Airline Leader Interview, Korean Air CEO Walter Cho

Transcript

Oriel Morrison:So the winner of the award for the Asia Airline Executive of the Year is Walter Cho, Chairman and CEO, Korean Air and Hanjin Group. Walter, please come up onto the stage. Thank

Adrian Schofield:you. Well, congratulations on a very well-deserved award, Walter, and thank you for joining us for a chat today. As most of you probably know, Walter has overseen the, the truly massive undertaking of merging Korean Air and Asiana to create a much more powerful competitor on the global stage. The merger was first proposed back in 2020, and now the finish line is finally in sight in December. So, Walter, I know, if I can ask you, I know there's been a tremendous amount of work going on behind the scenes, but what will customers notice as different on December 17th when the merger is finalized?

Walter Cho:Before I start, thank you for having me here today. So for the merger, Asiana and Korean Air will have— finally happen on December 17th, and the customers will have the opportunity to enjoy a more widely spread network among 2 airlines joined as one. And we are in the process of merging it now, and we're almost complete in all the operational mergers. But many things will change, but, you know, customers will be able to enjoy a more widely spread network and better schedules for better connections as well. And also, all the customer service and operations will be combined. We're in the process of doing it now. It's a very complex issue, but we're in the process of doing it right now.

Adrian Schofield:Right, and just developing on that, in terms of the merger, what still remains to be done before December 17th, and what do you still have to do after that for the merger?

Walter Cho:So we are still operating in separate operating certificates. They will combine on December 17th as one, and all the What are the biggest changes? Many things, but the bigger ones, we are combining everything. The customer's experience will be unified, and little small services and all the bigger issues, they'll all be combined. A lot of things going behind the scene right now. Yeah,

Adrian Schofield:I'll bet. Yeah, yeah. I mean, just the complexity of that merger has just been amazing to watch. And looking at the big picture significance of the merger, what benefits does the increase in scale mean for Korean Air, and how does it boost the global role and competitiveness of the airline and the Incheon hub?

Walter Cho:So Asiana and Korean Air has been competing Incheon Airport and in Korea for over 30 years. So that means we had very similar schedules and, you know, some flights to the same destination would leave as closely as 10 minutes apart. Now that we're one, we could diversify that schedule so customers could enjoy a more fitting schedule to their own schedules. Which means, you know, more convenience in travel and more flexibility in their schedule as well. And so I think once we're complete in the merging process, it will have better customer experience for everybody.

Adrian Schofield:And obviously a much, a much bigger network. So I know it has been a, you know, there's been so many steps involved in the process. So what were the biggest challenges in getting this merger done?

Walter Cho:The biggest challenge by far was getting the approvals from all the countries. Some came fairly easily, but there were a few that was very challenging and We didn't get even a sense of getting, you know, we'll get it done until the last minute. But we kept it through and it was, we had to, many negotiations, many tiring talks, discussions with them, but, you know, we got it done and it was actually very satisfying at the end. Oh,

Adrian Schofield:I'll bet. Yeah, yeah, yeah. So given that it was such a complex process to, to get all the approvals from all those jurisdictions. At the start, did you think it would take that long to get done?

Walter Cho:When I announced the merger acquisition, I said it was 6— it's going to be 6 months, but that was very far from true. And I thought it would have been much easier, but no, it was very difficult because Korean Air and Asiana is a very strong carrier within Korea and between Asia and America and also to Europe and Southeast Asia. So it was very difficult to get it approved. And also in the cargo sense, it was a— we are a very strong competitor and a strong provider of cargo operation in Asia. So So that was the biggest challenge.

Adrian Schofield:Yeah, I mean, it seemed to me that they gave you a harder time maybe than they should have, but was there ever a point when you wondered whether it was still worth it during that process?

Walter Cho:Many times. At one point, I almost gave up, and, you know, I said, okay, maybe it's not going to work. Maybe I should just concentrate on growing Korean Air by itself. It's already been about 3 years that I spent already on the merger process, and I said, okay, last 3 years, you know, it's just too— I spent too much time and effort, not just myself but my team, to just throw it away. So I said, okay, last push, I'm going to try it again. And actually, that was a good move because it worked that time.

Adrian Schofield:Yeah, right. Yeah, no, that must have been frustrating for it to stretch out so long. And I know that through the process of gaining those approvals, Korean and Asiana had to make significant concessions for various competition authorities. Has that diminished the value of the merger by much for you?

Walter Cho:Yeah, we had to give up some core routes to our competitors, other competitors in Korea. to a lot of the routes were between Korea and Europe, European destinations. And, you know, at the time it was painful to give it away, but, you know, competition does not diminish us, it makes us stronger. And I believe, you know, it will make us stronger in the future as well. So, you know, I think it was worthwhile because with that small sacrifice, we're gaining a lot more with it. Thank you.

Adrian Schofield:And I guess that's the key, isn't it? I mean, despite having to give up the Asiana freight operation and some of those routes, that the benefits outweigh

Walter Cho:that. That part was very painful, you know, but, you know, not for the, our strengths in cargo operation, but, you know, having to send away all those employees that would have been our family, you know, that was very painful for me. But, you know, Right now, they're operating very well and they are very successful in their operation. I feel very hopeful for their future as well. Actually, I'm very proud of what I did with that as well, that decision.

Adrian Schofield:Good. As you mentioned, some smaller airlines in South Korea have gained slots and aircraft from the deal. So what does the new competitive landscape look like now that we've got some of these smaller players, suddenly they're kind of bigger players?

Walter Cho:Yeah, our smaller competitors, they have gained our slots and our routes to Europe and to North America, and they're operating in their capacity and they're doing well. I hope so. And, you know, they will make us stronger in the future by having a fair competition with them. I think they'll make us a better carrier in the future as well. So, yeah.

Adrian Schofield:And I liked your earlier comment about how competition makes you stronger. Yes. That's absolutely true. Yeah. So regarding the rebranding and the new corporate image, which was also a very big endeavour, How does that reflect a new approach for Korean Air?

Walter Cho:Well, we've been using the same image for a long time, and I thought it was a great opportunity to relaunch our new corporate identity at this time because we're being reborn as a mega— bigger carrier in Korea and also in the world. I thought this was a good opportunity to rebrand ourselves and redo— I mean, we're restructuring everything from minor things to major things. So I believe it was the right time to do it. And we started it and we are still in the process of painting it. But once December 17th comes, we're going to start redoing all the Asiana fleet. And by next year we'll be complete with it and we'll have fully integrated our new CI to our company by then.

Adrian Schofield:I mean, in hearing about that and hearing the number of things you had to change was just, was unbelievable. The numbers are incredible. But the new livery, it's different, but I think it looks really nice. You know, I think it's a good change and it looks very impressive. And I think you're right that it gives you a, you know, it sort of fits better with the more global approach that you wanted to have. So speaking of fleet, what's the latest on the phase-out plans for the A380s from both airlines and for the 747-8s?

Walter Cho:So currently Korean Air and Asiana operate 11 A380s and 4 747-8s. It's a very beloved aircraft for all our customers. However, for our future, we believe— I believe we needed to restructure our fleet. Right now it's way too complex. So we're simplifying our fleet consisting of more fuel-efficient and more modern aircraft. including the A350s and the 777 and the 787. And so we'll be retiring out the A380 and the 747 within the next 2 years or so. And the older fleet like the A330s and the A320ceo will be phased out in the next 3, 4 years as well. Thank you. And we'll have a more modern fleet with better interior seat configurations for more comfort, comfort-based, and probably, hopefully, it will bring more competitiveness to our service and also for our efficiency as well.

Adrian Schofield:Right, and I know your product is already very highly rated, so that will only improve it. And, you know, I was going to ask about what the next stage was going to be for fleet replacement, but it sounds like that will be the 330s and 320s?

Walter Cho:Yeah, 330 will phase out next couple of years, and we're replacing them with all 787-10s, which is already in operation. It's a great airplane, and we have an order book of— will total out to about 60 aircraft, I believe. The 787s? Yeah. And so it will replace all of our A330 fleet.

Adrian Schofield:Okay, and the big recent news was the order for 103 aircraft from Boeing, which I'm sure Boeing was, was pretty, pretty pleased to hear about. So can you talk about that, that order and, you know, what, you know, what your intentions are for that order in terms of replacement or growth, or, you know, what does that order mean for your strategy?

Walter Cho:Uh, so the order was for, uh, 787s and 777-9 and, uh, 737-10 MAX. Um, I believe the— all the Boeing fleet, uh, is a very competitive and very efficient, uh, and very, uh, strong aircraft for our future. And, uh, we— it was by far the largest order we made among all our aircraft orders. And I believe, you know, that will be our stronghold for the next 20 years to come. And also includes, I believe it was 8 777 freighters as well. Yeah, so that will— I wish I could get that right now because we're very short on the freighters and the cargo market is extremely strong, but, you know, I believe they're coming in next 5 years. Right. And I believe, you know, Boeing, although they are struggling with the— a little bit in delivering their aircraft, but, you know, I always had a good trust in Boeing, and I believe it will be our future in our fleet.

Adrian Schofield:Yeah, and I believe it's the largest Boeing order of the year from an airline, so quite a big deal for them too.

Walter Cho:Yeah.

Adrian Schofield:Yeah, okay. And so looking beyond that, what will be your next ordering priority, do you think?

Walter Cho:Currently, we don't have much demand for a new order. We have about 150 on order right now, so it's quite a significant number. But, you know, whatever comes in the future, I believe, you know, if it brings more flexibility or more efficiency, we'll look into it. And, but at this time, we don't have much demand right now.

Adrian Schofield:Right. Well, as you say, you've been so busy on the order front lately, that's going to, it's going to take a little while to digest. And I know, you know, you do have a a nice mix in your fleet between Airbus and Boeing and, and your narrow-body and wide-body programs. That must be, that must be nice. Yeah, okay. And, um, just finally, um, uh, from a personal perspective, what emotions do you feel as the finish line approaches for this merger after, after all of those years? What does it, does it mean to you personally?

Walter Cho:Well, it's been, you know, What started as a, you know, I took this job in 2019 and 6 months after I took the job, I got hit with COVID-19. It was a very tough time. It was probably the toughest time I had in my life. However, with the strong team I have, you know, in Korean Air, we managed to pull through it with very strong results. And, you know, at the end, Congratulations. of that part, we were provided with, we were given the opportunity to acquire Asiana, and that was very challenging. However, we pulled it through, and I'm very proud of my team. And, you know, it's been a very memorable time, last 6 years. And with that, as a start, I believe it's a new chapter of the airline. Thank you. And for myself as well. And, you know, we have so much things to achieve from now. So, you know, there's so many challenges in front of us, but, you know, I'm very excited to see what comes next. You know, challenges always make me stronger, I think. And, you know, gives me You know, look at the future in a more, you know, positive way. And, you know, it's been, it's been tough, but it was also very exciting. So, so I believe there will be more excitement coming in the future.

Adrian Schofield:Yeah, well, I think we're all looking forward to seeing what's, what's next for Korean Air after the merger and seeing what the combined operation looks like. That is almost all the time we have, but if you could please join me in congratulating Walter once again on, on the award and for giving us some insights. Thank you.

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