Finnair Cargo positioned for success
06 / 02 / 2014
IN recent years very few European carriers have been adding freighter services, but one exception has been Finnair Cargo, which has operated an MD-11 freighter since August 2011.
Interestingly in an era where the growth of widebody belly capacity is often cited as making freighters uneconomical, it is just that factor that has helped sustain the Finnair Cargo operation.
With Finnair's passenger services to Asia expanding, and the carrier planning to double the amount of revenue it gets from that region by 2020, Finnair Cargo is faced with extra belly capacity to fill out of Helsinki. Given that it takes two to three days to truck cargo from central Europe, a freighter feed is a viable alternative.
Freighter operations are not new to Finnair, but historically it has tended to buy block space on other carriers. It did this with Polar Air in the 1990s and took space on Emirates and Cargolux freighters to Asia in the years up to 2009.
In 2010, the carrier saw an opportunity as its MD-11 fleet - one of the last in passenger service - came up for retirement. Five of them were ultimately converted, and were sold to Nordic Global Airlines (NGA), a joint venture between Finnair Group, lessor Neff Capital Management, and other parties.
Today Finnair Cargo only uses one of these freighters, but has ad-hoc access to another if it needs it, and, says Juha Jarvinen, Finnair Cargo's managing director, the medium term goal is to go back up to two. The other MD-11Fs owned by NGA fly from Belgium to Africa for various airlines.
Finnair Cargo's original use for the freighters was to fly to New York once a week, and to various destinations in Asia. Seoul and Mumbai were both tried, but abandoned due to soft markets. Instead the freighter currently flies twice a week on a joint route to Hanoi and Hong Kong, one a week to New York, and twice each weekend to Brussels.
The latter service, started in April, "raised eyebrows" according to Jarvinen, but he says the result has been a steady improvement in the profitability of the Asian flights.
Brussels was chosen “because it was a white-spot on the map”, with relatively few freighter flights to Asia, and no direct flights to Japan.
The Belgian airport itself was also very welcoming, being “very focused on increasing their cargo traffic,” according to Jarvinen.
Even so, the freighters fly from Brussels only at the weekends, with feed during the week being provided by an A340 passenger flight, with 20 tonnes of cargo capacity. This passenger aircraft replaces the normal narrowbodies used on the route, and was deployed largely at the request of the cargo subsidiary.
It has increased passenger revenue as well however, and so says Jarvinen, is a good example of cargo and passenger divisions working together. He is hopeful of adding a second A340 frequency shortly.
Finnair’s passenger services to Asia have been expanding based on Finland’s geographical advantages. Situated two hours into the great circle route from Europe to North-east Asia, and with a mere 30 minutes transfer time needed at Helsinki airport, it can offer quicker connections to Asia for many Europeans.
It also means that Finnair’s air-craft can fly out and back to Asia in under 24 hours including ground time, allowing just one ‘plane to be employed for the whole rotation – something other European carriers cannot do.
Through exploiting these advantages in recent years, the carrier has built up a roster of 90 flights a week to Asia, serving 13 different destinations, particularly in north-east Asia where the geographical benefits are greater.
New routes in the past two years have included Hanoi, Chongqing and Xi’an, while longer standing routes include Tokyo, Osaka, Nagoya, Seoul, Delhi, Hong Kong, Singapore, Bangkok, Beijing and Shanghai. Finn-air Cargo has also purchased the entire capacity of Japan Air Lines’ daily Tokyo-Helsinki flights, giving it two flights daily on this route, and four to Japan as a whole.
No additional Asian routes are due to be added in 2014 – Toronto will be the only new widebody destination – but from 2015 onwards the plan is to add one Asian destination a year. Bolstering this will be the delivery of 11 A350s, which also start in 2015. Some will rep-lace the A340s in Finnair’s 15-strong widebody fleet, but with at least five aircraft, and maybe more, will be used for fleet expansion.
As well as shorter flying times to Asia, Finnair’s Nordic location also gives it a useful outbound cargo to Asia in the shape of Norwegian salmon, which is much in demand across the region as the Asian middle class grows. This makes its freighter and belly cargo flights to Asia more balanced than those of its European rivals.
It was salmon demand that helped persuade Finnair to start freighter flights to Hanoi in October. Jarvinen says it is now the biggest single destination for the fish. The country also has a growing hi-tech industry, which is forecast by IATA to be the fastest growing air cargo market in 2014.
North-east Asia is also a place where Finnair is better able to compete with the new giants on the block: Gulf carriers such as Emirates and Qatar Airways, which are increasingly extending into the Nordic region. Jarvinen says he is resigned to the fact that these rivals will soon be in all of the Nordic capitals, including Helsinki.
He identifies them as the biggest competitive threat to European operators on Asian routes, but reckons the only way for the Europeans to compete is to match the Gulf carriers on products, service standards and infrastructure.
In Finnair’s case, one answer is ‘Cool to Care’, its first ever pharma product, which was launched in January of this year. Target markets include not only the Nordic pharma producers, such as Sweden and Denmark, but also Brussels, one of the main centres of pharmaceuticals distribution in Europe.
The carrier is also drawing up a plan for a new state-of-the-art cargo terminal which, if approved by the main Finnair board, could be operational by 2016. At 25-27,000 square metres the new facility would be nearly double the existing 15,000-sq m facility, which is now nearly full.
Another task for the year ahead is to energise Nordic freight forwarders to adopt e-freight, since – rather surprisingly for a region with a reputation for being very much into new technology – adoption has so far been relatively slow.
Finnair Cargo’s target is to get 30 per cent e-airwaybill adoption by the end of 2014, but Jarvinen says it is a “big challenge for the whole industry to get forwarders on board.” He thinks the problem is that forwarders generally do not see the benefits of e-freight, since it is the airlines which have to do the work of entering data into their systems.
He thinks the way forward has to be with IATA, perhaps agreeing a way to incentivise e-freight use. “This worked on the passenger side and I think if there is not a clear step forward on e-freight in 2014, then somehow it has to be forced,” he says. “But this has to be via IATA. Airlines can’t do it by themselves.”
Meanwhile Finnair Cargo is running workshops with its forwarder customers to try to increase participation. “With yields under pressure and margins getting tighter we have to find cost savings,” Jarvinen says. “The amount of manual work involved in processing paper airwaybills is just too much.”