Blending Full Service And Low Cost Airline Products: The Full Service Airlines’ Perspectives

Transcript

Corrine Png:I would first like to start off this session with an event that happened just yesterday. As you know, Qatar Airways acquired a 9.6% stake in Cathay Pacific. Now Cathay Pacific has 2 airline shareholders. Air China and Qatar Airways. My first question to our distinguished panelists is this: do you see further industry consolidation in the Asian airline industry, or do you think that because of regulatory constraints, airlines will just end up with minority equity stakes?

Giorgio Callegari:Thank you.

Andrew Herdman:Well, the people in this room are probably pretty familiar with the regulatory framework within which global aviation is organized. And that includes national ownership and control regulations on— applicable to airlines. And that serves as a barrier to cross-border consolidation. So we've seen dramatic consolidation in the United States market to where 4 big players now control probably 80% of capacity. We've seen quasi-consolidation in Europe with the formation of the big groups around Lufthansa, Air France-KLM, and IAG Group. But in Asia, you've not seen, nor will you see, a similar consolidation because of that restriction. So that leads us to a number of second-best solutions, workarounds. The emergence of the global marketing alliances is one factor. And to some extent minority equity stakes. However, the history of minority equity stakes is rather mixed. There have been some casualties and some unsuccessful ventures, and that's made some people wary of buying minority stakes. The latest development is part of a pattern. Qatar took a big stake in IAG, 10%, now I think nearly 20% in IAG, and now almost 10% in Cathay Pacific. The linking factor, of course, is they're all members of the Oneworld Alliance. And recently we saw within SkyTeam some similar cross-equity small— so I see these as cementing alliance relationships, paving the way for more cooperation. The fact that there is an alliance relationship adds a degree of stability to the relationship as opposed to bilateral relations. But it remains to be seen what influence can you exert as a minority shareholder. Is it a passive investment? What do they expect to gain? And you have the added complication in the case of Cathay Pacific that Air China is already a significant shareholder. And let's not forget that Cathay Pacific is a significant shareholder in Air China. So it's a complex interrelationship. What it reinforces is the fact that even if you can't consolidate, The pressures towards cooperation, even as you compete, are very strong in this business. So you see it affecting full-service carriers. Low-cost carriers are not immune to the idea of cooperation and collaboration with what were competitors or may still be competitors.

Corrine Png:Thank you. What do you think, Giorgio, since you oversee the strategy and alliances group?

Giorgio Callegari:I would certainly echo what Andrew is saying in the sense that The goal is the same. The goal is building global enterprises that can cater to global customers. And in order to do that, in some jurisdictions you can go farther, so Europe, or within the USA. In some jurisdictions you have some limitations and you find workarounds. So I think that what is clearly identifiable, at least from the outside, in the case of Qatar Airways is that They always, they always seem to combine a sound business rationale in the form of a passenger joint venture with a, a, a shareholdership structure. So those 2 levels of aligning business interest and strategic interest seems to be a very satisfactory way of progressing along the lines of further consolidation. So I'd say the trend is clearly set. And then successful enterprises are finding effective solutions to adapt, or circumvent, you might say, to regulations.

Corrine Png:Thank you. So let me move on to a different aspect on market structure. The market structure in the Asian airline industry has changed pretty much in the last 15 years with the entry of low-cost carriers. So how do all of you see the future landscape for the Asian airline industry? Do you expect the full-service airlines' market shares to remain the same or rise or fall going forward? What do you think?

Le Hong Ha:Ha? From my view, I think the market is there and Asia market is growing, and with the forecast from Boeing Airbus or IATA said that the market grow around from four to six percent, and then Asia economies. Growing, then it's a market segment for legacy airlines to operate. And as you said that the partnership is the trend for network airlines, like all the airlines Asia Airlines is a member of alliance, in the world, 3 alliances, and we are a member. And within the member, we work together and the partnership from the codeshare, then the joint venture, and then the airline may take the equity from other, as you said, Yeah. There's a story of Cathay Pacific, American Airlines with China Southern, and even Vietnam Airlines. We got a strategic partner, ANA, with us. So I think for network airlines, the partnership is the key, working together within the alliance and with the other carriers. not included, not in the alliance. And we can see the trend that in Asia, the airlines itself establish alliances within allies, like Singapore Airlines Group with some Tiger and Scoot and Suez, and Thai Airways International, Thai Group.

Cesar Pereira:Yeah.

Le Hong Ha:And for Vietnam Airlines side, we got Jetstar Pacific inside the airlines, that and another airline, Vasco. So like Aeroflot presentation this morning, that we got a group of allies, the ally within allies, then we can provide a wide range of service to customer. Then I think the network airlines in Asia sustainable in the near future.

Corrine Png:Mr. Green.

Giorgio Callegari:Sorry, thanks for the reference to Aeroflot. What I wanted to offer as a commentary, if I may, is that we've been hearing for many, many years that traditional airlines have no future, basically, that the future is of low cost, whether ultra-low cost or ultra-ultra-low cost or long-haul low cost and so on. Now, there is a part of reality in that, in the sense that if we look at what is happening in Russia, for instance, on routes where we have deployed PABiED and there were no previous services, the stimulation that the market has shown, I mean, the stimulation factor has been between 70% and 110%. So the growth has been amazing. But still offering a competitive and, say, effectively priced traditional service.

Le Hong Ha:Yeah.

Giorgio Callegari:has enabled Aeroflot, I mean the legacy carrier, to grow more than 10%. So I would not say that there's room only for one or the other one. I would say that if you have an effective brand strategy, then you'll be able to cater to different segments and the growth of those segments will be different.

Cesar Pereira:Allow me to comment that I don't see the full-service business model disappearing at all. You know, if you look at the mature markets like US, Europe, what we see is a convergence of business model. Okay, we see full-service carriers, you know, offering products like the low-cost carriers, right? And low-cost carriers trying to attract business passengers, you know, looking at the schedule, looking at different fare levels to attract more high-yield business travelers. So what we see currently is, you know, we don't know more. If you fly in US, for example, you don't know if onboard an airplane, you don't know if you are in a low-cost carrier or a full-service carrier because the level of service is very similar as the ticket price. We see the same in Europe. We see low-cost carriers like EasyJet, even Ryanair going to the GDS now, something that was— they wouldn't think about this in the past. What's very likely to happen is a convergence of business models to more hybrid business model.

Corrine Png:Thank you. So if you'd like to focus aside from the structure of the business, how about by route region? Where do you see the biggest growth opportunities in Asia? Would it be China or ASEAN? What do you think?

Andrew Herdman:I think, I mean, growth is pretty widespread. The industry doubles in size every 15 years globally. Asia's doubling at about 6%, is doubling every 12 years. The growth of the Chinese domestic market has been spectacular. I remember when it was— I'm old, so I remember when it was a few million passengers a year, not half a billion. But of course, the other thing is the outbound market from China is now enormous, with about 130 million outbound Chinese. So that's driving change across the region and further afield around the world. But beyond China, India is now on the move. Domestic market has taken off, growing rapidly. International India is still relatively undeveloped. A lot of potential there, both outbound and inbound. Then there are markets like Vietnam, which has grown spectacularly. Indonesia is another enormous market. Philippines is a market which is— grown very strongly. So I think it's a broad-based expansion. When you say which are the most interesting markets, it seems the key demand drivers are different. For domestic, it's competition with other forms of transportation. And even if people haven't reached middle-income levels, you see adoption of air travel. So that's true— was true in China, happening in India, happened in Vietnam, Indonesia, and so on. On inbound tourism, that's driven by the desire of wealthier foreigners to come into the country. And then the last to take off from developing countries is where? Outbound. So we've seen this pattern. So when you say which are the growth markets, you've got to look at the different drivers of domestic, inbound international, and outbound international. And we've seen this evolve. I remember when Japan was— an inbound market. Then we had about 30 years of outbound growth. And the last 5 years it's been a phenomenal growth in inbound tourism to Japan. So I think the lesson is it's hard to predict the future. You just have to adapt to changing conditions. And all these airlines with different business models, I agree entirely about convergence and hybridization. And you see these airlines competing on the same routes. You can't say— I mean, Europe, you might say, well, The leisure traffic is north to south heading for the sun, and the business traffic is between the business capitals. But in Asia, everything's overlaid. People are on the same plane, are going for business, leisure, they might be doing both. And we see the route development, it doesn't fall into convenient segments of low-cost carriers on these routes, full-service carriers on these routes. It's head-to-head, side-by-side on all the busy city pairs. So that's what's driving—

Le Hong Ha:Yeah.

Andrew Herdman:And I echo the point about the LCCs are changing the way the full-service carriers compete. And dare I say it, the full-service carriers are changing the way the low-cost carriers compete.

Giorgio Callegari:Yeah, well, I would say that it's difficult to identify a single, say, growth market in the sense that for a non-Asian carrier like we are, our strategy has been to grow rather conservatively in terms of points being added. Because it's very difficult, I believe, and I think that experience proves that, to effectively serve what we would term as secondary markets. There are very large cities, maybe in China in particular, but secondary in terms of flows that they generate. So I'd say that in terms of growth markets for non-Asian carriers, I would still look at large large international cities. For Asian carriers, it's different. I think I would subscribe to what Andrew was saying, in the sense that depending on your business model— and I mean, we saw Peter's chart earlier on this morning in terms of growth of routes and growth of traffic. So I would differentiate between whether you're a local operator or an international operator.

Andrew Herdman:Yes.

Cesar Pereira:Yeah, allow me to comment that, of course, I agree completely that India, China, Vietnam, Markets, you know, growing double digits, it's really amazing. But I like to split growth in 3 different phases. The first one is when the demand is there, but, you know, there's a lack of capacity. And you just deploy the capacity, demand show up, and then you see tremendous growth. There's a second phase, then I include China, India in this case, for example. And then there's a second phase, which is growth by stimulating the market with low fares.

Le Hong Ha:Yeah.

Cesar Pereira:I would include ASEAN more like in this scenario. And then you have the third phase when they realize that this level, this fare level is not sustainable for all business model and you need to raise the fare. We need to change the business model. Like Japan, Australia, New Zealand, they have higher yields. Like in US now, it's probably the only country in the world where the yield is growing. All the others, that's just dropping. So, I think we're still seeing in Asia these 3 different levels of growth.

Corrine Png:Would you like to add anything?

Le Hong Ha:I just want to add something that for the first 10 months of this year, the international traffic to Vietnam grew around 30%, and mostly from China, that double compared to last year. And then Northeast Asia, South Korea and Japan, when the low-cost airlines jump in and add more capacity. And for Vietnam domestic market, after a few years grow at more than 20%, and now for the first 9 months just 9.9% due to the the market and the airport, the facility at the airport in Vietnam, then the growth rate is just 10%. And so I want to add that from Vietnam Airlines' view that the China market is an opportunity. It's a huge market.

Corrine Png:Thank you. So moving on to the supply side, since Cesar touched on capacity, my next question is, Whether do you think there are opportunities for Embraer, Bombardier, UAC, Mitsubishi to secure more aircraft orders when Asia starts to build more of the secondary airports? Because clearly we do not have enough of these.

Cesar Pereira:Yes, of course, we see a lot of opportunities in Asia, right? Not only because of— I'm from Embraer, but if you look, we just commented, right? The airlines are competing for the same passengers, the same airports, Trunk routes, and there is an infrastructure constraint now, right? So they need to move in order to keep growing. They need to move to secondary airports, more hub bypass model, direct flights, or even feed hubs to, you know, to feed international traffic, you know, to optimize the network. So, and only a smaller plane can do this job profitably, efficiently. Because, you know, narrowbodies sometimes cannot fly to small destinations, the demand's not enough to sustain a profitable operation, and if you want to preserve the yields and have an optimized network, of course, a smaller aircraft is ideal for this job. So we see huge opportunity in Asia going forward.

Giorgio Callegari:Well, as an aircraft buyer, and we're adding about between 40 and 50 aircraft every year, so we We are, I think, a good customer for a number of manufacturers. As much as I've been, say, a supporter of regional jets, I think that something more has to be done in the future in the sense that with oil at this level, at least for us, or at least I would say in markets with high growth—

Le Hong Ha:Yeah.

Giorgio Callegari:rates, it makes more sense to deploy larger aircraft with lower unit cost and focus on larger markets than, than, than go after thinner flows with the appropriate capacity. So in that sense, I think that all the regional manufacturers have done so far a fantastic job. But if we look at the next 5 to 10 years with crowded airports, with the need to stimulate new large flows, the cost structure that is associated with operating regional aircraft will need to be significantly reviewed. So that's where probably something more needs to be done.

Corrine Png:Thank you. How about Ha? What do you think?

Le Hong Ha:I think there is a demand for operating narrow-body aircraft with less than 150 seats on some city pairs. Even Vietnam Airlines, we got a study on that, and even the facility of the airport, some airports just land by the narrow-body aircraft. But I think the issue here is the aircraft economics that the airline has to study on, because when we put the narrow-body aircraft, we should see the cost, the cost for that, and if the higher fare to the passenger, then it's hard to, for example, to compete to low-cost airline. They are using A320 or—

Cesar Pereira:A320neo.

Le Hong Ha:Boeing 737 with 186 square foot. So it's a, I think it's a study of the airlines, and because demand is there, and here is the aircraft economics and how to use that.

Corrine Png:I think my next question would first be for Andrew, since you look at the Huge number of airlines. What do you think about the expansion, the aggressive expansion of the Middle Eastern carriers and low-cost carriers, which you've also mentioned earlier in your comment? Do you think that they have been too aggressive? And do you think that some of them might potentially go bankrupt, just like what we have seen in the US and Europe? How are they going to finance the huge aircraft CapEx?

Andrew Herdman:Yeah, that's a lot of questions rolled into one, I think. That's a very good one. The Gulf carriers, and Peter mentioned Turkish in the same breath, those carriers have obviously executed well in terms of scaling up their 6th freedom hubbing model, superconnector model. It is worth, as Peter noted, they seem to be pausing for breath for a variety of reasons. That's been one big factor. The other big factor in— for full-service carriers has been the growth of the Chinese carriers and their international networks, particularly on the Pacific and now to Europe as well. And of course, the resurgence of the U.S. carriers are now newly competitive as international long-haul players, and they're upgrading their products to be in line with international standards or closer to. And, of course, the big European majors are also doing extremely well and expanding their networks. So, the competitive landscape— and I haven't even mentioned LCCs. So, the competitive landscape is alive and well. Consumers have never had more choice. There's always a choice of a nonstop service and then a myriad of one-stop or two-stop alternates at lower cost. So, the dynamics of yield management And hubbing versus direct service. And everything evolves. It's not a question of shifting towards more point-to-point or more hubbing. There's a dynamic. It's the consumers who, who choose. The low-cost carriers penetrated the short-haul market, added to the intensity of competition. We see that particularly in Southeast Asia. But that's starting to mature. Some of those market penetrations are starting to level off. And so they're now expanding further afield within the region, internationally. And as was mentioned, long-haul low-cost is the latest variant. Long-haul low-cost doesn't seem to work as a standalone. The more or less successful ones are the ones that are part of a group, an LCC group, and that has feed. So essentially they're reinventing the network carrier model. And whether that dis— distracts them from the focus on point-to-point LCC traditional. That's what Ryanair feels, that they should just stick to that model, and they certainly have massive scale. But if we look at Norwegian, if we look at Jetstar Long Haul, if we look at AirAsia X, all of these wouldn't be viable, I think, as standalone. It's part of an LCC group, and they're having to import the network model, connectivity, yield management techniques borrowed from the full-service carriers. even interlining and code sharing with other LCCs or even full-service carriers. So again, it plays back to this convergence and hybridization. The question is, are you adding complexity and losing focus? And if you are, then we'll see— people will back off and say, no, no, let's stick to the basics. But at the moment, experimentation is continuing and consumers have never had more choice. But the overlap between the choices has never been as much as it is today. So when someone shops for a ticket, I heard this from friends in Europe, they shop for everything, LCC full service. What's the fare? What's the product offering? Is it bundled? Is it unbundled? What's it really going to cost me? What's the deal? And it's, it's all competing. Just to go back to add a point on the aircraft, there are opportunities for small aircraft in new markets. Turboprops serve markets that can't be adequately served by jets. Regional jets, there's a segment of the market for those. But I have to say that with all of this growth and the congestion at airports, there's another big trend is towards upgauging aircraft. So we're seeing 737s to larger models, A320s to A321s, pressure to move upwards in terms of using slots, congested airports, and so on and so forth. And the scarcity of pilots. So you've got a mixture of forces.

Corrine Png:Right.

Andrew Herdman:A proliferation of size ranges to be assessed, and it's a complicated exercise for airlines to assess how we're going to deploy them and so on. But there is this big shift towards larger aircraft to maximize the utilization because we have congested airports in growing numbers with slot constraints.

Giorgio Callegari:Well, you're— the part of your question concerning the Middle East carriers and their future, well, I think we've all read that Emirates is preparing to announce a mega order of 100 A380s at the Dubai Airshow. So I think that's the factual answer to the considerations about slowing down growth. And we've heard this morning Paul Griffiths talk about the expansion of Dubai Airport. So I think that not All the carriers in those— in that area have been successful, as we know, but that doesn't mean that the business model is not or could not be a successful one and that some operators cannot be successful ones. So, I don't see them going away. We are sitting in Singapore, which was the Gulf equivalent in aviation 50 years ago, and we've seen how successfully that has developed. So, I see that progressing.

Cesar Pereira:Thank you.

Giorgio Callegari:The recipe is always the same. Have an efficient and effective cost base, have an appealing product, and people will come and travel. So that's the idea. Now, the big dispute is, I think, whether the efficient cost structure is a result of subsidized financing, as the US carriers are claiming, Or rather, you know, of a strategy that puts an emphasis on scope and scale. I think that Emirates has proven to be more of the latter. Maybe others in the area were more of the former. So, we'll— and the fact that we initiated the conversation today by talking about Qatar Airways I think Qatar is showing that there is a business rationale, there is a shareholder agreement, and therefore, once again, you can build a successful mega hub connecting a superconnector model and be successful.

Corrine Png:Thank you.

Cesar Pereira:Allow me to link a little bit the 2 answers. I think that we brought very good points. One is about airport congestion and the tendency to up-gauge to larger narrowbodies, another one about fuel price. That makes this possible, okay? As fuel price is low now, you can buy a bigger airplane, larger airplane, because fuel price is quite low, right? However, we are— we have to buy a new asset, more expensive, for 20 to 40 additional seats to take advantage of that slot. So, this is the decisions that airlines are taking now. But let's suppose that the fuel price goes up, and we— I'm not forecasting fuel here. I think the success in business is not how well you forecast Things that you cannot at all forecast, right? But how quickly you can adapt to change. Let's suppose that fuel price goes up to— I'm not even saying $100, but $8. Any airline can do this exercise today. What if fuel price goes up to $8? What's the situation of their financials and business at this level? You know, and I'm saying because I have seen this in the past. When we have a crisis, or peak in the fuel price, airlines with a smaller airplane, they are well positioned in the market. And I can tell that by experience, by having— so in my home country in Brazil, we have a few airlines with a huge fleet of smaller airplanes. And Brazil had never had low fuel price because of taxes. So fuel price is always high. And that means a smaller airplane burns less fuel. It's well positioned in this scenario.

Corrine Png:Thank you.

Cesar Pereira:And also after that, we have the crisis in Brazil, and Azul once again was the best airline in the country because they have the right aircraft size. So how quickly you can adapt to a change in the market condition? Because it's easy to talk about grow, upgauging, when the market is doing well and fuel price is low. But what if the scenario changes? How easily can you adapt your business model? That's the question.

Andrew Herdman:Can I just come back to the point about You mentioned the low-cost carriers with the ambitious order books that Peter showed this morning. You can place orders, no money down. You can speculate on order positions. And there's another rule that you get the salesman's attention if you buy in large quantities. And this leads to a kind of one-upmanship. The safeguard is you can arrange the financing later. You can phase the deliveries over a period. So when you look at the overordering, you've got to say, over what period? What are the deliveries? Never mind the orders. What are the deliveries? And Boeing and Airbus do a very good job of smoothing production, and deliveries come in at about the pace that the market needs. And on the financing, we complain about interest rates being too low or too high or whatever it is, but you can always finance aircraft. It's very rare not to be able to finance aircraft. And the other big safety valve is almost half the fleet is now owned by leasing companies. And they have access to ready finance, and they provide, you know, a way of equilibrating. Now, when an airline that orders a lot of aircraft decides it's got too many aircraft and sets up a leasing company to farm them out—

Corrine Png:That's right.

Andrew Herdman:Then the OEMs start to say, that wasn't the plan when I sold you the aircraft. The other leasing companies say, we've got a new competitor we thought might be a customer. So that gets a bit complicated. But I think we shouldn't jump from the conclusion. I mean, the pressure to buy 100 or 200 or more came about when Boeing and Airbus had 6, 7, 8-year backlogs. And it was, if you don't join now, you may be at the back of the queue. If you want to get his attention, you want to get a good price. But, you know, there are airlines who've gone bankrupt, who've gone bankrupt with a lot of aircraft orders on hand. Those aircraft then get recycled into some other usage. But I agree, Cesar, we can't predict the future. We just have to move with the times, adapt to it, and everybody manages the risk as best they can. But I think overall, don't confuse orders with deliveries, and come back to reality. Who's carrying the traffic? Who's really succeeding? Where is the scale? Not just projecting the future ambitions.

Corrine Png:I'll just move on to financial performance. For the established low-cost carriers, we found that their profitability has actually been higher than some of the major full-service carriers. We do see, for example, both Cathay Pacific and Singapore Airlines going through transformation. So what do you think are the best strategies going forward for full-service airlines to improve their profitability and have a sustainable future going forward?

Giorgio Callegari:Well, I would say that our answer— so I wouldn't say that is the best way forward, but it's our answer. So our answer is a portfolio of brands, so with varying margins, obviously. So we certainly have a higher margin on the low-cost end, like Pabieda. But it is a portfolio approach that is very similar to the one that Singapore Airlines is using with Scoot and SilkAir and Singapore, the premium brand. The important thing is that, in our opinion, is that you can never stop innovating. So, as we heard this morning that Singapore Airlines is launching the new upgraded product in their A350 cabin and in their long-haul fleet. We are also doing the same and a number of other carriers are doing the same. So, I would say that the successful approach, at least as proven by experience, is an efficient cost structure across the board and innovation. You cannot have one without the other one because sooner or later the market will catch up and you'll be left without a competitive advantage.

Corrine Png:How about you, what do you think?

Le Hong Ha:I want to add that besides— Giorgio said that focus on the management and the cost management for the network airlines, but I want to add that the— like I said before, that the partnership, the model that The airlines should, should got an effective partnership, like alliance and joint venture between the network carriers, because the network carriers work together can provide and to offer more choice to customer, and we can easily to work together and provide a seamless Customer experience service. And within the airlines, the business model find the right way to go. Like in the US, the US carrier can sell basic economy on the back end of the aircraft, and here in Asia or in Europe, that airline within the airline, and we should We should find the right model to compete and to survive in the market.

Corrine Png:Lastly, I would like to end off with a question for our panelists and also for our audience here. Do you think that every country in Asia needs a full-service flag carrier? First, we'll ask the panelists. Yes, no?

Cesar Pereira:I don't think so.

Corrine Png:You don't think so?

Cesar Pereira:There's no need for that.

Andrew Herdman:Yeah, they might want, but so wanting and needing are 2 different things. And there's evidence that in some cases they don't have the scale to be competitive with the international competition. So you've got to bear that in mind. And years ago, governments might have clung to the belief that they needed a a nationally owned and operated flag carrier, but in practice there are many successful ways of developing your tourism travel sector using foreign capital, foreign airlines, and that applies equally to development of the hotel sector and so on. So anyone can play, but you've got to face the fact that you're entering a very crowded and competitive market, and it's an unforgiving marketplace, and unless you want to keep bankrolling losses, then, you know, the lessons have been that more and more governments have backed away from that. Not to say you can't have successful state-owned or independent flag carriers. They can, but they have to compete, and it's a question of offering a variety of services. We still have aircraft with 2 classes, 3 classes, 4 classes, 1 class. We're still, we're seeing a proliferation, as has been mentioned, of multiple brands, complex group structures. Which of those is the winning balance between complexity, variety versus focus and cost, driving cost, and what optimises revenue? That's what everyone's experimenting with, and you just have to adapt. I don't see evidence of convergence towards a narrowing of product choices. You know, Singapore Airlines' announcement said, we're going to do this at the front end, First class suites. The anti— the starting point for intercontinental business class is now universally accepted as flatbed, and the US carriers are adapting to that. Premium economy has now emerged as a viable between business flatbed and economy. And as Ha mentioned, even in economy, we're getting basic fare differentiation or tighter seat pitch and densification. So success in business, revenues exceed costs, and revenue optimization is a whole story in itself, network collaboration and so on. And on the cost side, no matter whether you're selling a business seat or whatever it is, efficiency and cost is, is uppermost in people's minds. So I think these are universals of how to compete and succeed for airlines.

Giorgio Callegari:I think you had a very specific question, Corrine, which is, will every country in Asia need Or a full-service carrier? My answer is, I like, I'm happy to be the contrarian. The answer is yes. For a very simple reason. I mean, look at Europe. Europe has acted as a unified single market for the last 20 years and you still have carriers like Luxair, carriers like Air Malta, carriers like Radria, or Radria Airways, I'm sorry. And why is that? Because a combination of geopolitical and economic interests justifies that. So, I don't see Asia with the kind of barriers that there are to exit, not so much to entry, but to exit, as giving up the right to try and have national flag carriers. Now, the question is, will they be profitable or not? That's a different question. But, I mean, will they have it? Yes.

Le Hong Ha:Okay.

Corrine Png:I understand. How about you? What do you think?

Le Hong Ha:Yes.

Giorgio Callegari:Yes.

Corrine Png:So can we have a show of hands if you think that we, Asia, every country in Asia should have and needs a full-service flag carrier? Can you please raise your hands? Anyone? So few. So the rest of you are low-cost carriers, I assume. Okay. And how about those who think that we don't need full-service carriers in Asia, in every country? Oh, okay, it's actually quite balanced. So I guess the rest of you don't fly, so you don't care, you take high-speed rail, especially in China. So I shall end off here, and we're going to open up for Q&A. So please raise your hand if you have a question for our wonderful panelists. Thank you. Corrine, there's one here. Oh, here, this gentleman over there.

Andrew Herdman:Hi, Corrine. Michael Burke, Hong Kong Airlines. I have to ask a question about the Qatar investment in Cathay yesterday. Well, firstly, an observation. These are, as far as I'm aware, the 2 airlines that hold the record for the shortest-lived joint venture in airline history, which seems to have been forgotten about by everybody. Given that fact, and it was Cathay who ended that joint venture, given that fact, is this investment not an example of a weaker partner trying to influence a stronger partner into perhaps commercial cooperation they don't want to enter?

Cesar Pereira:Discuss.

Andrew Herdman:You're referring to the Cathay-Qatar joint venture? Hong Kong-Doha service as the joint venture? Correct, yeah, which lasted I think no more than 18 months. Yeah, I think whenever you talk about airline cooperation, and it has been mentioned the different layers of possible cooperation, and the question is whether you try and shape traffic flows and when you strengthen links between hubs, which routes are you trying to tap into, and it's always Difficult because people are cooperating elsewhere. So we've seen it with the, the Qantas Emirates and so on. How do you have those discussions? Whether buying a close to 10% stake causes a reevaluation of that kind of cooperation remains to be seen. But the, the tensions of which traffic flows are you trying to tap into and is it a win-win for both parties, you know, remains to be seen. Things have changed also for Qatar, given the— they've been cut off from their local traffic flows and having to put much more emphasis onto long-haul and super-connected traffic.

Giorgio Callegari:I think that the answer to the question will come this afternoon when we'll be listening to the Qatar CEO explain his point of view. My comment is that— We've seen joint ventures across alliances. The fact that on the China to Australia traffic flows, China Southern has chosen to cooperate from SkyTeam as a joint venture with Qantas from Oneworld tells you that drivers for cooperation can be different and justified upon premises that are not obvious to the outsiders. So, what I can say, and what I said and I repeat, is that in the case of Qatar Airways, I recognize a consistent approach to development, which is we believe in certain business models— AEG, LATAM, and now Cathay Pacific— and in believing in those business models, we invest as shareholders. And we try and link our networks through joint ventures. Will it be successful? Will it be successful everywhere? Maybe not, but at least what I appreciate as an airline executive is consistency in a vision and determination in putting it in place.

Corrine Png:Any last question for our panelists? Okay, so I'd like to thank all of you for participating in our panel discussion. Thank you so much, Giorgio, Andrew, Cesar, Ha, for your very insightful perspectives. I certainly enjoyed this panel discussion. I hope you did too. Thank you very much. Thank you.

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