Airline Leader Interview ANA Holdings EVP & Group Sustainability Officer Tomoko Hoya

Transcript

Adrian Schofield:We're very fortunate to have with us now Tomoko Hoya, who is ANA Holdings Executive Vice President and Group Chief Sustainability Officer. Hoya-san has covered a wide range of areas during her career at ANA, so she's well placed to, to give us an overview of ANA And also, of course, to talk about her current portfolios. So welcome, Hoya-san, and thank you very much for joining us.

Tomoko Hoya:Good morning, everybody. Thank you for your introduction, Adrian.

Adrian Schofield:Right, well, we're very honoured to have you here with us today.

Tomoko Hoya:Yeah, a pleasure to be here too.

Adrian Schofield:Great. So perhaps if we could start with the current situation, Before we get into some other topics, how has ANA managed the impact of the Middle East crisis, volatile fuel prices, and a high degree of market uncertainty that we're seeing at the moment?

Tomoko Hoya:For airline industry, Middle East crisis is a headache, of course, but for ANA Group, we will be presenting our Q2 results soon, but so I cannot explain about in details what we are doing right now. But looking back Q1, which is April, May, June in Japanese fiscal year, our performance was quite well. Why? First, we expected the fuel prices to be higher, a bit high. We were on the safe side, actually. So we planned our business according to the high fuel price, and the result was the fuel prices were not that high.

Adrian Schofield:Right.

Tomoko Hoya:And for the demand side, the international passenger result was really good, and the cargo also good. Supported by those 2 elements, the Q1 result for us was really good. And, but the current Middle East crisis continues, so we have to watch that very carefully. But I think ANA Group has that cost pressure under control. For domestic flights, we do hedge fuels quite a lot. And for international routes, we have dynamic pricing for fuel surcharges. And also, we do precise yield management. And for administration, of course, cost control, we have to do it all the time. Even if we are in good times, we have to

Adrian Schofield:Exactly, and I think, I think most would agree that ANA is coming through this crisis as, you know, as well as anyone in the industry. So just changing tack a little bit, as we heard earlier, inbound demand into Japan has, has slowed a bit this year, but, but assuming that rapid growth curve returns in the medium to long term, How is ANA positioning itself to capture that inbound demand?

Tomoko Hoya:We don't— although you mentioned that the inbound demand is a bit decreasing right at the moment, we see it as— I don't— in the long term, I think we have a good demand for inbound tourism because ANA has is one of, is the large, we have the largest network within Japan. So of course, the major hub is like Narita or Haneda, but from there we have network across Japan. So we hope to deliver passengers, carry passengers to all regions around the world. And I think that would revitalise also the region itself, which is making, I guess, Japan stronger economically.

Adrian Schofield:Right. Good to hear that there's a network solution to that. So, so what about outbound demand? Yes. From Japan to overseas, how is that progressing?

Tomoko Hoya:Yes. It is true that the weaker yen that we are facing right now is a challenge for leisure travelers. But for ANA Group, we see a very strong demand for business travel remains quite resilient, which is supporting our passenger business. And, and also we kind of see a shift in the leisure travel because in September we have this long holiday called Silver Week, right? And then we used to have like the low season during this season, but because of this long holiday season, the peak of summer has extended for us. So those kind of shifts we see, and we would like to take this opportunity, we take it as an opportunity.

Adrian Schofield:Right. And turning to the domestic market, what challenges does Japan's domestic market face, particularly in terms of developing a sustainable regional network?

Tomoko Hoya:Yes, it is a challenge not only for ANA Group, but as Japan as a whole to sustain the local airports. To tackle this, the government has, they have set the guideline this year. What they did was they allowed us, the airlines, to optimize flight schedules, deregulate investments, and promote operational entrustment. And what ANA did was we decided to partner with IBEX Airlines, and starting 2029, we will introduce 100-seat regional aircraft and transition to entrusted flight operations with them, which would, I guess, put the right size of capacity into those regions. Thank you. Instead of us flying to there.

Adrian Schofield:Okay, and could you talk a bit about the importance of the expansion at Narita Airport and how that fits in with ANA's growth plans from 2029?

Tomoko Hoya:Yes, the expansion of Narita Airport is not only good for ANA, but I guess it will be catalyst for Japanese economy. For ANA Group, it solidifies our dual hub strategy. Haneda handles the high-yield point-to-point travelers, business travel mainly, while Narita serves as our major hub for gateway connecting passengers, transpacific and also intra-Asia. And also Narita's strength is cargo, actually. So in the cargo business, we integrated Nippon Cargo Airlines, NCA, into ANA Group. This— and we are combining their strength of freighter network together with ANA belly capacity to build a multi-tier cargo platform there.

Adrian Schofield:Right, yes, and I know a lot of airlines are, you know, looking at the expansion of Narita as being a, you know, a very big development in the Asia-Pacific context. So ANA has 165 aircraft on order.

Tomoko Hoya:Yes.

Adrian Schofield:Can you talk about whether these are mainly for replacement or growth, and would that answer be different for the domestic and the international sides?

Tomoko Hoya:Yes, for international flights, we are focused on growth. So what we are ordering is mainly widebodies like 787-9 and next generation 777-9s to capture the global demand. And also they bring us fuel-efficient aircraft, right? Which is good for sustainability. And domestically, the strat— our strategy is to replace to right size to— by bringing like 737-8s and transitioning also to 100-seater aircraft. I think we hope to be able to get them by fiscal year '28, and we are ensuring our like capacity matches local demands.

Adrian Schofield:Great, it's good to hear that the fleet plan, I guess, ties in so closely with the strategy. Could you, switching gears again, could you talk a bit about ANA Group's portfolio approach with the different business models and how this has changed, perhaps particularly with the demise of Air Japan?

Tomoko Hoya:Yes, so ANA, we have several brands. ANA is a full-service carrier, so it's mainly for business travel, those who are willing to pay for the service. And we have Peach, which is LCC. So Peach is focused on price-sensitive travelers, right? And then we have cargo. ANA, and as we integrate NCA into AN Group, We have a new cargo brand coming up, ANA Nippon Cargo, launching in April next year. And so those portfolios would give us the volatility to be able to cover, you know, both the premier customers and price-sensitive customers as well as cargo. And for Air Japan, as you you have introduced in the earlier session, we decided to suspend that brand. The company is still there, but the brand itself, we decided to suspend because we— Air Japan used to fly Boeing 787, right? But because of the detour around Russian airspace, we had to— the resources that we wanted to deploy to ANA, full-service carrier, was limited. So in order to be able to live through this environmental change, we decided to set back those resources to ANA, which will make more— which will be more profitable for the entire ANA Group.

Adrian Schofield:So, moving to sustainability, which is, you know, one of your main portfolio areas at the moment, it's interesting that this year the Japanese airlines released a report that talked about the Japanese model approach to sustainable aviation fuel. I'm wondering if you can tell us a bit about what the Japanese model is and what the challenges are in that area.

Tomoko Hoya:Basically, the Japanese model It's a pragmatic— I think it's a pragmatic framework designed to decarbonization in aviation industry without distorting the market. So what we see in the EU right now is that they put the aggressive mandate without adequate supply, which caused severe price surges. So we, Japan, think that this was not a good practice. So learning from them, what Japan is trying to do is to first make the supply and then put the mandate so that the market won't be distorted. And also for the cost, we believe that not like only the airlines bear the cost of this. I guess the cost should be shared among the stakeholders equally. So the details are not built yet, but we hope to be able to come up with a system where the cost of this mandate will be supported by all the stakeholders.

Adrian Schofield:Sounds like a sensible approach. So the government intends to introduce SAF blending ratio from 2030.

Tomoko Hoya:Yes.

Adrian Schofield:As well as some kind of user levy. Is this the right approach, and what are the potential risks of that to the industry?

Tomoko Hoya:So I think this is a very logical approach. I think it is realistic to start from a small start, you know, where we can do, and then extend because we don't know what will happen, right? So the government intends to start this from, not from the entire airport, but from a selected airport first. And then as we see the progress, maybe to extend this system to other airports as well. The challenge is that the supply of SAF is still not has— is not what, what we expect. So I guess more, I guess we, we need to do something more to— for the supply of SAF to be in the market.

Adrian Schofield:Right, great. And SAF draws a lot of attention in the sustainability space, but what other areas of sustainability is ANA focusing on? Are there any other interesting initiatives you have underway?

Tomoko Hoya:I guess it's the same with Japan Airlines as well, but we do a lot of things in the operational side. For example, we— our pilots, you know, when— are very sensitive about sustainable— how they can support this sustainability issue. And what our pilots do is when when they make landing, right? And they try to reduce the amount of fuel that they burn when they land by a certain method whenever they can. It's not mandatory because safety is the priority. And so whenever they can, they try in their operation to reduce— Fuel burn. the amount of fuel that they burn. This is a daily, you know, daily thing that they do. And then as for the mechanical side, I say, we— do you know the sharkskin? Yes. Yes, we do put that in selected aircrafts, and it is estimated that it saves about 250 tons of fuel, which is, uh, and 100 tons of CO2 per plane annually. Yes. And, uh, in the cabin side, uh, we have replaced plastics to, you know, uh, paper, uh, recycled things. And in the cargo area, We have, you know, when you go to the cargo warehouse, you see all the vinyl around the cargo, right? And then those things, we do recycle of those vinyl. And also in the cabin, like we use AI-based meal pre-booking service to predict demand so that— Don't have excess food loss, food waste from our planes. And not only the environment, but from the— as the Group Chief Sustainability Officer, of course, environment is a very big issue, a big part of airline, but we do a lot. We do a lot of effort in human rights protection throughout our supply chain, which we— you may not be able to see, but we put a lot of effort in it as well.

Adrian Schofield:And that's great to hear because, you know, people think about sustainability as just the environmental aspect, but it's so much broader than that, isn't it? So how does sustainability relate to some of your other objectives, for example, industrial sustainability?

Tomoko Hoya:Yes. So again, when people talk about sustainability in aviation, most of the people think of SAF, right? But I don't— this is not the only issue. I guess it's the how aviation industry can survive during this evolving area, right? And then so we have to have a holistic view of what's happening in the world. and what's happening in Japan as well. What sustainability requires right now, I think, is breaking down the silos that we are in. We have to collaborate, both the enterprises and the government, all the stakeholders together. Sustainability, you think it's not, it's not just a mere setting goals for environment. I don't hear anything. But I think it's a business itself. So that is from investments, supply chain issue, risk management. This is very important, and making operational decisions. So, and by this, what we aim as ANA Group by facilitating human movement from one place to another, I guess we believe that aviation generates massive social and economic wealth throughout the country, throughout the world. And we believe globally we foster the knowledge and cultural exchanges, which is necessary to solve massive challenges like climate change that we are facing. So in the end, I think airlines serve as vital emergency also vital emergency lifelines in times of like disaster, right?

Adrian Schofield:Yes.

Tomoko Hoya:So I guess airline is not just a way of travel, but also protecting the lives of human beings on Earth. So maintaining and economically viable for all the airline industry players, I guess, is fundamental to the stability of broader global economy.

Adrian Schofield:Okay, very good. Thank you. And we're just about out of time, but I do want to ask you very quickly if you could talk about your role as ICAO Ambassador. It's a very interesting topic.

Tomoko Hoya:Yes, I have the honour to be the ICAO Ambassador this year. And the goal of this is to bring talent to aviation industry. As it was said in the last session, I guess more young people, right, are into— their interest is into tech, science, for example. And aviation industry, I guess there's no one who will deny, but our profit margin is very meager. And for young people, these market may not be really fantastic. It doesn't look fantastic, but we need people. So my role as ambassador is to bring those young talents, make them interested in our industry, Not the airline, but industry as a whole, because we need people, right? And so it's not only Japan who's facing the decrease in the number of population. It's even in Southeast Asia, like Philippines and everywhere, the population is decreasing in the long term. So we have to gather talents to this industry, and that's what I'm doing as an ICAO ambassador.

Adrian Schofield:Fantastic. That's a great note to finish on, and that is all the time we have. So please join me in thanking Hoya-san very much for some really interesting insights.

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