CEO Interview: Korean Air - In it for the long haul
Korean Air Chairman and CEO, Yang Ho Cho, speaks about the lessons learned from almost 40 years in the business
How well is the airline doing? Cargo is a big part of your business and industry cargo numbers have not been encouraging for a while now.
It’s true that the global business environment is challenging. From a passenger standpoint, the airline is doing fine. But you are right to say that the cargo numbers are daunting. Cargo represents about 30% of our revenue so it is crucial that we maximize our potential in this sector.
No airline is immune from the world recession. At Korean Air, we have been analyzing the issues and are committed to weathering the storm. The airline is moving in the right direction but we are not moving quickly enough just yet. The trick is to keep innovating and looking afresh at our operations and processes.
New aircraft such as the Boeing 747-8 freighter will play a big part but there is a need to drive efficiency across the board.
We’re also exploring new cargo markets. For example, there is a scheduled service to Nairobi because Africa has enormous potential as a cargo market. We are working closely with Kenya Airways, our SkyTeam partner, so the market beyond Nairobi can be expanded too.
Is e-freight happening quickly enough to help the air cargo sector through these tough times?
It took time for the world’s airlines to adopt e-ticketing and it’s the same for e-freight. In fact, e-freight will take more time because it is more challenging and extends to industry partners and to governments. Before we can talk about a new technology we first have to standardize the process and that is difficult in a very long cargo supply chain.
Cargo security is another area where we need to standardize requirements. The security processes are getting tougher but there is a need to maintain an efficient system. There is such a lot of work to do in this ever-changing environment. We get so many new regulations from different governments and that alone makes standardization difficult. We need to have the right information to develop the right solutions. And that means that governments must be more practical in their thinking and be willing to work with us to achieve real security.
Your network is expanding to Central Asia. Do you see this region as a good market for the future?
A while back I met with the President of Uzbekistan and he explained his ambitions for his country to be an important hub for Central Asia. I looked at the figures and the geography. Navoi Airport was doing quite well, as was Tashkent International Airport. Clearly, their potential to be hubs is excellent. We are working with them to develop the market. It’s a long-term commitment. My philosophy is based on the long-term and not short-term gain.
Our expanded network strategy isn’t just about Central Asia. We are looking at Latin America and the Middle East as well. Later this year, we will be starting service to Riyadh and Jeddah.
How do you decide your network strategy? Do you view passenger and cargo markets as distinct or do you like to see potential for both?
The passenger and cargo markets are very different. For example, a passenger is normally going to make a return trip, but cargo is a one-way journey. It means you have to conduct different types of research and look at different sets of figures. Our cargo network strategy doesn’t follow our passenger strategy. In fact, some of our cargo markets aren’t served by our passenger operation and vice versa.
Is the SkyTeam alliance a vital part of Korean Air’s strategy?
An alliance is about finding the right partners so everybody can work together for mutual benefit. That is the beauty of an alliance. We started SkyTeam 12 years ago with five airlines and it now has 18 members.
But the purpose of the alliance is quality and not quantity. We have everybody using the same standards to improve not only the quality of service but also our efficiency.
For example, SkyTeam is interested in inviting an Indian member, which is something other alliances want as well. India is a big country and a big market, with airlines and alliances monitoring the market very closely. It is a very tough market in India right now, and any Indian carrier that joins an alliance must be ready to compete. I’m not sure any Indian carrier is quite there just yet.
We are very careful about new members. Any new member must work closely with all the partners. So it needs to be an equal opportunity, a reciprocal arrangement. That means the new carrier must bring something to the alliance, and we in turn should be able to offer something to our new member.
How important is Incheon airport to the future of Korean Air?
We are very proud of Incheon. It is one of the best airports in the world. It is a quality facility that mirrors our own service levels while paying attention to costs and expenses. In fact, in 2009, it received IATA’s Eagle Award, given to leading airports that demonstrate exceptional commitments to control costs.
But like any business, Incheon has its challenges. It must compete against airports in Shanghai, Beijing and Tokyo.
The Korean government is considering the equity from the private sector as a possible means of ensuring Incheon’s continued success. There are advantages and disadvantages to privatizing an airport—even partially as is being discussed here. It really depends on who operates the facility and the structure of the deal that is in place. I am just going to be a customer—a major one I must admit—but I’m sure the right decision will be arrived at in due course.
Are your Airbus A380s performing as expected?
Korean Air isn’t just about the Airbus A380. We are getting the Boeing 747-8 in 2014 and the Boeing 787-9 in 2016. These are also fabulous aircraft. The point is that new aircraft are more efficient and environmentally-friendly.
Of course, the A380 is a very successful aircraft for us. We fly it to Hong Kong, New York, Los Angeles and Frankfurt. Our profit has increased above the market level so we’re very happy with that. We will continue to invest in new generation aircraft so we can be more efficient, serve our customers with the best quality and be an environmentally-friendly and responsible airline.
What do you look for in a new aircraft?
We certainly want it to be customer–friendly. That means a wide, bright cabin with comfortable seats and optimized for good service. Of course, it should be more fuel efficient and reduce our operating costs.
There are some trade-offs though. Seats are more comfortable but they also are getting heavier and taking up more space.
Reliability is also a key issue. I used to be in charge of maintenance at the airline. Back then, we used to get about 8,000 hours of flying time from an engine before it needed major service. It’s now closer to 20,000 hours flying time. Technology is always improving and changing the business processes and the business model.
How will technology change the travel experience?
It has already changed the travel experience considerably. Booking and check-in can be done by mobile, for example. Customer expectations change and airlines must constantly innovate to keep up. Our passengers have very high expectations of the airline experience and we must consider a continuous flow of new ideas to meet those expectations.
It is important that airlines consider their passengers’ needs first. An airline cannot say this is what we will invest in and therefore the customer must use it. We need to make sure customers want it, and then make sure we meet or exceed their expectations.
Is social media a technology that you think has a place in the industry?
Forms of social media have always been a part of business. They had different names and used different technologies before, but the principles are the same. It is about establishing a communications link. The social media of today is changing the way we do business. So we will use it and then be ready to adapt again when there is another evolution.
There is a department that looks after social media for the airline, and we have a commercial Facebook page.
You managed to turn around the airline’s safety record. What were the lessons learned?
I’ve been in management for nearly 40 years and have worked on many different aspects of the business. Improving safety was not something achieved in isolation. It involved every department. I worked with staff so that everybody understood that we must identify and implement global best practices. Operational excellence is part of our mission, along with innovative excellence and service excellence.
IATA Operational Safety Audit (IOSA) is a great example of that way of working. The IOSA global standards helped change the airline’s mindset and it certainly made a difference to our standards. It’s difficult for an airline to operate without IOSA registration. That’s really positive for the industry.
The European Union Emissions Trading Scheme is still a contentious issue. Will you comply with the regulation in 2013?
We are talking with everybody involved, including our government and IATA. I have even met with the United Nations Secretary General Ban Ki-moon to see if he will mediate so we don’t get caught in a trade war. For me, there is not only the question of the extra-territorial nature of the EU ETS but also a question about the timing. Some countries are simply not ready for this.
There is no doubt that aviation has to meet its environmental responsibilities. I believe we are doing that and that we are one of the cleanest industries in the world. But we are also very visible and this is why we get caught up in government regulations and public pressure.
I hope the International Civil Aviation Organization (ICAO) process will be successful and that we will come to agreement on how to positively and proactively address the emissions issues.
You have had a sustainability program for a long time. Why is it so important to you?
I’ve been in the airline industry a long time. As I mentioned, it will be 40 years in 2013. And because of that I understand the need to look to the long term. Sustainability is very important to me and it is at the core of our airline’s strategy. And my family has a personal interest in the airline; this is another reason why I look to the future.
You were part of a winning bid to bring the Winter Olympics to South Korea. Will that give any advantage to the airline?
South Korea will host the Winter Olympics in 2018 at Pyeongchang. We were awarded the Games last summer after two previous bids failed.
I was involved not so much as an airline CEO but as a Korean citizen. It was a team effort and we all worked very hard together, and thankfully we were successful. People don’t recognize me as the CEO of Korean Air anymore but I do get recognized because of my involvement with the Olympic bid.
It’s still a long time until the Olympics so it is difficult to judge the exact extent of the airline’s involvement. But I don’t think in terms of the business advantage. I view it as a public service. It will enhance our brand and be good for Korea as a whole. All Korean companies stand to benefit from our hosting the 2018 Winter Olympics. The 1988 Summer Olympics in Seoul really boosted the Korean economy and we are expecting something similar in 2018.
How would you describe your management style?
The airline industry is very specialized. So I see my role as a harmonizing one. It is about getting people to work together. People understand their individual fields in–depth but don’t always see the big picture; how their work affects the airline.
I am lucky in that I have worked in many different capacities so I have a good understanding of what’s involved in running an airline. I don’t micro-manage but I make sure that we are all pulling in the same direction and that everybody understands what is going on. Every morning we have a senior management meeting and talk generally about the decisions we need to make. When a decision potentially impacts several departments we have a discussion so we can all understand how and why we are making a particular decision.
For more information, visit www.koreanair.com