For Finland’s Finnair, the major advantage is its geographical location in Helsinki on the flight path to Asia. The level of traffic passing through Helsinki en route to Asia allows the national airline to punch well above its weight. Although Finland is a small nation of around 5.5 million, Finnair is the 21st largest airline in Europe. Last year, just more than half of its revenue of around Ä2.4 billion came from flights to Asia. But there is more to come. Rikke Christensen, Finnair’s head of network planning, says the goal is to double its revenue from Asian flights between 2010 and 2020.
“We’re on course to do that. To date, we’ve increased our revenue by a third since 2010. But we have other strategies in place to raise income further,” she said. “We’ve just bought five Airbus A350s to replace the A340s on routes to Shanghai, Beijing, Bangkok, Hong Kong and Singapore. We’re the first airline to get them and they’ll increase profit margins on those routes. We’ll probably buy more in time. They are more fuel efficient, have more seats and carry more cargo. We’ll also be more competitive on price because the A350s will lower our unit costs.”
The potential to grow Finnair’s Asia business further is vast, she said. “There are around 26 million passengers travelling between Finnair’s markets in Europe and Asia annually and around 65% of these are point-to-point travellers – so all the others must transfer somewhere. We have network teams working on our Asia routes two to five years into the future.”
Finnair’s routes to Asia are fed from airports at 60 locations in Europe. For passengers making one stop, Helsinki is ideal. “We have a lot of business from Manchester Airport in the North of England,” she said. “Instead of backtracking to the South of England and dealing with Heathrow Airport, the Northern English can fly from Manchester to Helsinki and on to Asia from there. It could save them three or four hours. The same argument will apply to Irish passengers to Dublin, where we’re opening a new route starting next summer.”
Most of the European passengers using Finnair to get to Asia are on business. But the airline is also expanding leisure routes for Asian holidaymakers coming to Europe. “We’ve got a new route to Malta starting next summer and we already fly almost daily to Dubrovnik in summer and regularly to Malaga,” said Christensen. “We’ve seen increasing demand for these leisure destinations from Asia and we have flights coming daily in summer in to Helsinki, then on to these holiday locations. During these peak times, there are so many Asian tourists at Helsinki Airport that you’d get the impression you were in Asia not Europe.”
The competitive advantages available to airlines are not always easy to see. It can take an outside agency to come up with new perspectives. Irish airline Aer Lingus, for example, used the consultancy Infosys to realign some of its core business to the US.
“Aer Lingus were squeezed on all sides by Ryanair in the low-budget European market and British Airways on long-haul flights to the US. Parts of the business were not making money. They were flying long-haul from Dublin and Shannon to New York, then flying about half the passengers on to Los Angeles in California,” said Avik Chopra, principal, aviation practice, Infosys. “They were making money on the transatlantic part, but losing money on the second leg to California because they didn’t have the right to pick up new passengers.
“We suggested they approach JetBlue Airways, a domestic US carrier that controls 30% of the traffic out of JFK. They even have their own terminal called T5 like the BA one at Heathrow. The airlines agreed to a deal whereby JetBlue takes over the US leg to California.”
The reason this deal worked well was because Aer Lingus has a competitive advantage bestowed on them by the famed Irish Kennedy clan. “Aer Lingus passengers can clear US customs and security in Ireland before boarding the plane. This is a big advantage over BA. Normally, transatlantic flights have to come into the international terminal at JFK to be cleared, but because Aer Lingus passengers are pre-cleared they can fly straight into the JetBlue domestic terminal. It’s also an important deal for JetBlue and they’re making changes to the terminal to accommodate Aer Lingus A330s which are bigger than the domestic A320s,” he said.
Chopra said the deal was a good example of the need for route planners to look for innovative options to remain profitable. “Sometimes it helps to have an external agency brokering the deal,” he said. “Legacy carriers, even if they are small like Aer Lingus, can get stuck in a ‘hub and spoke mentality’. They trust solutions that work mathematically, but can be inefficient.”
Whilst Aer Lingus has profited from adopting a flexible approach, the Spanish airline Vueling prides itself on sticking rigidly to its model. This leaves little room for manoeuvre with other airlines.
Fernando Estrada, Vueling’s director of strategy and alliances, said: “Our approach to other airlines is completely different to the standard relations between flag carriers. Vueling cannot allow any changes to our model for any kind of agreement, so the other airlines need to adapt to Vueling’s standards and this is not always easy. Our strategy is based on the concept of Premium Low Cost – offering a premium product but being very efficient and agile.”
Estrada said Vueling is expanding its Premium Low Cost model booth in Europe and globally. But the market is complex with regions at different phases of development. “In Europe – the region we know best – we see a degree of overcapacity that will increase in the next years and when compared with other regions where there has been a consolidation, such as in North America,” he said. “Middle East carriers will keep on increasing destinations and frequencies to gain more market share in connecting flights, especially from Europe to Asia and Africa.”
Chopra agrees with Estrada that the Middle East is on the rise at the expense of Europe. He said that airports such as Dubai were taking over the traditional role as hub airports of London, Frankfurt and Paris. “The carriers in the Middle East, such as Etihad Airways, have huge advantages. They have access to inexpensive fuel, but even more importantly they are in a better geographical position to connect East and West. So these carriers are on the rise and the European hubs are on the decline.”
The picture is complex, however, and the golden rule as ever is to remain flexible and innovative. Chopra points to Brussels Airport as one European airport that found an unexpected solution to the problem of underused capacity.
“The Belgian national carrier Sabena went bankrupt years ago and Brussels had a lot of unused capacity. So, they struck up a deal with the rising Indian airline Jet Airways to act as a hub for their flights. Now, Jet Airways is the only airline in the world to have a hub outside its own country. They fly from Asian destinations in to Brussels and from there to other parts of Europe, or the US.”
Air Singapore is also exploiting the growing Asian route market. In addition to a number of new destinations launched by its subsidiary SilkAir within the region, Air Singapore increased the frequency of weekly flights to Tokyo Haneda from 14 to 21 from March 2014.
“At the same time as expanding in Asia, we have had to suspend some less profitable routes,” said Gina Foo, from Air Singapore’s public affairs department. “For example, we have suspended flights to Riyadh and Cairo as a result of the sustained weak performance of both routes. The last flight to Riyadh was on 28 September 2014 and the last flight to Cairo was on 30 September 2014.”
Airports are not passive recipients of the airlines’ demands for new routes, however. They have a big say in developments. At Copenhagen Airport, for example, the in-house route development managers play a vital role in researching the most lucrative routes for the airlines.
Simon Nathan, senior key account and route development manager, said: “We help to create long-term, sustainable routes with maximized yields for the carriers. We also see it as an integral part of our work – as a gateway airport for one of Europe’s strongest economies – to be creating conditions to increase competition.”
Nathan’s team uses a variety of methods to plan new routes. They analyse industry data to see where the large traffic flows are and discern under-served routes. It is not all about data analysis, though. “We use a variety of methods. We’ve gone as far as using Facebook for crowd-sourcing input. We asked our travelling public, which routes they would like to see,” Nathan said.
The Copenhagen Airport strategists have a close working relationship with their airline counterparts on all aspects of operations and development. “We have to have a symbiotic relationship. Neither of us can really optimise what we are trying to do, without taking into account how the actions affect the other party. It’s imperative that we have trusting dialogue as there are so many different factors.”
The insights of the airlines and airports are often complementary, Nathan said. “At the airport we have local knowledge of traveller behaviour and ideas about where a market may exist, especially for business destinations. But the airline may have more information from their own traveller data about why a new route would be good for them. As an airport, we can also broker introductions to tourist agencies, or business groups who may wish to help support a new route start-up.”
Copenhagen Airport can make suggestions, but the final decision rests with the airlines. “They are the ones who operate the hardware on the route, and have the challenge of making a profit, so in the end it’s their decision. It’s not always possible to take up the routes. Sometimes, traffic rights issues mean carriers are unable to fly routes they like. Also, the fleet make-up may preclude some routes due to the types of aircraft available.”
Nathan’s team works years in advance on long-haul routes. The business case has to be strong to ensure success. But carriers can often test out short-haul routes more easily. “There’s potentially less at stake, and more options are available for redeploying the aircraft to another route if necessary,” he said.
Another factor for modern airlines to consider when planning routes is how best to take advantage of global airline alliances. Finnair, for example, recently joined the transatlantic joint business founded by fellow Oneworld Alliance members American Airlines, British Airways and Iberia.
The partnership means that Finnair customers flying to North America can now book flights to dozens more North American cities on one single ticket. In exchange, customers of the other three airlines get better access to 13 cities in Finland and the rest of Europe, via Finnair’s Helsinki hub.
On occasions, however, an upcoming airline has to reach certain international standards to do business with alliance members. For example, Avik Chopra said the Aviation Practice was asked to advise Air Nippon on how to improve their accounting standards.
“Air Nippon is now the largest carrier in Japan, but in order to grow their business internationally they had to get their accounting up to international levels. Other carriers would not agree to route planning deals when there were too many holes,” he said.
“International deals are complex with a lot of different revenue management systems sharing data. We advised on how to reach those standards and once All Nippon Airways had their accounts up to scratch they were able to seal deals with other airlines in the Star Alliance network.”