Cathay Pacific: Tel Aviv route exceeds our expectations

Paul Loo  photo: Eyal Izhar

Cathay exec Paul Loo says he's not in the low-cost game, and advises Israeli hotels not to offer Chinese tourists Chinese food.

Paul Loo, chief customer and commercial officer of Hong Kong-based airline Cathay Pacific, visited Israel for the first time in March. He arrived on Cathay Pacific's inaugural flight to Tel Aviv. Even before the plane took off from Ben Gurion Airport on its way back, Loo declared at a ceremony at the airport that his company would increase the frequency of its flights to Israel from the originally planned four weekly flights to five. This week, when he came to Israel for the second time, he again brought news with him, announcing the addition of a sixth weekly flight on the Tel Aviv-Hong Kong route.

"We originally planned to begin four flights on this route, but we very quickly realized that the market was strong, and we raised it to five flights," Loo said in an exclusive "Globes" interview, commenting on the aviation ties between the Holy Land and the Chinese city whose name means "Fragrant Port."

"In most cases, company practice is to retain the frequency of flights set in advance for a period of several months. In very unusual cases, we increase the frequency by one flight, but I don't recall adding two flights within such a short time in any other market. The message we're getting is that Israeli passengers were eager to have another airline on this route. We're glad to get support and a favorable response from the Israelis, but not only from them. We rather quickly learned that the flights to Israel do not carry only Israelis – there is also demand for flights to Israel from tourists and businesspeople from China, Hong Kong, and Japan, as well as from places like Australia, Vietnam, the Philippines, and New Zealand. The mix of passengers is diverse, including backpackers, students, tourists, as well as businesspeople."

Before Cathay Pacific began its route, El Al Israel Airlines Ltd. (TASE: ELAL) was the only airline operating direct flights to Hong Kong. At the same time, Loo does not believe that the competition provided by Cathay Pacific is only with El Al.

"El Al is one of our competitors, but not the main one. Passengers today take into account flights via intermediate destinations more than in the past, and every airline offering a flight to Hong Kong with a stop on the way is therefore a competitor. These options create competition on several fronts, and in any case, El Al has no reason to be worried. The market is continually growing, and neither El Al nor any other airline has any way of stopping the competition. In China, the pie for the players in the sector has grown together with the increase in the volume of passengers."

Loo adds, "Wherever we launch a route and open new destinations, it's a major operation for us that goes beyond the flight itself. Our home airport, the airport in Hong Kong, enables us to provide support for other markets, in other words, through connection flights, including to the new destination in Israel."

"We aren't in the low-cost game"

Cathay Pacific was founded in 1946. A decade ago, it acquired Dragon Air, whose name was changed a year ago to Cathay Dragon. Its fleet of 40 airliners flies in the Asian region. Cathay Pacific has won the title of the world's best airline four times.

Loo joined the airline in 1991, and has since served in a number of positions. In addition to his current position in the company, he is also chairman of the board of directors of Airline Representatives Hong Kong. The civil aviation industry has changed in recent years with the entry of dozens of low-cost airlines in every country - some of which are owned by the established airlines.

"Globes": Is Cathay Pacific considering entering this area?

Loo: "Statistics show that passengers are adopting the idea. Airlines like Ryanair and easyJet have already become mega-airlines carrying hundreds of thousands of passengers. The low-cost phenomenon started later in Asia, and Cathay Pacific is not part of this game."

The expansion of low-cost airlines has caused a change in perception among many passengers. A flight is no longer perceived as an experience; it is simply a means of getting from one place to another. Do you feel this?

"The change you're talking about depends on the passenger and the purpose of the flight. It's true that a flight today is a more accessible and common product than it was 50 years ago. The mix of passengers today includes more young people, and there are more passengers in general. But there are many passengers who still regard a flight as an experience, not merely a means of transportation, and that's exactly our focus. That doesn't mean that we won't fight in order to compete for the other segment, too, but our focus is on being in the area of a quality product appreciated by someone also looking for an experience on a flight."

Does that mean that the main group among your passengers actually consists of businesspeople?

"Yes and no. We focus on the product that we give on board the airplane in comfort, food, and beverages. We invest in the business classes, and greatly emphasize the service provided by the crew on the plane. This is important to a family flying with small children and asking for help, not just businesspeople. Such passengers also appreciate and look for the experience."

Despite everything the experience includes, prices charged by all the airlines have fallen over the years.

"A look at the history of aviation in the long term always shows a downtrend in prices. On the other hand, however, today's airliners are more economical and efficient, which enables us to lower operating costs and stay profitable.

"Bear in mind that the profitability of an airline is not measured in the pricing of passenger tickets. 30% of our activity is in cargo, and if you do good business in this segment, you can lower prices and be competitive. That's our way.

How much do fuel prices affect pricing?

"In long-distance flights, it is an important element in pricing, but it's not the only one. The cost of the both crew and airplane maintenance is also in the equation. This is where the importance of a young air fleet comes in. In our case, the average age of an airliner is five years. The utility of this is measured in the short and long term, and we invest a lot in a renewing the fleet. This also affects competition and pricing."

What is Cathay Pacific's strongest route today?

"It depends on the season. In general, we are strong in flights to the US and Canada, and we are now in the midst of expanding to new destinations in Europe. Last year, we launched the Madrid-Hong Kong route, added a flight to Gatwick Airport in London, and we'll launch a route to Barcelona in July and a flight to New Zealand in December."

Feeling online trade in the air

It was recently reported that Cathay Pacific and Lufthansa were tightening the ties between them and cooperating to some extent.

"Lufthansa and we are cooperating in cargo. Beyond that, nothing is being planned at the moment," Loo says. "The company with which we have the most extensive cooperation is Air China, with a 10-year agreement that enables customers to use flight miles accumulated with both companies, joint events, and so forth. It's not that we're not competing with each other; we're both competitors and friends. What's good for them is good for us, and vice versa. We also have had cooperation with Japan Air for a long time. Don't believe every rumor you hear or every report you read."

What is not a rumor is that following Cathay Pacific's most recent financial statements, it announced that it would lay off hundreds of company employees. "The competition is very strong, and we have had weak periods recently. We decided to respond rapidly, given the changes that the market is undergoing. The goal is to cut costs by 30%, and we announced 600 layoffs - not from the air crews or from the pilots - in the very near future."

Are you short of pilots?

"There's always demand for pilots, and anyone interested is invited to send a CV. My children also want to be pilots, and I'm encouraging them in this."

How does online buying, which has grown all over the world, affect your cargo business?

"Online purchasing is getting stronger. We're the third largest company in the volume of cargo, with a fleet of over 20 planes just for cargo. Traffic from Hong Kong has been boosted by the growth of online buying, and this has had a strong impact on us."

Regular airlines have begun to charge for services that were previously provided free of charge, for example advanced seating, and even food and beverages in flight.

"Charging for services has become popular among many companies. For example, charging extra for extra leg space is a trend. Are you asking how far we'll go with this? I don't know."

The CEO of WOW Air, an Icelandic airline, which recently announced that it was starting activity in Israel, said that they have realized that the passenger prefers paying for exactly those services that he or she uses, rather than having them included in the fare. What is your opinion of this attitude?

"Every airline has a different understanding of this. We're more in the direction of a complete and overall experience, but we try to consider what else is being done through the other segments."

Passengers are also changing their consumption habits, buying more tourist products and flights online, and less through travel agents. Is Cathay Pacific also finding itself selling more directly to passengers?

"Online is becoming very strong and significant throughout the entire industry, but the travel agent is still able to offer additional service that the Internet can't provide. There's considerable room for passengers looking for an agent to tailor an entire package for them, with a timetable planned in advance, instead of doing everything by themselves, as well as passengers looking for special destinations - this is also a niche that is more the preserve of the travel agents. In any case, most of the people behind the websites are travel agents, so they haven't been hurt very much."

Most of the airlines have completely cut down agents' commissions. Does Cathay Pacific pay agents a commission?

"Agents' commissions depend on the agreements we have. Offsetting commissions is a global trend across companies. It is made necessary by the situation and competition in the market."

"Don't offer us Chinese food"

You spoke about the potential in bringing tourists to Israel from Hong Kong. Who are the tourists interested in Israel as a destination?

"People travel more now, especially young people exploring the world are looking for new destinations, instead of always visiting the cherry season in Japan or lying on the beach in Thailand. Tel Aviv is a good destination for this segment. We won't disappoint the minister of tourism; we'll bring business to Israel by contributing to an increase in the number of Chinese tourists."

The Ministry of Tourism has indeed set a goal of increasing the volume of Chinese tourists in Israel, and hotels are making preparations with food, booklets, and instructions in Chinese.

"My tip is that where people from Hong Kong are concerned, don't offer them Chinese food. We want to experience your local food. You don't have to make an effort; simply be yourselves. Be sociable, like you are. That's what we're looking for."

Meanwhile, on every visit to Israel, you announce an increase in the frequency of flights on the route. Will you reach seven weekly flights on your next visit?

(Laughs) "If Israelis adopt Cathay Pacific, we'll make the planes bigger and bring more tourists here. Who knows? Maybe we'll increase the frequency of flights to one every day."

Published by Globes [online], Israel Business News - www.globes-online.com - on June 15, 2017

© Copyright of Globes Publisher Itonut (1983) Ltd. 2017

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Paul Loo  photo: Eyal Izhar
Paul Loo photo: Eyal Izhar
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