Strategic cost management of airline under geopolitical tensions

Abstract

The thesis analyses the Strategic Cost Management (SCM) practices of Finnair under the tensions evoked by the Russia-Ukraine war. With high susceptibility to geopolitical shocks, the aviation sector offers an ideal context for studies about how companies navigate through disruptions across functions and especially in cost management. Within it, Finnair is a perfect subject for study as it has suffered from the loss in the most important market as being obstructed by the airspace closure. The primary focus of this study is to examine how Finnair adjusted their cost management strategies in responding to the external disruptions and assess the effectiveness of those initiatives.

This study employed a qualitative single case study approach, obtaining secondary data from S&P Capital IQ Pro which includes earning calls document and quantitative financial data. Theoretical frameworks of Strategic Cost Management and Contingency Theory are integrated to determine an interpret the findings, which reveal that Finnair’s response to the challenges involved a dynamic set of market diversification, fleet optimisation, and cost saving strategies to offset the influence of surging costs and restore their profitability. These measures were consistent with Al-Salmawi (2024) three key objectives of SCM: enhancing strategic position, generating revenue, and streamlining operation. Financial performance indicators such as RASK (Revenue per Available Kilometre), CASK (Cost per Available Kilometre), PLF (Passenger Load Factor), and EBIT (Earnings before Interest and Taxes) margin were assessed, showing positive influence of the implementation of strategies.

Through the analysis, the importance of contingency adaptation and strategic management of costs and revenue is emphasised by looking into how quick and strategic responses helped Finnair survive through the geopolitical turbulence. The findings are also aimed to contributing to the literature on cost management under exogenous shocks and offer practical insights for airlines as well as firms operating in volatile environments.