How Finnair’s Huge Bet on Faster Flights to Asia Suddenly Came Undone

How Finnair’s Huge Bet on Faster Flights to Asia Suddenly Came Undone

Nestled near Europe’s rooftop, Finland spent decades leveraging its location to become a popular gateway for Asian travelers. Its flagship airline, Finnair, offered flights from Tokyo, Seoul and Shanghai to Helsinki that, by crossing over Russia, were hours shorter than flights to any other European capital. Airport chiefs invested nearly $1 billion in a new terminal with streamlined transfers. There were signs in Japanese, Korean and Chinese, and hot water dispensers for the instant noodle packets favored by Chinese tourists.

Then Russia sent troops across Ukraine’s border on Feb. 24, and overnight the carefully constructed game table was overturned.

Russia closed its airspace to most European carriers in response to bans on Russian planes. What was once a nine-hour flight to Helsinki when routed over Russia’s 3,000-mile expanse would now take 13 hours and as much as 40 percent more fuel because it had to swoop around borders.

Finnair’s competitive advantage as the fastest connection from Asia and a travel hub for Europe vanished in a wisp.

The sudden disintegration of Finnair’s business model is part of the wide-ranging economic upheaval that the war in Ukraine is causing for businesses around the globe.

Companies that invested or traded heavily with Russia were immediately affected, and more than 1,000 have withdrawn operations from Russia, according to a database compiled by the Yale School of Management.

High energy prices have blitzed a wider range. The Hungarian Opera House’s Erkel Theater will temporarily close because it cannot pay its energy bill. Hakle, one of the largest manufacturers of toilet paper in Germany, declared insolvency because of soaring energy costs, while ceramic, glass, chemical, fertilizer and other factories across Europe have been forced to scale back or shut down.

The snack food industry, unable to get sufficient supplies of sunflower oil from Ukraine, has had to scramble for substitutes like palm oil, forcing manufacturers to rejigger supply chains, production and labeling, since they could no longer boast that their products were “nonallergenic” and “non-G.M.O.”

The closed airspace caused Japan Airlines and ANA to cancel flights to Europe. And this month Virgin Atlantic said it was ceasing all traffic to and from Hong Kong because of Russia’s ban. For Finnair, though, the fallout has been extreme.

“The Asia strategy had been 20 years in the making,” Topi Manner, Finnair’s chief executive, said from the company’s headquarters, next to the Helsinki terminal in Vantaa. Services were tailored to meet the tastes of its Asian customers. Half of its in-flight movies are dubbed or subtitled in Japanese, Korean and Chinese. Meal offerings include crispy chicken in Chinese garlic and oyster sauce and Korean-style stir-fried pork in spicy sauce with bok choy and steamed rice. The airline’s ground staff in Helsinki are fluent in the region’s native languages.

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Market Square in central Helsinki.Credit…Juho Kuva for The New York TimesBefore the coronavirus pandemic, half of the airline’s revenue was generated by travelers from Asia. Passengers that used Helsinki as a hub to transfer to other destinations accounted for 60 percent of the revenue.

But with “no end in sight” to the war, Mr. Manner said, the airline’s management quickly concluded “that Russian airspace will remain closed to European carriers for a long time and we need to adapt to that reality.”

This summer, Finnair operated 76 flights between Helsinki and Asia, compared to 198 in the summer of 2019. Overall, the airline is going at 68 percent of its capacity. Operating losses in the first half of this year amounted to 217 million euros.

“We really have to regroup,” Mr. Manner said.

In some respects, Finnair has been regrouping ever since the pandemic hit in early 2020 and virtually halted world travel. China’s “zero Covid” policy, which continued to lock down Shanghai and other major cities this year, sharply reduced East-West traffic, hampering Finnair’s recovery compared with airlines that have large domestic markets or operate in other regions. Finnair, half of which is owned by the government, fought to survive by furloughing employees, cutting costs and raising 3 billion euros in new financing.

“We created a path through the pandemic,” Mr. Manner said, but it always was intended to lead “back to the Asia strategy.”

No longer. Last month, the company officially announced an about-face.

“We started to pivot our network toward the West,” Mr. Manner said, expanding its partnership with American Airlines, British Airways and other carriers. In the spring, it launched four new weekly flights from Dallas-Fort Worth and three from Seattle. New routes from Helsinki to Stockholm, Copenhagen, Mumbai, India, and Doha, Qatar, have also been unveiled. As jet fuel prices skyrocket, the airline is also renting out planes and crews to other airlines, and it plans to shrink the size of its fleet and staff, and to slash costs.

Finnair, which has lost 1.3 billion euros over the past three years, said it hoped to return to profitability in 2024.

“It will take some time before the company gets to see if this is the right decision,” said Jaakko Tyrväinen, an airline analyst with SEB, a Nordic financial services group.

For the new Helsinki terminal — which opened in June — a strategy shift was also needed.

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Central Helsinki.Credit…Juho Kuva for The New York TimesAn estimated 30 million passengers were expected by 2030, up from the nearly 22 million that the existing terminals handled in 2019. Those projections are now irrelevant, and airport officials say the situation is too uncertain to make any meaningful update to that figure. Next year, 15 million travelers are expected to pass through.

Perhaps more pointedly, the project, begun nearly a decade ago, was designed to improve services for transfer passengers from Asia — a majority of whom would never leave the airport.

A multimedia publicity campaign that Finavia, the state-owned company that runs the country’s airline terminals, rolled out in 2017 for Helsinki airport — code letters HEL — primarily targeted customers from China. With a nod to the 2004 film “The Terminal,” the campaign, “Life in HEL,” featured Ryan Jhu, a popular Chinese actor and social media influencer, living for a month in the terminal.

Now, Helsinki has an expansive new terminal dedicated to non-European transfer traffic but very few travelers.

On a recent weekday afternoon, the long, snaking lanes created to handle crowds at passport control were deserted. The spacious aukio, or meeting plaza, where passengers could sit and watch a wraparound video installation depicting Finnish landscapes, hosted a lone woman with a backpack. Moomin Shop, which sells merchandise related to the Finnish cartoon characters — particularly popular with Japanese visitors — had no customers. The Moomin cafe, farther down the main hallway, was mostly deserted.

“Mornings are normally slow,” said Liccely Del Carpio, who works at the Moomin store, adding that business often picks up later in the afternoon. “All in all, it’s been OK.”

The European terminal was bustling, but most of the shops and cafes that stretched along this terminal’s long hall were empty. Several other spaces were unleased or shuttered.

Sami Kiiskinen, the vice president of airport development at Finavia, said that the hundreds of millions of euros in loans used to construct the airport would ultimately be repaid, but that “the schedule of paybacks must be reconsidered.” Negotiations are happening, he said.

Yet, despite the likelihood that the war in Ukraine will drag on and Russian airspace will remain closed to European traffic, Mr. Kiiskinen is optimistic.

“We still believe in our strategy,” he said. Major infrastructure developments like airports are designed on a 50-year horizon, he said. “Putin is not going to be there forever.”

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