Yuji Hirako, President and CEO of All Nippon Airways says attracting tourists to Japan will be vital to the carrier’s business
Visitors to Japan are set to increase as the government pushes tourism ahead of the 2020 Olympic and Paralympic Games. CEO Yuji Hirako says All Nippon Airways is preparing to benefit by refining its dual hub strategy in Tokyo and employing the latest technology.
There are ambitious targets for Japan’s tourism arrivals in connection with the 2020 Tokyo Olympic and Paralympic Games. What impact do you see the Olympics having?
The government has set a target of attracting 40 million visitors annually by 2020. In 2017, the total number of overseas visitors to Japan reached 28.7 million. Effort will be needed to cover the gap.
The increase of 80,000 more slots at Haneda and Narita by 2020 will help. The full utilization of these slots will surely make a big contribution towards the 2020 target.
And where there is already unused capacity—as we have in Osaka, Nagoya, Sendai, Fukuoka, and Sapporo—there is big potential for LCCs to increase tourist arrivals. We are integrating our two subsidiary LCCs (Peach and Vanilla) and their combined strength will surely contribute to this.
The government recently announced a new tourism tax. Are you concerned that it could be counter-productive to the development of tourism?
Of course, any tax is a burden. At ¥1,000 per passenger I think that in comparison, it will have a greater impact on the LCC sector than on the full-service airlines.
When we attract 40 million travelers, the tax will collect roughly ¥40 billion. How this amount is used is vitally important. If it improves the tourism infrastructure of Japan, it could be a good investment.
For example, investments in smart airport technology could alleviate crowding in customs, immigration, and security areas. That would make Japan a more welcoming country for tourists. Similarly, investments to improve signage, preserve monuments, and make our destinations more accessible to foreign tourists would be positive. It is important that the tax payers can directly feel the benefit.
Are you concerned that the tax could rise?
The tax level is set in law and difficult to change. We urge the government to continue to focus on increasing the number of tourist arrivals—then their revenues will rise automatically. At ¥1,000 per passenger, I think we are at the limit for now. Any increase would create a risk to dampen demand.
How difficult is it to operate two hubs—Haneda and Narita?
It is important for us to be at both airports—hence our dual hub strategy. This might look like it would raise efficiency concerns, but, so far, we have been doing well by separating functions. Depending on where you live in Tokyo, you may find Haneda or Narita to be the most convenient. For people not residing in Japan, Haneda offers easy connections to the Japan domestic network and convenient access to the city center of Tokyo. Narita is focused on international connecting traffic from North America to various points in Asia and China, and to Japan domestic LCC operations.
Our presence at both airports will grow with available capacity. Right now, there is an afternoon connecting bank at Narita. And Haneda has both early morning and late-night connections. Our dual hub strategy involves strengthening both airports to become even more convenient for our passengers, no matter where they are from.
What are the key issues for Japanese airports?
Access. Haneda is a 24-hour airport, but access late at night or early in the morning is a problem. We appreciate efforts to reduce curfew hours at Narita, but the cost and convenience of early morning/late night access must improve.
A second issue for utilizing Haneda’s eventual capacity expansion is being able to overfly central Tokyo during the afternoon period. It is very important. With a lot of community relations work, I am confident that a positive conclusion will be achieved.
How do you feel about airport privatization?
We are watching this very carefully. Sendai and Kansai airports have been privatized. It is still too early to make a definite conclusion. But we have seen several interesting proposals from the management of these airports demonstrating their focus on improving efficiency.
It is important to think of which structure can drive the most effective incentives to improve efficiency. I don’t care if the owner is the government or a private corporation. What I want to see is an airport that meets our needs for sufficient capacity, efficient operations, and affordable costs for us to satisfy our customers.
You are making investments in the cargo business with new dedicated freighters. What is fueling your cargo optimism?
Air cargo is a network business. If your network is too small you won’t get the efficiencies of scale needed to fill your planes. You also need the right aircraft. Most of our cargo freighter operation is with 767 aircraft, but they are not large enough to handle shipments of cars, or aircraft engines. We chose to purchase two 777 freighters to help us address these issues. And by combining the all-cargo fleet with the belly opportunities from our passenger network our competitiveness in the market will improve.
What will guide your investment in ANA’s medium-term strategic plan?
Two-thirds of our annual ¥300 billion strategic investment is for aircraft. Fleet renewal is a very important part of our strategy as it allows us to manage maintenance costs, improve fuel efficiency, and lower our emissions. It also helps us to introduce cabin improvements, such as new seats to meet passenger expectations for comfort and service.
The remaining annual ¥100 billion is largely spent on IT and training. Investing in our people is a key concept for ANA. For example, we are developing a new training facility near Haneda airport.
Our IT investments are also related to people. We have a project called Society 5.0 that uses open technology platforms to look for ways to improve our business. Technology can free-up our people so that they can pay even more attention to our customers. We are looking at things like drones and avatars—trying to understand how these new technologies can best fit into our business. Our intention is to be at the leading edge of this thinking.
How can avatars help your business?
With an avatar—essentially a robot—it is possible to hear, see, and feel what is going on at the other side of the world. Potential visitors to Japan could get a really good feel of what it is like to be in Japan except for senses like smell and taste. And the experience is also live, very different from virtual reality. The closer the experience gets to reality, the more you will be tempted to actually travel, and that experience would encourage you to travel in person on ANA. So, we expect avatars to shake-up the market and create some new demand. You will see our plans to commercialize avatars in the market early in 2019.
ANA has a traditional legacy carrier and low-cost short-haul airline. What about low-cost long-haul?
People consider trans-Atlantic as a low-cost long-haul activity, but for us, that’s a medium-haul market considering the flight hours. I have not yet seen indications of success on flights of ten hours or more—which is what we call long-haul.
From Japan, the number of potential new international destinations within 4,000km is rather limited. But Southeast Asia, China and India are within the medium-haul range of 7,000km. As income levels rise, these areas and countries might be the fertile ground for mid-haul, single aisle LCC operations.
How do you see technology improving airport operations?
Airports are extremely labor-intensive workplaces. Handling passengers or handling cargo takes a lot of people. All the ground vehicles are driven by people, as are the cargo loaders. With an aging and declining population in Japan, finding people to do these jobs is challenging.
Robots, artificial intelligence, and self-driving vehicles could form a solution that would also allow us to create better quality jobs and focus more on the customer.
Will airport processes change?
We may find completely new ways of getting people and bags onto aircraft. For example, think of the hassle it can be to get your luggage to the airport. Some people would value a service that collected your luggage at home and delivered it to your hotel—particularly as people live longer and travel later in their lives. This is just one idea.
What more could we do with big data?
Big data has huge potential. We have lots of data sources—the airline, our trading company, ANA branded credit cards, hotels, and so forth. An ANA subsidiary is focused on analyzing the data that these sources generate. Guided by data, our goal is to present options that will fit exactly the travel patterns and the purchasing behavior of our customers. And new distribution capability (NDC) will be the essential link to distribute these product innovations. We are watching very carefully how the standard deploys.
Is ANA ready for the Carbon Offset Reductions Scheme for International Aviation (CORSIA)?
We are managing our carbon emissions with investments in fuel efficient aircraft, more efficient operations, and implementing best practices like frequent engine washing. CORSIA will start from 2020 as a means of capping global emissions from airlines. From 2020, we will need to weigh buying carbon credits against investments in other options to minimize emissions.
One of those options could be biofuels. But it will take some effort to get over the challenge of finding enough supply at reasonable prices. Biofuels are promising, but I don’t see them being a practical alternative to jet fuel in the near future.
What is the biggest challenge facing the industry?
An immediate concern is anti-globalization. It could negatively impact the fortunes of our industry, and the global economy.
In the longer-term, and assuming that globalization will prevail, we will see a sharp increase in demand as developing nations’ economies grow. But will we have the resources to accommodate the demand? By resources, I mean airport infrastructure, slots, airspace capacity, and skilled labor.
I also think that severe weather brought on by climate change will be a challenge as well. This is a broad challenge for human society in many ways and might have a big impact on airline operations.
What will ANA look like in five years?
Japan’s declining population will have an impact on ANA. Outbound growth potential will be limited, so we will need to stimulate inbound demand. You will see ANA becoming increasingly global in our outlook and our focus will be on quality. Receiving Airline of the Year 2018 from Air Transport World, and also receiving the 5-star rating, the highest of its kind, for six consecutive years partly recognizes our success so far. We want to do even more. Our five-year strategic plan aims at a global market position of “unchallenged quality.”
How would ANA staff describe you?
They would likely say that I am demanding. I really value flexibility—it is the key to success. I don’t like people to think in set patterns. Each of our customers is an individual. And if we are going to deliver “unchallenged quality” we need to be flexible enough to recognize and meet individual needs.