Name: Innovation Forum 2024: Innovation In Aviation
Uploaded: 2024-03-28
Duration: 15 min 17 s
Description: Ronald Lam, Chief Executive Officer, Cathay Pacific In Conversation With Alyson Shontell, Fortune

Ronald Lam, Chief Executive Officer, Cathay Pacific In Conversation With Alyson Shontell, Fortune 

Innovation Forum 2024: Innovation In Aviation

Conferences

Good morning. Great to see all of you and great to see you. Uh Ronald. Thank you so much for being here with us today. Thank you. Good to see everyone here. So I'm not sure that many CEO S have had a better first year than you. I just want to run through some steps, but um you generated a net profit of $1.3 billion breaking a three year streak of losses, the highest operating profit for your company since 2010. Um In your first year as CEO it's not, not too bad. So I'm curious um and by the way, you were the hardest airline hit during the pandemic. Um So that kind of bounced back is pretty unprecedented. Um um One more stat you carried 20 million passengers across the cafe group last year up from 2 million the year before. Um So quite a comeback, I'm curious uh is that sustainable? And how did you do it? I must mention that I think before the record result uh last year, we had really tough three years of the pandemic. Uh As you mentioned, we were the hardest airline of the world we had the domestic border closed uh with Chinese mainland and we had the international border closed. So for a long time, during the three years, we had less than 5% of passenger flights running and we lost 34 billion Hong Kong dollar uh during those three years. So the fact that we have managed to survive was indeed a miracle. And it's against that backdrop. We bounced back last year in our first year of the rebuilt. But even though I want to take a lot of the credit, but I wouldn't because we were um just in a good situation because the first year after Hong Kong opened up, the there was a lot of pan of travel demand and then the supply side wasn't catching up fast enough. So we had some tailwind helping us last year. So it's not sustainable. And our focus is that to make sure that we create a successful two years, 2024 2025 to make it consistent. Uh Last year was circumstantial, I would say. And this year and next year, we will be more back to our fundamentals which been we've been working hard, really hard on. So hopefully we can generate more consistent uh financial success uh in these two years as well. And so what were some of the things you did during the pandemic that set you up to sort of pop this year? I mean, yes, the travel demand came back that helps. Um Although it's not fully back, it's only tourism is only, I think about 47% to what it was. Um And your planes, I know you were aiming to get them at 100% capacity. They're not quite there yet, but still, like, what were the things that you did while things were kind of stark to set yourself up to rebuild now? Well, three years of the pandemic, uh it was tough as I mentioned, but apart from firefighting trying to survive, uh I asked my team, right, let's take the opportunity. So the whole leadership team, we also spend the other half of our time and energy to look at how we can transform our business. So that after the pandemic, we can come out stronger. So there's a thing that never was a crisis, right? So we didn't waste the crisis. We have done a lot of step changes in our business. For example, we have, we organize our cafe group into four lines of business, premium, travel, low cost, travel, cargo and lifestyle. We've also done a lot with our uh cost efficiency, productivity measures. So that one day when we come out from the pandemic, uh it will be a stronger and better cafe than before. So you um being that this is your core hub, I mean, I think cafe has always been sort of this global superconductor much like all of Hong Kong is and it's known to the world, you have the benefit of mainland China and that market. Um but you're also available to international markets. Um So it seems that your vibrancy is quite tied to Hong Kong and Hong Kong is quite tied to yours. Uh You recently joined the Tourism Strategy Committee of Hong Kong. And as I mentioned before, the daily visitor arrivals are only at about 47 47% of pre pandemic levels. So what do you think is needed to make the full recovery, not just for your company, but for Hong Kong? Sure, sure. Uh I think firstly, uh cafe and Hong Kong are closely tied and uh cafe's unique position. Actually, it's also Hong Kong's unique position. Uh which is uh we are deep roots in Hong Kong. Cafe has been more than 77 years uh rooted in Hong Kong and we are proudly part of China, which is very unique and then we connect the world, right? So how we play that strength just like Hong Kong does is really important. So Hong Kong mainland and then international, I think that's our secret source for success in the future. As to Hong Kong uh currently as the home carry of Hong Kong, our passenger capacity is roughly at 80% of preem level which is pretty good already because we only started early last year. And within uh a little bit more than a year, we are already at 80%. So we are no slower than any major hub of the world. And part of that drive is to make sure that we allow Hong Kong people to go out to travel internationally. Uh But very important to Hong Kong's economy is to allow visitors, whether it's for business or leisure to come into Hong Kong. Um So with 80% flights actually, uh we have prioritized Hong Kong people going out and then visitors coming in and all on our flights. Actually, these two types of traffic are already 100% of the prepa level. What is lagging behind is the transit traffic via Hong Kong, which we will continue to rebuild in the coming months. But in terms of visitors coming in like this event, many of you are from overseas and many of you flew in on Cathay Pacific. So I think that's really our priority to make sure that business visitors, leisure visitors can come in smoothly into Hong Kong. Yeah, I was one of those who flew in on cafe. Um I was like, oh I'm interviewing Ronald, I must fly his airline and it was a great experience and I have to say I was really happy to see it was an Airbus. Um I know that you just ordered a bunch of new Airbus planes even before Boeing really started having the the hard times it's been having. It's actually our new cover story is on how Boeing has broken down of late. Um I'm curious, how concerned are you with what's happening at Boeing? You have both Boeing and Airbus planes. Um, you know, we're seeing in the United States. United is under FAA investigation for having 10 safety incidents in the last two weeks, including tires coming off and all sorts of things. How do you view safety in general in the industry? And how concerned are you about Boeing situations? I would say in general, uh the aviation industry is the safest ever uh as we improve on our practices, uh policies, processes and technology, we are safer than ever, I would say in general. Uh And I can't comment in detail about other airlines or the OEM uh safety issues. But as to Boeing, right, we have been uh in close partnership with them for so many years and yes, they have some uh immediate issues they need to tackle, but I do have faith, right? They will come out strong in time. And traditionally we have both Airbus and Boeing and we really want to keep that uh competition uh intact and then up and coming is uh in our country, Comac um is up and coming. So we are also very hopeful that we can create another source of competition. Uh what we call the ABC, Airbus Boeing and Comac, right? I think that's the the Triangle Triangular competition hopefully for the future when it comes to the aircraft manufacturing market and your new reimagined Business Suite, um Reo launches later this year. Um So if you're flying in the fall, sounds like a great option. Uh But it's on Boeing. Correct. Yes. Uh It will be on our triple 7 300 is a retrofit program. Uh In fact, after the pandemic, uh apart from busy rebuilding uh in different dimensions, uh another thing we've been working really hard on with the board is catching up on our investment because uh during the pandemic, we couldn't do a lot of investment. But for Hong Kong, uh the three runway system is going to be operational by end of this year. So these two years, we need to prepare ourselves well for that huge expansion in Hong Kong. So we'll be making a lot of investment on our fleet as you mentioned as well as our product. So the A suite, the new business class on triple 7 300 is just one for this year, new product. And then next year we will have our new first class on triple 7-9 which is a new fleet uh joining us next year and then the year after we will retrofit our ac 30 uh regional aircraft and they will all be equipped with uh flat bed business class even for regional flying as well. So as you're thinking about the reimagined flying experience, how are you thinking about innovation and where um technology is appropriate and can make things so much better and where the human touch is important too too. You were actually the former uh chief customer officer. Right. Yeah. Sure. Um, well, Cathy is a pretty old airline, I would say. Uh we, we are turning 78 years this year. But during the pandemic, part of our transformation is to re invent ourselves. And we have defined a, one of our picture of success is to become a digital leader and we've been doing a lot uh to, to make that happen. And um one model we use to innovate digitally is what we call cafe, innovate. We have a systematic way of innovating where we have a process consisting of uh uh idea, right? We collect ideas internally externally through signature event like cafe, hackathon, disrupt cafe workshop, etcetera. And then we have funding and resources for incubating um to do proof of concept of selected ideas. Um and then we fail fast if necessary. And then we implement right in the way we have a cafe agile methodology to make sure that we implement in a timely manner. So that model is maturing and we've been therefore unleashing a lot of our digital capability, for example, right? Uh We are very big on machine learning. So over the past 18 months, we have created more than 60 machine learning models across our business, whether it's on the customer front, commercial front operational front, we are using those models already. And, and recently, we've been doing a lot of proof of concept on generative A I as well. Uh, applying it in our chatbot, uh, in our predictive maintenance and content generation, et cetera. Um, so one thing also is, uh, you know, maybe someday we'll have a, an area where planes can fly themselves completely without pilots. I don't think we're there yet. Um, right now very, uh, so many companies are tied to just labor shortages in general and I think the airline industry and for cafe as well. We're experiencing that um pilots themselves are down to about 35%. I think of what uh you would hope for. Um How are you thinking about retention, recruiting this pilot and building a workforce of the future as well to fly your cafe flight? Uh Well, coming up from the pandemic, we have a uh short term short uh resources including pilot cabin crew, ground employees, but that's only temporary. We don't have any structural issue and we are there to grow back our workforce. So currently we have around 24,000 employees across the group. And this year we will grow the total workforce by 5000. So we will be back to 29,000 and we are very confident um to, to achieve that uh a our attrition rate across all employee groups since Hong Kong opened up has normalized. So we don't have an issue in terms of attrition and we're turning on the recruitment and training machine uh to grow by 5000 in one year is unprecedented in our history. Um So we have a gigantic task to do. Um But I think now we are three months into the year, we have been making good progress. Uh And apart from recruiting from Hong Kong, we also recruit in Chinese mainland. Both our cadet pilot program, we've opened up to Chinese mainland residents as well as for the first time last year, we started to recruit cabin crew from Chinese mainland and have been making good progress. Of course, we also continue to recruit internationally and going back to our unique position. The same with our organization, we have a lot of Hong Kong employees, increasingly more Chinese Mainland employees and we'll keep a good portion of our international background employees and this is our unique position and secret souls for success, I believe. And I think you just gave them all a fairly large bonus like equivalent to seven weeks worth of pay. And Delta is also employed that I recently interviewed Ed Bastian turning like 2008 right after their bankruptcy and all sorts of stuff. They started this profit sharing program which has done wonders for their morale. It sounds like you're starting to do something similar. Yes. Uh well as we would bill, I put our people as the first priority uh because when our people are happy, they will make our customers happy and when the customers are happy, uh we should generate good business and the shareholders will be happy. So I'm working in that sequence. So uh when we come, came out from the pandemic, uh the first thing we thought about is how to reward our people. And uh thanks to the board, I think we get their support. And actually, in the last one year, we have uh give out, given out uh up to four months worth of uh additional pay to our people to both reward them for their loyalty and support during the pandemic um as well as to reward their effort in the first year of the rebuilt. And I can see right, it's been well received and the morale has been going up. So which is good and which has had an impact on our customer service as well. Because when I look at all the latest customer insights is also on the upward trend. So I'm really pleased with that. Well, Ronald, congratulations on your first year as CEO a lot has been achieved. It sounds like more to go, but you've got a plan and thank you for sharing some of your insights with us here today. Thank you, my pleasure.