinations. Long-haul routes fly to cities such as New York, Miami, Tokyo, Osaka, Singapore, Bangkok, Hong Kong, Beijing, and Shanghai. Finnair services additional destinations through its membership in the global oneworld alliance, which includes American Airlines, British Airways, and several other airline partners. The charter operations of Finnair reach more than 60 destinations, mainly consisting of vacation spots in the Mediterranean, the Canary Islands, southeast Asia, and the Caribbean. During 2002, Finnair's fleet of 60 aircraft carried more than seven million passengers and cargo weighing in excess of 82,000 metric tons. Other operations of the corporation include technical, ground-handling, and catering services; travel agencies; and travel information and reservation services. Although its stock is publicly traded, Finnair is controlled by the government of Finland, which holds a 58.4 percent stake.

An Early Start

Finnair was established in Helsinki in 1923 as Aero O/Y. The company was the creation of a small circle of financiers, including Gustav Snellman, Fritiof Ahman, and Bruno Otto Lucander, formerly a Belgian vice-consul. Lucander became involved in aviation in 1918 as the general manager of Finland Spedition, a managerial group that oversaw the Finnish operations of an airline based in Tallinn, Estonia, known as Aeronaut.

At that time, the local aviation industry was dominated by German interests, including the aircraft manufacturer Junkers, a company experienced with aircraft designs that were capable of enduring the extreme physical demands of northern European weather. Aero purchased several seaplanes from Junkers, inaugurating airmail service between Helsinki and Tallinn on March 30, 1924, with a single-engine, four-passenger model F-13. In exchange for the aircraft and technical advisors, Junkers was given a 50 percent financial interest in Aero. The airline operated out of a seaplane ramp in the Katajanokka district of Helsinki. The company's aircraft were fitted with water floats in the summer and skis in the winter.

Aero began services to Stockholm on June 2, 1924, in conjunction with the airline Swedish ABA. With rail connections from Tallinn and Stockholm, travelers were afforded quick passage to Copenhagen, Konigsberg, and Berlin. While the route system remained small, Aero launched a campaign to promote air travel. In 1925 alone, it operated 833 sightseeing tours.

Also in 1925, Junkers amalgamated its Nord Europa Union and Trans Europa Union air transport subsidiaries into a single company consisting of 16 airlines in nine countries. This new company, Europa Union, was then combined with another German airline interest, Aero Lloyd, to form Deutsche Luft Hansa (later Deutsche Lufthansa).

Aero remained outside this consortium, but received less support from Junkers, which gave priority to the new German air consortium. Aero turned to the Finnish government for financial assistance to acquire new aircraft, and in 1926 the airline took delivery of its first Junkers G 24, a three-engine, nine-passenger seaplane.

Aero was reluctant to switch to land-based aircraft. In a country with more than 60,000 lakes, the trouble and expense of building runways remained prohibitive as long as Aero continued to operate seaplanes. In addition, Aero could establish new destinations virtually anywhere there was a lake. With the 1929 death of Lucander, Aero appointed Gunnar Ståhle, who was trained as an engineer, general manager. Aero also ended its financial relationship with Junkers in 1929, when Finnish investors completed a buyout of the German company's interest. In 1930 Aero began to establish a closer relationship with other Scandinavian airlines. The company ran night airmail services in cooperation with Swedish, Danish, and later, Dutch airline companies. Junkers, however, remained the company's aircraft supplier, providing five 14-passenger Ju 52s during the decade.

With the opening of an airport at Turku in 1935 (Finland's first civil airport) and Stockholm in 1936, pressure mounted to establish a landing strip in Helsinki. Land operations began at Malmi airport later that year, although the airport remained officially closed until May 1938. Aero converted its aircraft to wheel landing gear and operated its last seaplane service on December 15, 1936.

In 1937 Aero took delivery of its first non-Junkers aircraft, two twin-engine DH 89A Dragon Rapides. These planes were operated on domestic routes to northern Finland. The following year, the Tallinn route was extended to Berlin, via Riga, Latvia, and Kaunas, Lithuania. In anticipation of increased air traffic for the 1940 Helsinki Olympic Games, Aero ordered two 26-passenger Condor aircraft from Focke-Wulf.

World War II

Because of a complex history of financial and cultural ties with Germany, Finland at this time was politically allied with the fascist Nazi-installed government in Germany. German Chancellor Adolf Hitler made one of his few international trips to Finland to lend support to the Finnish government, which by 1939 had fallen into acrimonious relations with the government of Hitler's archenemy, Joseph Stalin.

Tensions between Finland and the Soviet Union mounted. In October 1939 all civilian aviation was placed under Finnish military control. On November 30 hostilities broke out. Finnish troops held off Soviet advances for several months. Aero ceased operation from Helsinki but continued to operate to Stockholm from Vaasa and Turku, despite sporadic air attacks. Of the 3,900 passengers it ferried to Sweden, 1,500 were children who were being evacuated to safety. The Helsinki Olympics were canceled, and Aero never took delivery of the Condors it had ordered.

By the following spring the Soviets had achieved a hard-won victory in Finland. As part of its peace treaty with Stalin, Finland was forced to cede land in its eastern Karelian sector to the Soviet Union. Aero, however, was free to reestablish air services, and in April 1940 resumed flights to Tallinn and Stockholm. On the domestic front, the company began a "Lapland Express" to the northern city of Petsamo, in addition to more than a dozen other destinations.

As a result of the Molotov-Ribbentrop pact, in which Germany and the Soviet Union partitioned Poland and occupied Latvia, Lithuania, and Estonia, Finland was afforded an opportunity to reestablish stronger links with Germany. In 1941 Aero acquired two Douglas DC-2s from Lufthansa. The aircraft had been seized from Czechoslovakia when Germany invaded the country two years earlier.

On June 25 of the previous year, the war between Germany and Britain and France broke out. This war, which Finns call the "Continuation War," forced the Finnish government to once again place civilian air resources under government control. Aero ceased its operations from Helsinki and Turku and relocated temporarily to the city of Pori. Even after the United States and the Soviet Union became involved in hostilities during the Continuation War, and in spite of fuel shortages, Aero continued to operate air services to Rovaniemi, Stockholm, and even Berlin.

For Finland, a nominal German ally, the Continuation War ended on September 19, 1944, after Soviet troops had again overrun Helsinki. Malmi airport was placed under Allied military control. Aero, however, was allowed to resume operations to Turku, Maarianhamina, and Stockholm from Hyvinkaa.

The Allies banned all commercial aviation from March to August 1945, when Aero was permitted to resume only domestic schedules. Gunnar Ståhle, however, was forced to resign by order of the Allied Control Commission, which cited the director's sympathies to Nazi Germany during the war. Ståhle was replaced by C.J. Ehrnrooth, who shortly afterward was succeeded by Uolevi Raade. The company also was reorganized during this period, and a board of directors was established.

Postwar Expansion

Finnish investment capital was scarce after the war, and Aero was forced to turn to the government to fund new equipment. In return for its backing, the Finnish government was allowed to acquire 70 percent of Aero's shares in 1946. The remainder were held by banks, other companies, and private citizens.

Through the Finnish Ministry of Supply, Aero purchased several surplus American C-47s and commissioned the Dutch aircraft company Fokker to convert them to their civilian equivalent, the DC-3. These aircraft entered service in May 1947, emblazoned with the title Finnish Air Lines and featuring Aero's first flight attendants.

The following year, Aero resumed international services and by 1949 had retired all of its DC-2s, Rapides, and Junkers aircraft. In preparation for the Helsinki Olympic Games, which were rescheduled for 1952, Aero reconfigured its DC-3s and designed the new Helsinki Airport near Seutula. After transporting more than 100,000 passengers in 1952, Aero began to investigate a need for larger, more modern aircraft and decided on the Convair 340, a 44-passenger aircraft with a pressurized cabin, and the more advanced Convair 440 Metropolitan.

In 1953 the company introduced the name Finnair in its advertising materials and on its aircraft, partly out of concern that the name Aero had become outdated and generic. The company's official name, however, did not change. By 1957 Finnair operated one of the densest domestic route structures in Europe. The short-term nature of this structure led the company to plan for a new generation of aircraft to replace its Convairs and DC-3s on long-distance flights. Aero chose the 73-passenger Sud Aviation Caravelle twin jet, which entered the fleet in 1960.

The Caravelles were later deployed on winter charter flights to Majorca, the Canary Islands, and Rimini. At the time, International Air Traffic Association (IATA) regulations prevented Aero from directly operating charter and student flights. Instead, the company created a subsidiary, Polar Air, to handle this business. In 1963, however, Aero acquired a 27 percent interest in another Finnish airline, Karair, which took over Polar Air's operations.

In 1960, after 13 years of leadership under Leonard Grandell, an economist named Gunnar Korhonen was appointed managing director of Aero O/Y. Several changes occurred under Korhonen's leadership. In addition to introducing the Caravelles, Aero opened its Finnair Aviation College to train pilots who could be recruited out of the Finnish air force. The company's route structure continued to expand, adding flights to Leningrad, Athens, Dubrovnik, and Brussels.

Early in 1968 the company officially adopted Finnair Oy as its new corporate name and laid plans to expand into the hotel and travel agency businesses as part of an effort to achieve greater control over all aspects of the tourism industry. The company took delivery of its first 189-passenger DC-8 the following year, placing it into service on a new route to New York. Two years later, continuing its association with Douglas Aircraft, Finnair added somewhat smaller DC-9 aircraft to its fleet and opened new routes to Lisbon and East Berlin.

In 1975 Finnair began operating wide-body DC-10 aircraft, opening routes to Bangkok and numerous destinations in the Middle East. Four years later the airline created a subsidiary called Finnaviation (60 percent owned by Finnair) to handle domestic charter operations and general aviation maintenance and repair services. In 1982 Finnair revived the Aero Oy name for another subsidiary handling technical services and aircraft leasing and sales activities. Forced to close both its service to Baghdad, because of the war between Iran and Iraq, and its Amman route, because of low demand, Finnair opened routes to Seattle and Los Angeles in 1981 and to Tokyo via the North Pole in 1983.

Like many other Finnish businesses, Finnair benefited greatly from its government's unusual relationship with the former Soviet Union. Finland shared many parallel interests with the Soviet government. As an agent of the Finnish government, and because of its proximity, Finnair was afforded greater access to Eastern Bloc cities and airspace than Western airline companies, and it succeeded in using this as a corporate asset.

One result of this relationship was a growth in air freight, which compelled the company to invest heavily in a new air cargo facility at Helsinki Vantaa Airport in 1986. Political changes in the Soviet Union after 1986 opened Eastern Europe to more Western airlines and shifted Soviet business alliances to Germany, where greater investment capital was available. In addition, Finnair was faced with high cost structures, which led the company's chairman, Antti Potila, to undertake a series of cost-cutting moves and reduce the number of employees by 10 percent beginning in 1990.

Also in 1990 Karair and Finnaviation were reorganized as independent subsidiaries and made responsible for their own productivity. Finnair, however, managed to retain its position as the gateway airline to the Soviet Union and the Baltic states. This position was strengthened in 1989 after Finnair backed the opening of Strand Inter-Continental in Helsinki and the Savoy Hotel in Moscow. Also maintaining its close relationship with aircraft manufacturer McDonnell-Douglas, Finnair added advanced MD-11, Airbus A-300, and ATR planes to its fleet.

Finnair shares were first listed on the Helsinki Stock Exchange in May 1989. By this time the carrier was flying about five million passengers per year.

Finding a Place in the New World Order

In the early 1990s Finnair teamed with Scandinavian Airlines System (SAS), Austrian Airlines, and Swissair to pool financial resources for future aircraft purchases. The European Quality Alliance collapsed, however, as Chairman Antti Potila felt Finnair was losing its independence. Finnair then concentrated on an alliance with Lufthansa beginning in 1991.

After the Soviet Baltic states gained their independence from Moscow in 1990, Finnair stepped in to help establish an Estonian airline company. The airline soon had distinguished service and air safety records, and maintained one of the most modern air fleets in Europe. It existed under the majority control of the government of Finland, with the remaining share in the hands of banks and other institutional investment interests.

Finnair launched some cost-cutting measures in 1991. It pulled back flights from the Mediterranean in response to the Persian Gulf crisis, but found that Portugal increased in popularity as a tourist destination.

The onset of glasnost not only opened up new routes with Russia but also allowed more direct flights to the Far East. The airline, however, also had to deal with an economic recession during this time, accumulating losses of Fmk 576 million between 1991 and 1993. A recovery came in 1994, both within the Finnish economy and in regard to business traffic in particular. Still, the company continued to reduce its workforce as a means of remaining profitable.

Another part of the company's strategy in the mid-1990s was to reduce the number of aircraft types it operated. Finnair began replacing its DC-9s with used McDonnell Douglas MD-80 aircraft. A stock offering in January 1995 helped fund the purchases. This offering received much attention from European investment institutions and raised foreign ownership of the company from 5 to 16 percent. In another streamlining move, both Karair and Finnaviation were merged into Finnair during 1996.

In 1997 Finnair's board voted to replace the MD-80 airliners on its European routes with Airbus aircraft, the order to be worth Fmk 2 billion. Finnair still operated a dozen DC-9 aircraft and in June 1998 announced that it was retrofitting them with newly available noise-reduction hush kits. The company also leased several Boeing 757s.

Finnair completed expansion work on its cargo terminal late in 1997. The company carried approximately 80,000 tons of mail and cargo, providing about Fmk 900 million, or 13 percent, of the company's total turnover. The Far East accounted for 30 percent of its business.

Finnair terminated its partnership with Lufthansa after the German carrier teamed with SAS in 1997. Finnair then installed a second hub in Stockholm--the site of SAS's headquarters but not its operating center, which was Copenhagen. Finnair fed the hub via code shares with other Scandinavian carriers and declared itself Stockholm's official airline. It also teamed with Maersk Air to compete on one of SAS's most lucrative routes, Copenhagen-Stockholm, after SAS began flying from Frankfurt into Maersk's home base of Billund, Denmark. Meanwhile, competitors were slowly taking away from Finnair's domestic market share.

Early in 1998, Finnair and SAS rival British Airways announced a new alliance, which offered travelers the prospect of reduced fares. The cooperation was intended to help both carriers cope with competing alliances such as the Star Alliance created in 1997 of SAS, Lufthansa, United, Thai International, Varig, and Air Canada. Code-sharing agreements with Delta, Braathens, Swissair, Austrian Airlines, Sabena, and Maersk Air were in force as well. Flights outside of Europe remained a low priority for the carrier; but the company planned to triple its flights to Russia.

In 1998 Finnair celebrated its 75th anniversary. Demand increased in all sectors, with passenger numbers increasing 4.5 percent for the fiscal year ending in March 1999, reaching 7.4 million. The carrier was hurt that year, however, by increased operational costs, heightened competition, the Russian economic crisis of summer 1998, and a five-week strike by Finnish air traffic controllers in early 1999; these combined to lead to a sharp decline in profits. At the end of 1998 Potila retired as president and CEO and was replaced by industrialist Keijo Suila. In September of that year, Finnair agreed to join the oneworld alliance, a new global airline alliance whose other initial partners included American Airlines, British Airways, Canadian Airlines, Hong Kong's Cathay Pacific Airways, Australia's Qantas Airways, and Spain's Iberia. Finnair began officially participating in the alliance in September 1999; two other members joined in 2000: the Irish airline Aer Lingus and Linea Aerea Nacional de Chile (LanChile). Among the partners' cooperative ventures were agreements to link their frequent-flier programs and give each other access to their airport lounge facilities, as well as some code-sharing arrangements. In examples of the latter, both initiated in June 2000, Finnair began to code-share with Iberia on flights between Finland and Spain and with Qantas on flights between Finland and Australia. For Finnair, oneworld provided it with new international partners in the wake of Lufthansa's teaming up with SAS as well as Maersk joining forces with SAS in the autumn of 1998.

The Turbulent Times of the Early 2000s

To cut operating costs Finnair shed a number of noncore assets during 1999. In April 1999 the company sold its remaining 40 percent interest in Nordic Hotel Oy to Scandic Hotels. It sold tour operator Finntours to Thomson Travel Group in November and its 60 percent stake in Finnair Gateway Restaurants to GourmetNova in December. To further improve operational efficiency, Finnair announced a major restructuring in late 2000 whereby a centralized hierarchy would be replaced by a decentralized structure encompassing six mostly autonomous operating divisions: scheduled passenger traffic, leisure traffic, cargo, aviation services, travel services, and support services. At the same time, Finnair altered its flight network to place additional emphasis on routes to and from Asia, its highest growth region. Unprofitable routes to such destinations as Toronto and San Francisco were dropped in favor of increasing the frequency of flights to Beijing, Bangkok, and Singapore and adding the new destination of Hong Kong. Finnair also joined with local partners in setting up a new affiliated carrier based in Estonia to offer regional service within Scandinavia and the Baltic region. Finnair took a 49 percent stake in the new airline, which was given the historically fitting name Aero Airlines. Appropriately enough, Aero's first flight, which took place on March 31, 2002, was on the Helsinki-Tallinn route--the same route flown on the first flight of the original Aero.

The events of September 11, 2001, coupled with the global economic downturn, crippled airlines throughout the world, with some forced into bankruptcy or needing government subsidies to stay afloat. Finnair managed--barely--to stay in the black during 2001 thanks to an aggressive program to cut costs by Fmk 115 million. Despite the difficult times, the airline continued to overhaul its fleet, one-third of which by the end of 2002 consisted of new Airbus models--the A319, the A320, and the A321. Finnair and other carriers were deeply affected by a double blow in early 2003: the launching of the Iraq war by the United States and the sudden acute respiratory syndrome (SARS) epidemic; the latter particularly affected Finnair's growing Asian traffic given that the epidemic was centered in that region. Also in 2003 Finnair acquired an 85 percent stake in Nordic Airlink, a Swedish discount airline. In September, with the SARS crisis over, Finnair added Shanghai to its growing list of Asian destinations.

Principal Subsidiaries: Kiinteistö Oy Aerolan A-talot; Kiinteistö Oy Aerolan B-talot; Amadeus Finland Oy (95%); Matkatoimisto Oy Area; Area Baltica Reisiburoo AS (Estonia); A/S Estravel Ltd. (Estonia; 72%); Oy Aurinkomatkat--Suntours Ltd. Ab (99.1%); Finnair Travel Services Oy; Finnair Catering Oy; Finnair Facilities Management Oy; SkyCellar Oy; Finnair Cargo Oy; Aero Airlines (Estonia; 49%); Finncatering Oy; Norvista Travel Ltd. (Canada); Norvista Ltd. (U.S.A.); Karair Ab (Sweden); Mikkelin Matkatoimisto Oy (51%); Norvista B.V. (Netherlands); Suomen Matkatoimisto Oy; Nordic Airlink (Sweden; 85%).

Principal Operating Units: Scheduled Passenger Traffic; Leisure Traffic; Cargo; Aviation Services; Travel Services; Support Services.

Principal Competitors: SAS AB; Deutsche Lufthansa AG; KLM Royal Dutch Airlines.

Chronology

• Key Dates:
• 1923: Aero O/Y is established in Helsinki.
• 1924: Aero makes its first flight, carrying mail from Helsinki to Tallinn, Estonia; the initial fleet consists of seaplanes, some of which can be converted to snow landings via skis.
• 1935: The opening of Finland's first civil airport at Turku provides the first impetus for Aero's conversion to land-based aircraft.
• 1936: Aero operates its final seaplane service.
• 1939: Just prior to the inauguration of hostilities between Finland and the Soviet Union late in the year, all civilian aviation is placed under Finnish military control.
• 1946: The Finnish government acquires a 70 percent stake in Aero.
• 1947: Aero places several DC-3s into service, emblazoned with the title Finnish Air Lines and featuring Aero's first flight attendants.
• 1953: The company introduces the name Finnair in its advertising and on its aircraft.
• 1963: Aero acquires a 27 percent interest in another Finnish airline, Karair.
• 1968: Aero officially adopts Finnair Oy as its new corporate name.
• 1979: A subsidiary called Finnaviation is created to handle domestic charter operations and general aviation maintenance and repair services.
• 1989: Finnair shares are first listed on the Helsinki Stock Exchange.
• 1996: Karair and Finnaviation are merged into Finnair.
• 1999: Finnair joins the oneworld alliance, a global airline alliance led by American Airlines and British Airways.
• 2002: Estonia-based Aero Airlines, 49 percent owned by Finnair, begins flying between Helsinki and Tallinn.
• 2003: The company acquires an 85 percent stake in Nordic Airlink, a Swedish discount carrier.