Mon, May 03, 2004 page11

• China Airlines tries to repair its image

  For nearly 50 years China Airlines has been a national symbol, but it has struggled with safety concerns. Philip Wei, the carrier's president and CEO, talked with `Taipei Times' staff reporter Jessie Ho last week about the airline's efforts to win customer confidence

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  Taipei Times: China Airlines is considered a major national symbol but the company's reputation has suffered in the past because of fatal crashes. What has China Airlines done in recent years to improve the company's image?

  Philip Wei (魏幸雄): Ensuring flight safety is the primary responsibility of all airlines. We acknowledge that we have had a poor safety record in the past. However, after years of consistent effort, we've made significant progress.

  

  Philip Wei, president and CEO of China Airlines, gestures as he talks about his company's efforts to improve its safety image and about the potential impact of direct cross-strait transportation links.

  PHOTO: GEORGE TSORNG, TAIPEI TIMES

  In terms of flight crew training, we've implemented stricter controls on both foreign and domestic pilots. Recently we started a recruiting program and received about 700 applications, showing that people are regaining confidence and trust in us. We will train the new personnel in Australia for 11 months to help develop their skills, language ability and discipline.

  Our emphasis on safety can be seen in our hiring policies. Quite a few carriers last year downsized their staff, including pilots, as the SARS outbreak scared away travelers. To weather the crisis, we offered favorable pensions for employees who volunteered to retire. But we will not cease bringing in fine pilots and crew members even in the toughest times.

  TT: China Airlines hired Germany's Lufthansa Technik AG, a subsidiary of Lufthansa German Airlines, to train its pilots and engineers in higher safety standards between 1997 and 1999. What's going on with that program today?

  Wei: That three-year consultancy under Lufthansa Technik helped us build a well-organized training system. Now we have a training department and have recruited two retired management professionals from Singapore Airlines to assist our top management in day-to-day responsibility for safety. This is another effort we've made to improve flight safety. However, Rome wasn't built in a day, so we will keep doing our best to help the company overcome its reputation problems.

  I think our efforts have paid off somewhat, as we launched a code-share arrangement on May 1 with Delta Air Lines Ltd for a few routes. The code-sharing allows us to further expand our network and provide more convenience to our customers. We had been trying for two years to enter into such a partnership with Delta, as Delta is a large and reputable carrier. The significance of the code-sharing arrangement is that Delta recognizes our safety and service record and is comfortable putting its customers in our hands. This demonstrates that our efforts have not been for naught.

  TT: As the nation's largest carrier, what's your view on the opening of direct transportation links with China, something that local and foreign business groups have advocated for a long time?

  Wei: The opening of direct cross-strait traffic is a political issue and will be determined by the government, not by the aviation industry. However, this is something the whole industry is looking forward to, considering the huge business opportunities that would follow liberalization.

  There are about 1 million Taiwanese businesspeople doing business in China. They constantly go back and forth between the two sides. Their increasing investment in the Chinese market has given a boost to our cargo sector.

  We also value China's market potential, given its population of 1.3 billion and its substantial economic growth in recent years. Therefore, lifting the ban on cross-strait transportation would surely benefit the industry.

  TT: Once the ban is lifted, will Taiwanese carriers be able to compete against Chinese rivals? And how long will it take China Airlines to make preparations for running new routes?

  Wei: For China Airlines and EVA Airways Corp (長榮航空), the answer is that we definitely can compete. Our products, including our aircraft, our service and our flight networks, are superior to those of our Chinese counterparts. In addition to a huge number of Taiwanese businesspeople, we also target Chinese visitors and other foreign passengers. If the government gives the green light to direct traffic, we will be able to fly the routes instantly with our flexible flight deployment and with our crews stationed in main cities, ready to serve.

  TT: How will direct transportation links affect the nation's four domestic carriers, who will also face a grave challenge when the high-speed railway starts operations next year?

  Wei: I think opening direct links is the four local airlines' best chance for a renaissance because the bullet train will destroy their businesses. Though they won't be able to compete with large carriers in operating cargo routes across the strait, they will be well-positioned to fly to second-tier cities in China such as Chengdu and Zhuhai.

  TT: Reports have said that these carriers may merge in order to cut costs. In your view, is that possible?

  Wei: I don't think so. The technical difficulties would be too high to overcome in terms of integrating the various aircraft models that the four companies have. A merger would actually create more problems for them regarding issues such as pilot allocation and maintenance.

  Take our subsidiary, Mandarin Airlines (華信航空), which acquired Formosa Airlines (國華航空) a few years ago. Following that merger, Mandarin now has four models of aircraft and none of them are still in production today, which has increased our maintenance costs. Mandarin would perform better now if it hadn't acquired Formosa to begin with.

  Therefore, I think merging is not a good solution for the domestic airlines. When confronting the challenge of the high-speed railway, and in the absence of direct links, these four will just have to do their best to survive.

  TT: Airlines have suffered from low demand because of the SARS outbreak and the US-led war against Iraq. As a result, many airlines have introduced budget fares to protect themselves from a growing challenge from low-cost carriers. Is this also happening in Taiwan's airline industry?

  Wei: The reason that low-cost carriers are able to cut their costs is mainly that they pay lower ground service and landing fees at smaller and more out-of-the-way airports.

  For example, instead of flying to Los Angeles International Airport, low-cost carriers fly to nearby Long Beach, which suits passengers who want to save money and are prepared to put up with a comparative inconvenience in land transportation. The model is viable only when alternative airports are available in the region. For example, there are three airports in the New York region, including John F. Kennedy, LaGuardia and Newark, for passengers to choose from. In contrast, many Asian markets like Taiwan or Hong Kong only have one international airport.

  However, outside Taiwan, we do feel that low-fare carriers have started to affect our business. For example, the Hong Kong government recently gave approval to two Malaysian low-cost carriers. Those routes are within our business scope.

  TT: Are you considering setting up your own low-cost subsidiary like Singapore Airlines did?

  Wei: No. The impact of the budget airlines is so far not very deep. Furthermore, we think our fares are already low enough, almost at the same level as those of the low-cost carriers. I am confident that we can offer competitive prices. Many foreign airlines used to compete for business in the Taiwan market but eventually pulled out because we had the ammunition we needed to undercut them.

  But unlike foreign carriers that can fly to any destination in the world, China Airlines is restricted, for political reasons, to a limited number of destinations. So we must do whatever is necessary to beat out our competitors and survive.

  TT: One high-profile issue for China Airlines is the possible privatization of the company, which many look at as a means of boosting the company's efficiency, but privatization has been delayed for years. Will privatization become a reality in the near term?

  Wei: I'm not in position to comment on this issue, as the policy is determined by the government. Nevertheless, I don't think privatization would affect our current operations a lot.

  TT: Some say that China Airlines' procurement decisions are more political than economic. Will this change after privatization?

  Wei: I have to make it clear that we come under no pressure from the government when we make purchasing decisions.

  We make procurement decisions based on meticulous evaluations, mainly focusing on economic effect. For example, we recently bought 16 Airbus 330-300s, 12 of which will replace our Airbus 300-600Rs, which must be eliminated in order to avoid increases in maintenance costs. In addition, the new planes have a higher capacity. That will benefit our cargo business.

  Most importantly, the move will help to simplify our fleet, as the Airbus 330-300 is similar to the Airbus 340-300, a major model in our fleet. By reducing the types of aircraft we have, we can improve our cost controls even more than through training our pilots and maintenance crews. Decisions like this are made on the economic merits.
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