Ivan Chu, Cathay Pacific Airways’ Chief Executive tells Tony Concil that getting the small things right builds a platform for success
What can we read into China’s economic performance?
The big airline profits are not in Asia at the moment. US airlines are the ones making the money. We are, however, continuing to improve our performance.
China is the second biggest economy in the world and it is hard to post double-digit growth figures when you are that size. Until now, China has been performing magic. They are still growing, but at this point in the growth cycle it is in single digits.
There are some good underlying trends. Chinese consumption continues to increase but with still a long way to go to get to the consumption levels of the developed world. This will take up the slack as infrastructure spending slows and the reliance on export-driven growth decreases. These are all signs that China is shifting to an economic model that will be more sustainable in the longer-term.
This all has an impact on the performance of Cathay Pacific. We are one of the biggest cargo carriers, so the slowdown in exports is a big concern. But there are some positive trends. The growth in passenger numbers is strong and we are maintaining load factors at an historical high of around 86%.
Lower fuel prices are helping on the cost side but the strong US dollar is an issue. Half our revenues are in US dollars and the Hong Kong dollar has a peg. But we are still short on US dollars, which is the currency that we use for fuel and aircraft purchases.
Can you meet the demand for passenger services and also fill your cargo capacity in the belly?
Actually, there is no problem with filling the bellyhold with cargo. But we have had to scale down our fleet of freighters. We have gone from 35 freighters to 22 since the global financial crisis in 2008-2009. We are also replacing the freighters with new models to be more fuel efficient and we are reducing some frequencies.
How do you see the transformation toward e-freight?
We are 100% behind it. It’s good for the industry and good for shippers. It even has environmental benefits with reduced paper.
It will take time and a lot of investment to get the behavioral change we need to move to e-freight. Cathay Pacific has been pushing hard and will continue to push hard. E-freight is the way to go—I don’t see any other option.
What is your vision for Cathay’s growth?
We are planning for to meet growing demand with orders for 69 aircraft—48 A350s and 21 Boeing 777-9Xs.
China is, of course, a big part of our plans. It has challenges, but I am bullish. China is often compared to India but its GDP is four times bigger and there is much better infrastructure. There are more highways, more rail tracks and more telecommunication systems. China is first world in many respects. The Chinese leadership is making wise choices to stop corruption and restructure the economy, which should give confidence to financial markets.
Southeast Asia, which has some 600 million people, twice the size of the United States, is also important. It has a young population that is getting more prosperous as the region takes on more production work.
Cathay will continue to grow as a super connector with strong links across the Pacific and to Europe.
Are China’s air traffic management issues being resolved fast enough for your growth plans?
China is a great story but there are issues to overcome and air traffic delays is certainly one of them that affects all carriers. Resolving this successfully has been discussed by the IATA Board of Governors and it is on ICAO’s agenda as well. We need to do more to raise awareness in the Chinese government of the extent to which this is an issue—for airlines and our passengers.
With the right political will, I believe that a solution can be found with technology and process improvements. Key to this is better cooperation between civil and military authorities, which could lead to, for example, more flexible entry points. The focus should be on achieving a safe and efficient air traffic management system based on global best practices.
Is there potential for more consolidation in the industry?
We are already seeing it but it won’t happen quickly because there are so many external factors when consolidation crosses borders. It can happen much more quickly in other industries such as hotels, for example. And let’s remember that even a domestic consolidation takes time to generate results. It took the US industry from 1978 until now to really get their industry into shape.
The last 20 years have brought about the beginning of a restructuring though. The development of the alliance model is a form of consolidation and more partnerships are happening—such as Emirates and Qantas. We’ll see more of those types of partnerships on Asia to Europe routes.
Emirates is working with many oneworld airlines. How do you see that developing?
The Gulf carriers are a force to be reckoned with. But we are in a post-alliance world. Airlines already have the benefits of these multilateral arrangements and while there are many of these, an alliance can’t always meet all of the needs of an airline’s passengers.
oneworld recognizes this and always been very flexible about allowing its members to create partnerships with other airlines. Cathay has long had an arrangement with Air New Zealand that works very well, for example.
This flexibility is a win-win for airline partners and their passengers. It is a new form of consolidation and we will see more of these bilateral arrangements.
How important will a third runway at Hong Kong be to your operations?
The Hong Kong business model since the start has been about trade and connectivity. From being a piece of barren rock, Hong Kong is now a major financial and economic center. It is a connector between China and the west and clearly aviation has an important role.
If you look at where Hong Kong is putting its money, it is still the same. Aside from a third runway, there is the bridge to Macau, the improved link to Shenzhen, and the high-speed train from Kowloon to China.
All of these developments are fundamental to the future prosperity of Hong Kong.
The third runway is just part of a bigger project. It is almost like building a new airport next to the existing one. It is not just the third runway, but taxiways, a terminal, a baggage system, and so forth.
The Hong Kong government has given its approval but there is still a process to go through as there are six legal challenges outstanding. But I am optimistic that we will start building from the middle of 2016 and it should all be completed by 2024. It will be all important for all airlines flying to Hong Kong, not just Cathay, and it will benefit Hong Kong for sure.
Is the airport raising its charges?
Prices will go up for the passenger and the airline. We are very clear that the authorities should minimize the financial impact of the airport and we have been lobbying with IATA on this issue.
We accept it is a very expensive project though and at least we are making progress. That’s more than can be said for London or Sydney!
What are you most proud of in Cathay’s environmental performance?
It is a cliché to talk about a journey but the industry’s environmental efforts have been just that. We are still not there and the journey continues.
At Cathay, we are very serious about addressing climate change and carbon emissions and we have set very aggressive targets. It is the small things that add up. About 90% of our retiring A340 fleet will be recycled, for example. All our staff are proud of this. It shows how our environmental strategy is being integrated into the mainstream of the business.
What is the main challenge for aviation and for Cathay Pacific?
A return that covers the cost of capital tops the list for both the industry and Cathay Pacific.
Since the start of aviation, airlines have been generating a lot of value for governments, economies, passengers, and shippers. But it has never generated benefits for itself on an industry basis. So something is very wrong there.
It is a work in progress and Cathay Pacific needs to continue delivering a return to its shareholders. We have been successful generally but it is about delivering in a consistent manner when so many factors, such as the fuel price and the foreign currency exchange rate, are out of airline control. The industry must prove that it can consistently deliver returns.
What is it like to be the CEO of Cathay?
It is great. We have 50 different nationalities working for us in all aspects of the business. We are able to attract talent from throughout the world. It is just magical that the team works so well together to deliver our “service straight from the heart” concept.
Our senior team has an average of 25 years of service. More than a third of my career has been spent outside of Hong Kong and it is a similar story for other senior managers. We have the best of the world coming together at Cathay Pacific.
It is very satisfying to lead such a dynamic international team. I like to engage with them to hear their point of view, empowering them and making good decisions.
Service straight from the heart starts with making sure we are getting the basics right. I was the COO before so I’m very keen on operating the airline efficiently, making sure the engines, maintenance, customer service and so on are all working well. It is not easy. But if you can make sure that all the small things are being done right then the big things will follow.
2014 Ivan Chu was appointed as Chief Executive of Cathay Pacific on 14 March
2011 Becomes Cathay Pacific Chief Operating Officer
2008 Appointed Director for Service Delivery at Cathay Pacific
1984 Chu joined the Swire group and worked in Hong Kong, Mainland China, Taiwan, Thailand and Australia
Ivan Chu was appointed as Chief Executive of Cathay Pacific Airways on 14 March 2014