Business Traveller (Asia-Pacific)
CX: THE GREAT CONNECTOR
As Cathay Pacific marks its 70th anniversary, Business Traveller interviews the airline’s CEO Ivan Chu about its past, present and future
BT: Cathay Pacific Airways (CX) was born in the tumultuous but optimistic post-WWII era, and grew in tandem with its homeport of Hong Kong, the success of both inextricably linked. Is this as true today as it was then?
IC: Absolutely. We started small, from humble beginnings; post-war a lot of reconstruction was needed, and our founders seized that opportunity. They were adventurous, coming to Asia to help ship people, goods and supplies to different parts of the region. The Cathay Pacific story is not just about Hong Kong – it’s a key part of the China story too, in fact it’s actually an Asia story. These days we use the word connectivity, and Hong Kong is all about connecting people, contributing to Asia’s development and growth. Hong Kong has always been an entry point and hub, whether by sea, land or air – after Dubai (90 million) and London (70 million) it’s the third biggest (68 million) in terms of air passenger throughput. Hong Kong has punched well above its weight – it only has a population of 7.3 million but it’s so vibrant.
BT: What would you say are the three most significant landmark events of CX’s 70-year history, and why?
IC: Of course the start of the airline would be one. There were opportunities during Asia’s recovery but initially it grew at a slow pace, and CX was a regional airline for its first couple of decades. Over time though GDP per capita rose and populations grew, which was helpful in developing economies.
Second would be the jet age in the 1970s and 80s, which allowed CX to spread its wings to European destinations and North America. This was supported by new aircraft technology and Hong Kong’s economy really taking off. The third important event was in 2006, when we did a landmark deal with Air China, acquiring 100 per cent of Dragonair and creating a share-owning relationship with Air China where they own 30 per cent of CX and we own 20 percent of them. They are one of the world’s biggest airlines by market size and we support each other and work on a lot of things together – we would not have been able to grow Dragonair organically without them. Also part of that deal was our development of Air China Cargo based in Shanghai and Beijing, which gives us a presence in China’s two main engines of economic growth – the Pearl River Delta and Yangtze River Delta – and a joint venture with Shanghai Airport and Air China as part of a tripartite relationship.
BT: CX is one of the largest and most respected Asian carriers. How did it reach that position, and how does it stay there?
IC: We have very good shareholders, and their support is key. Many airlines are
state-owned and not a lot are well run – in Southeast Asia Singapore Airlines may be the only exception. The fact we are 45 per cent owned by Swire Pacific, 30 per cent by Air China and 25 per cent by the public allows us to focus on the customer, on development, on new technologies… state-run airlines can be distracted by government objectives, and they aren’t so popular with their customers.
The spirit of private enterprise in Hong Kong has allowed us to flourish on the basis of good support from shareholders, and importantly, a focus on the customer. We rise and fall by how we serve our customers; we buy new aircraft and technologies in order to please them, open new routes – for example, our latest destination is Madrid, because we’ve seen a lot of demand from customers wanting to travel to the Iberian Peninsula, and there’s a lot of cargo demand for fantastic produce like hams, Spanish wines, etc. It’s also the fastest route to South America…
BT: The period from the late-1990s into the mid-2000s was, for a number of reasons, a very difficult time (think global financial crisis, 9/11, SARS, bird flu and staff labour disputes). What were the fundamentals that allowed you to get through those difficulties and emerge a stronger airline?
IC: We focused on the customers and staff. There are always challenges; we cannot control externalities so there will always be problems to solve. The airline industry is one of constant challenges punctuated by small periods of peace, so if there’s one thing we’re good at it’s dealing with crises – we are always in ready mode. Our two major stakeholders are our customers and our staff, and our business model is to make both these groups happy. Sure, we have some industrial issues, but at the end of the day we must make our staff happy, so we engage with them, talk to them, we give staff profit share… happy staff make happy customers. Crises are always short term – as long as we embrace our staff and customers we don’t worry about the future. In fact, if I had to sum up the essence of Cathay Pacific in three words, it would be: “Focus on customers”.
BT: What is CX’s take on the debate surrounding Hong Kong International Airport’s third-runway project?
IC: This debate has been going on for almost ten years. Construction of the third runway has already started and it should be finished by 2024. We have to be ahead of the curve, so we strongly support the third runway system, but Hong Kong people are concerned about the environment and rightly so. To build connectivity we must have the added infrastructure, but it’s so important to remember the need to minimise carbon emissions, the impact of noise, air quality, and our beautiful dolphins whose habitat is in this vicinity. The question is how do
we grow but also protect the environment of the future? These are major issues.
BT: Environmental awareness and aviation are not traditional bedfellows, but most airlines are ramping up their efforts to be as environmentally friendly as they can. What does CX do to minimise its environmental impact?
IC: There’s been greater focus on the environment and companies’ carbon footprint in the last ten years, and protecting the future for our children is of course very important. We want to be a force for good, and we airlines recognise our carbon footprint is high so we all need to work together. The International Air Transport Association (IATA) works well as an industry body, and we sit together and talk about it a lot; as an industry we target 1.5 per cent improvement in fuel efficiency – but at Cathay we target 2 per cent, and in fact last year we made 2.7 per cent improvement – and will do more.
We have a firm order to the value of HK$180 billion (US$23.2 billion) for new aircraft that will reduce carbon emissions in a huge way, and are retiring our 747s this year and our A340s early next year. We also work on operational practices like taxiing procedures, using ground power when stationary, air traffic control to shorten routes and time in the sky, etc.
At the recent IATA AGM in Dublin we discussed a carbon emission trading system with ICAO (the International Civil Aviation Organisation), using a market basis to give economic incentive for airlines to improve themselves.
It would be a worldwide system, where from 2020 all airlines would have to pay for growth and the money collected would be used towards neutralising those emissions – in initiatives like planting forests – while any airline not improving its fleet would pay more. The goal is carbon neutral growth – we can grow but the extra carbon will be neutralised.
BT: CX’s new Airbus A350 begins international flights this month. At the end of September the airline’s last B747400 will make its final flight. Is this the end of one era and the start of another?
IC: Yes, we are closing a major chapter in Cathay’s history. We started using the 747 in the 1970s, and the “Queen of the Skies” allowed us to develop our non-stop services to Europe and West Coast US. We have the biggest fleet in the world of the 747-800, which is the largest, most efficient commercial freighter, and cargo continues to be a major part of our business.
But we are very conscious of our carbon footprint, and as we move forward we are proud to have one of the world’s most environmentally friendly fleets. We have 53 B777-300ERs, which are efficient, lightweight, have excellent operational reliability and are loved by everybody – that’s the principle long-haul aircraft for us at the moment.
Then comes the A350 – we have 48 on order, 22 900s and 26 1000s – and we also have firm orders for the B777-9 in 2020, which we are very excited about.
BT: The global economy may be slowing down – as is China’s – but Asia is still in the economic ascendancy. How are you strategising to make the most of that in the years ahead?
IC: For Asia to achieve its potential there are a few challenges to overcome. We are victims of our own success: the infrastructure in certain parts of Asia is almost at breaking point – in the case of Hong Kong, Manila, Beijing, Shanghai and Jakarta all the airports are very full, so we need to build infrastructure. That said, we also have some of the best airports in the world – Incheon, Singapore, Hong Kong – so we can face this challenge and stay ahead of the curve. Other issues include personnel, such as pilots (we’ll need more of those), air traffic control systems (there are still delays), developing routes, etc – some countries are doing better than others but collectively we all have to do better.
The coming century will be an Asian one in terms of travel, and China will definitely be a big part of that, both outbound and inbound. But the outlook is global. Look at our fleet: we put our money where our mouth is – the future for CX is about the A350, the most technologically advanced super long-haul aircraft. So we’ll “thicken” routes with our efficient aircraft, to the major hubs in Europe and the US. We operate a hub and spoke system, and we need to build both to grow our network.
The CX strategy has always been one of frequencies – we fly four times a day to LA, five to London, 17 daily to Shanghai, 25 a day to Taipei, etc – and it’s about connecting well at both ends at a time of our customers’ choosing, which is key.
In 3-5 years the whole Pearl River Delta region will see major intermodal connectivity by air, sea, high-speed train, bus and car – within three hours we can reach 100 million people. It’s an exciting prospect.