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Finnair cuts expectations, axes pilot incentives

The airline warns it now expects lower profits than last year and has taken the step of removing an incentive plan for its pilots.

As Finnair reports its latest quarterly results, it has also announced an end to a long-term incentive plan for its pilots to meet savings targets.

The incentive scheme has been in force for four years but it’s ceasing because savings targets are not being reached within an agreed timeframe set as a prerequisite for implementing it.

Finnair says that neither airline nor pilots have been able to find additional savings that can compensate for the difference.

The cancellation will have a positive effect on Finnair’s operating profit in 2018, it adds, as liabilities totalling around €11 million will be reversed in the fourth quarter.

Like other airlines, Finnair is under pressure from rising fuel prices and intensifying competition. Despite 8.9% growth in revenue in the third quarter to €801 million, it saw operating profit tumble by more than €10 million to €108 million.

The rising cost and competitive pressure is prompting the carrier to adjust its profit expectations for the year, down from its previous estimate for operating profit to be on a par with last year.

Finnair now expects that the result for 2018 will be less than last year’s profit of €170.4 million, hence the decision to terminate the pilots’ incentive scheme.

Multiple headwinds
Finnair experienced 11.5% growth in passenger numbers in the third quarter to 3.65 million. But CFO and interim CEO Pekka Vähähyyppä says in a comment in the quarterly report that the airline experienced some headwinds.

The exceptionally hot summer in Finland and right across northern Europe lowered the growth in demand for travel. Later, traffic was delayed and cancelled due to extreme weather in Asia and operational problems due to the late delivery of spare engine parts, he explains.

At the same time, a rapid increase in capacity combined with rising competition are pressuring the company’s earnings in the European market.

“However, our result was particularly affected by the increase in fuel costs,” Vähähyyppä says.

In its new guidance, Finnair estimates that its capacity is rising by more than 15% in 2018, with passenger volume expected to grow by 12-13% and revenue by 10-11%.

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