Boardroom Conversation – Calculated risk and co-operation – how do aviation leaders collaborate in periods of chaos?

Transcript

Rich Maslen:We're here to talk about airlines' favorite word at the moment, uncertainty. Now I know what you're thinking, uncertainty, isn't that something we try to kick out of every business to be more efficient and remove from what we're doing? But in aviation, uncertainty isn't a visitor anymore, it's a permanent resident. That airlines are having to adapt to, whether fuel prices are keeping their rollercoaster journeys of the past, airspace closures that rewrite networks overnight, or regulators issuing rules faster than we can read them. We're managing businesses in one of the hardest times in terms of strategy. 5-year plans go out the window now, and we're talking about 5 months ahead. Such is the state of the change in the industry. And that brings us to our conversation today. We have 3 very different panelists here that will give us a very diverse view on how the uncertainty is impacting them in their own strategies. So I'd like to invite all 3 of them up to stage. We've got Chandran Ramamurthy from Batik Air Malaysia, Erika Peng from Cathay Pacific Airways, and Steve Allen from Salam Air. Please take a seat. So it's a, You know, as I mentioned in the introduction there, it's a difficult time in aviation. There's so much changing, so much is happening, and managing strategic risk in volatile times is a very difficult thing to do. So Chandran, starting with you initially, how do you find— define your risk appetite today, and how has that shifted in the years since the COVID pandemic?

Chandran Rama Muthy:Thank you, thank you very much, first of all, for having me here. When you talk about risk, there's always 2 types of risk. One is manageable, another one is something that's beyond your control. For example, geopolitical, fuel price, currency, all those are— you don't have control over it. For those, for example, fuel price, it will have impact to the air tickets, the price of the ticket itself. For those that we have control, for example, we are starting a new route from Singapore next month, Singapore to Ipoh, Singapore to Penang. By the way, taking this opportunity to promote as well. Well, those things we do kind of give ourselves a time. How long does it need for us to build the route? 6 months, 9 months, 3 months? From there, then we know the risk, how much money you're going to in terms of marketing dollars, the loss of operation, and so on. So there's always 2 things. Uncertainty is actually, in any business, there's always uncertainty. It's all, first of all, is your experience. And then you take the appetite of how much you can chew, and then you move on from there.

Rich Maslen:And Erika, how does an airline like Cathay Pacific prepare in our highly unpredictable world?

Erica Peng:Thank you, Richard, and good morning, everyone. I think this is a great opportunity to share our perspective and also to learn from the other industry leaders today. I think, first of all, the uncertainty is nothing new to the aviation industry, and us at Hong Kong, we deal with a lot of different types of uncertainties, from weather to all kinds, operations, et cetera, but I agree, with Shengdom's comments in terms of different types of uncertainties that we need to prepare. I think one major thing that we probably all share here is that what happened in the past few years after COVID and what is the learning from COVID I think the CEO just now of Thai Airways, he also shared a lot. One thing for us, it's really key, is to build the resilience. I think in the past few years, we have spent a lot of time really focusing on building our own resilience from both efficiency perspective, but as well as from overall Cathay culture, and also our dual brand strategy. So it's not just about how well we're now doing things, but actually to look forward in future, how adaptable we could build this organization into our DNA. I think maybe later we will talk in a bit more details, but I think nowadays resilience is key. And the second thing, also I think Chandra mentioned about this agility, a lot of things we can't really plan. I think this year in April, we all had a sort of big shock moment, but actually, I could see that a lot of our colleagues here and also around the world, we are, as an airline industry overall, we're adapting very well from both supply chain shocks and also sort of overall demand, how we can channel them through. So I'm sure, you know, we could all learn from each other on this, but I think Last but not least, we need to remain confident about our future. I remember during COVID there were a lot of people having a lot of doubts about aviation's future, and they said that, okay, everybody's just going to do conference by Zoom and no more traveling. And then you look at it today, we're all here, and it's a really, you know, great proof that also this demand is still there. And I think for as an industry overall, we are adding value. And we should be confident about it and then just, you know, focusing on what we do the best.

Rich Maslen:And Steve, when, you know, when there's little clarity in the risks that are there, you know, how can you, you know, pivot the business quickly to be able to adapt to these things?

Erica Peng:Yeah, I think it's a very good question. Sorry, I'm, I'm, I think for Steve, but no, no, no, for really, really for Steve.

Steven Allen:Look, it is, I I could probably talk for the next 4 hours, Richard, I think, about uncertainty and risks. I've seen quite a lot in Oman in the last 6 months with all the geopolitical issues that we've faced. I think key is, I think, to what Eric also just said, building in the resilience, a lot of the agility that will help being able to quickly manage the decisions, having a culture that is based on autonomy and empowerment of the management team and not based on sort of a control-based Culture, I think, is also important. We need to be reactive. We need to make some decisions. And I think back to what happened in Q2 in Oman. We had, we had some restrictions with access into the Kingdom of Saudi Arabia. We had one week's notice, and some of our core markets of the subcontinent, all of a sudden we are told we have one week and then we will have restricted access. So we had to quickly pivot some of our capacity. And make some pretty tough decisions. And we have now, because of that, we now have a bit more experience and we're building that into the network and the schedule for 2026 and beyond. We do foresee some of these challenges coming again. In May, we had the Pakistan-India airspace closure, our 2 biggest markets. So then that also caused us to quickly come together as a management team and pivot and, okay, how do we manage this? How do we communicate? The customer is always the priority, but also we have people on the ground, teams in each country. So managing that was challenging, and then we went into June and we had Adrian, my CEO, who should be here, and I'm standing in for him, but he should be here. He went on leave on a Thursday and he delegated the CEO role to me for the next 2 weeks. On the Friday morning, I had a phone call from my head of security that The Israelis have just attacked Iran, and we have— we're the only air bridge between Oman and Iran, and we have good relations with the Iranians as an Omani country and as a carrier, and it's obviously a strong route for us as a monopoly as well. So that was 2 weeks of my life that were pretty chaotic, and trying to manage that, that was daily sort of war rooms, to pardon the pun, But we managed, we came out the other side, and we had that sort of culture where the management team were empowered and we were well drilled and we knew what to do, but we had to quickly pivot capacity to domestic markets, whatever it may be. And also the communication is very important in those sort of scenarios, communicating internally, leading the communication, not letting it sort of lead you. Things can quickly get out of hand, I find, these days with social media and in certain markets. So that was, that was quite important, but that was just a challenge in Q2, and then that led on to Q3, but I, I won't go into that now.

Rich Maslen:I think, you know, that's a great example of, of the, you know, having the need to adapt quickly. And obviously, I think Adrian obviously had a little bit of foresight there to take that holiday at that time.

Erica Peng:Yes.

Rich Maslen:Leaving it in your hands to, to build experience. Chandran, you mentioned earlier on about new routes. And, you know, opening to how long you can give them to develop in the market. But when it comes to maybe short-term uncertainties, you know, political pressures, you know, local issues, how long do you stick with, you know, this is a route that works well, it's strong? How long can you carry on with that when these risks are there and you know that they're going to be impacting what's happening?

Chandran Rama Muthy:To answer in a very short sentence, how far your tickets are being sold. The thing that we noted right after COVID, that people do not buy tickets far in advance. The usual booking profile, normally it's about 6 months before COVID Now it has come down to as short as 2 weeks, 3 weeks. So that's actually good for the airline because we can adjust our capacity without having too much disruption to people's travel plan and so on. Some airlines, if I may say, they sell cheap, far way cheap, so that I think for maybe for cash flow purposes or things like that, but we don't do that. We try to keep the profile. We like this new trend because giving us the ability to adapt to the situations. For example, case in point, Kuala Lumpur-Istanbul airspace closure. It takes extra 2 hours for me to fly the routes. Extra 2 hours on an Airbus A330 is expensive. I can't go back and ask, can you pay extra $500 just because airspace closed, right? So then passengers will not be happy. So for that, we had to close that route after a certain— I mean, after 1 month or 2 months. So that's an example. Thank you.

Rich Maslen:And Erika, from, from Cathay Pacific's perspective, you know, how do you work on with possible changes like that in the short term?

Erica Peng:Yeah, I think there are 2 parts of it. So I think maybe many of you know that, you know, post-COVID, we were actually the airline that we grew from less than 5% of the capacity to 100% in a relatively short period of time. So at that time when we did the network review, We also make sure that we do it in a measured and responsible approach, because I think a lot of our customers would also wanna make sure that we keep our schedule integrity. And so one major part of that is the rationale, how we build it. The main thing is to make sure that we build a core schedule and our trunk route, and making sure that our frequencies over there are actually more protectable. And then I think we build on expanding our network presence, et cetera, but still it's very important to make sure that you know where your core market is, and then making sure you protect your trunk routes with multiple frequencies, for example. And of course, we do have different types of shocks, and in Hong Kong, one of them, quite, I would say, more frequent type of disruptions to our operations is a typhoon. So, for example, just last month we had a very big typhoon. We actually had to close the airport by more than 30 hours, and that means 500 of the flights must be canceled. I think for us that was actually a major drive, and then we have very good system in place. We have, I think Steve also mentioned about the communication, it's very important that the customers get notifications real time, and also they could do self-service rebooking, and then also we—

Steven Allen:Yeah.

Erica Peng:Make sure the policies is also flexible so they can do rebooking and we waive the fees, et cetera. But I think all of this at the back of it is that we have a resilient network. We have also a very robust operational recovery plans, and we need all departments to work together on it. And also, I think eventually the system and technology supports to make sure that our customers get that. firsthand information and they're more assured and also they have options.

Rich Maslen:Yeah, and Steve, you know, your example with the flights into Iran, you know, you've adapted, you've moved quickly. You know, what lessons did you learn from redeploying your capacity into other markets, and was there any surprises that you found by doing that that have opened up new opportunities for you?

Steven Allen:Look, probably a little bit again like Erika, we probably alerted us Richard, I guess, understanding where the core markets are, what can take, where we can deploy, what can take capacity. Some markets couldn't. We're a little bit constrained with just the bilateral access as well into a number of markets. So we don't have that capability to just move aircraft to our whole network. So places like India, we are constrained. India would be one where we would love to open up more destinations. And I think that's a really good point. But we're constrained there. So domestic market is somewhere where we do deploy capacity quite a bit. We're also an all-NEO operator at SalamAir. So we have 15 NEO aircraft. So we're quite impacted as well by the new engine challenges in the market, which is another, just another uncertainty or risk overlaid onto everything else. So, and with that, we did also find that there was, When particularly the Iran and the Iraq issue, because we also were the monopoly operator into Iraq, so we had quite a lot of capacity that we had to take out of the market very quickly, and we operated directly over to Azerbaijan and Trabzon and so on. So we had to take a lot of action and ASKs out of the system. So we did find a bit of downtime or opportunity in addressing some of the defects from an engineering maintenance perspective. So we worked closely with our ops colleagues. which helps to build in a bit more resilience as we were heading into the peak summer period. So we tried to use a negative as a bit of a positive in a way as well.

Rich Maslen:I think, you know, in all the examples you've given, you know, there's been so much uncertainty that you've had over the, you know, is it going to be an easier pathway for the future now because you've faced so many of these issues already, you've got plans in place and ready?

Steven Allen:I hope so. Yeah, I'm not sure. I was hoping I, before Salam Air, I arrived at Salam Air in February. Before then, I was in the UK with British Airways for the last 3 years, and I was hoping to work on the tan and to work on the golf game, but that hasn't really eventuated since I landed in Muscat. But that's in a way also what, what I do, why I enjoy what I do. I'm sort of passionate about it, and hopefully next year with some of the learnings and some of the resilience that we're building into the business, then we'll be a lot better placed to manage Any shocks, any black swans that come down the track.

Rich Maslen:Yeah. Erika, I want to just come back to you on something you, you mentioned about, you know, communicating with customers and ensuring that the messages are put out there. Sometimes these can be costly things to be able to sort of change the procedures of what you're doing. When do you get to that point that, you know, when are you willing to tolerate to protect the customer trust during irregular operations And you make that decision that it's not worth the cost of doing these things?

Erica Peng:Right, I think that's a very good question. Preserving customer trust is essential for us, as, you know, our vision is to become the world's best premium airline, and that means not just during the, you know, good times, but also during bad times. We need to think about how we can still remain, you know, at that top league, and we, I think, firstly, One thing we understand is what customers really want during those times, right? So you need to make sure that, you know, we have transparency, we have good communication, and we give them options. And nowadays, I think one thing that's really, really important for customers is that they can really do self-service, they can have everything on their phone. And then so actually, that's where we really invest a lot. Actually, post-COVID, we have, you know, not just restructured our overall business, but we also have decided to invest HK$100 billion, about more than $12 billion, in all kinds of customer experience from the fleet, cabin, lounge, but also on the technology side. Actually, nowadays, I think we are more confident as an overall premium airline to offer that transparency, to offer that optionality, and also to offer that timely message and information and everything that's at customers' fingertips. So I think, for example, this past typhoon was a very, very good test case. So, you know, really a lot of customers out of that 500 flights, they were notified. They were able to do self-service. We offer them, you know, rebooking options. But then actually, if they don't like it, they could also click on the link and then do it themselves. Of course, there are still a lot of things that we could do better. I think one thing you mentioned about overall investment, I think from our side, it's also about smart investment into where really customers care the most. For example, nowadays AI is a buzzword, so how much you invest in AI? There are actually loads of things you could do, and it could quite easily I would say become balloons, and overall the ROI cannot be justified. Quite importantly, we want to make sure that everything we do, firstly, it's channeled through our key priority areas. What matters the most to the customers, like customer contact centers. I think Thai CEO also mentioned that. Then also, in terms of this kind of disruption handling, actually a lot of the things go goes into there, and we believe that our customers could see it, they could feel it, and also they could also believe that we are really the best whether it's a good time or bad time for them.

Rich Maslen:And Chandran, coming back to you, let's talk about, you know, one of the key things for us in aviation is workforce. You know, it's an issue that is a constant concern in terms of having skilled pilots, skilled crew, ground services. But when it comes to disruption, it can cause so much issues in terms of managing your staff. How can you sort of plan for that, and what do you have in place to try and ensure that you're having the best people out there working for you?

Chandran Rama Muthy:As a CEO, if you want to have a good sleep, you better have good people at the second level at least to to manage or to run the show, right? So I believe in our group, be it Lion Air Group or Batik Air in Malaysia, we do have a very good team who's been with the company reasonably long with us, and we do have sets of SOPs in place because airline business, like it or not, it's full of uncertainty. Today you have one case tomorrow another case, so issues after issues. We have, I believe the second liners are well trained, so there is no need for me to get involved in the operational matters. We just think about the strategic, and we just look into the key metrics, we just look into the solution, I mean, how did they solve the problem. We bring them back to the meeting room, assuming that things doesn't move the way you want, then we discuss and then we see how do you learn from the mistakes, to do it better in the next, next future.

Rich Maslen:And Steve, what's, what's your view from a workforce side?

Steven Allen:Uh, yeah, look, I, I'm a very big one on just internal communication, Richard, and, and just staying really engaged with the workforce. Um, we have at SalamAir, we have regular town halls. I have regular commercial town halls. We have regular internal comms. Uh, it's, you know, very quickly in times of uncertainty particularly, the trust can be eroded, not just with the customers, but with your own people. If there isn't that communication. So I do find that is critical. And then that also sometimes empowers with the right sort of culture behind that. And again, that sort of culture over controls. The right people therefore are engaged and are able to really carry things forward during times of crisis. And that seems to have worked reasonably well for us. I think I, you know, I'm one for sort of overcommunicating in times of crisis. And that also then sort of translates out to the customer base and partners and so on.

Rich Maslen:So then, you know, keep your questions coming. There's some that we've seen coming already on Slido. I think the one we have here is— we've sort of answered in some ways here, but—

Steven Allen:There's one for me.

Rich Maslen:Yeah, I'll come to your one in a minute if you're happy with that. You know, how are your airlines enhancing resiliency in integrated planning processes for a higher-risk environment? You know, we've touched on it, but Erika, have you got any views on that? Sure.

Erica Peng:I think first of all, the integrated planning processes for us, it really means that we're not just looking at the shorter term of a timeframe. We actually have, you know, scenario planning for different— spanning different, I would say, time horizons, you know, just immediate terms, but also beyond like a couple of years and even up to 10 years' timeframe. I think some of us all, we shared a lot of things you can't predict. Nowadays, I think the key is not to predict the future. It's really to make sure that you have a very robust scenario planning, and you do the stress testing. You understand where is your weakest link of your organization, and try to build on it. I think the other bit is this collaboration. I think that the CEO, Chen Dong, talking about the good team, I think it really is so important that we want to make sure that, for example, this year we have all these different types of shocks that are coming to our industry that were unpredictable, probably. But when those things happen, we have integrated task force led by our CEO, and then we make sure that the cross-functional teams are sitting together, and we go through different areas and how we could really help each other, and also what are the potential risks of, know, each and every option. And so we make sure that we're all very, you know, robust. We build this plan together. And I think that's probably something more important than ever. Nowadays, we need to really work as one team.

Rich Maslen:Chan Chun, if you can add.

Chandran Rama Muthy:Being in a highly regulated industry, airline industry or airline business is all about planning, right? But then what happened, 20% of the time, if I, I don't know, 20% or 30% of the time, things doesn't happen as you wish. But if you look into the market dynamic, market changes, especially in Asia-Pac, market dynamic changes very fast. But the good thing arises from this kind of problem is we can now remove the capacity. For example, Ching Kiat just keep looking at me, so I have to use Singapore as an example. For example, Singapore, the demand increase suddenly, so we can then go to Singapore Airport and say, hey, can you give me extra slots for this Chinese New Year or Christmas or even that Deepavali weekend so that I can adapt my situations. Actually, it's worked to your benefit at some point.

Rich Maslen:Yeah, that's good and positive story. I'm just going to concentrate a little bit for the next 5 minutes on each of the airlines that we have here on stage and go into a bit more detail about each of them. So, you know, we have a question here for SalamAir, for you, Steve, about expanding GDS reach via HanAir. Are we now in a world where low-cost carriers are looking more like legacy airlines they once disrupted? Is that your ambition for Salam Air?

Steven Allen:Look, yeah, thank you to Pedro for asking that question. Look, we have, we have started to expand. Salam Air, we're an 8-year-old airline. When I arrived in February, we turned 8 in January, and we had been 100% direct in terms of our distribution channel until that moment in time, direct through our, our own internal portals and direct through, through the website and our mobile application. So the CEO and I, we've taken a slightly different approach, which I, I do believe in. I do believe you need to adapt based on the markets you are in. There's not all, not all markets behave, you know, identically, and what, where we are positioned in the Middle East and into West Asia and so on, and even Africa, That's not a 100% direct, you know, Ryanair-type model. We know that, we need to adapt accordingly if we want to start to widen our reach, and particularly also just to drive the awareness beyond our online markets, which is where a partner like Hahn Air obviously supports us. You can still operate and widen your distribution channels in low-cost ways, Richard, of course. So, uh, so that and the Hahn Air partnership with us, which we rolled out maybe in June, I think, is so far working very well. And we're seeing about 1% of revenue coming in through that channel, which is great. And there is very little cost to us, very little management. Everything is pushed back on the end customer as well. Are we going to enter all GDSs and all BSPs? No, not at all. That's not our approach. But you can still widen your distribution channels in a very low-cost way. And there's a number of people out there, like the Kiwis and the Doohops and all these sort of guys that are offering in that. Um, and again, it's managing by, you know, market what we need. If we can access a BSP in, say, in, uh, in India, for example, we have 8 online destinations in India, but if I can access the BSP through Sabre, which we do have, or BSP's coming, but through Sabre, that opens up the whole of the Indian market. It's a lot more than I can access via our GSA partner, and a shout out to the AeroPrime guys who are here and doing a great job for us. But that can get me into every city in India, and that's huge, huge opportunity for us.

Rich Maslen:And, you know, being a low-cost carrier, the main focus is always on costs, and, you know, you've got to focus on, on your unit costs. Um, but in volatility, it's quite easy to underinvest in, in what you're doing. So how big a danger is that, and how aware are you of, of, you know, ensuring that there are times that you're going to invest more heavily than perhaps you would be planning to do?

Steven Allen:Yeah, look, I mean, obviously costs are still key. We need to have a laser focus on that. That drives the business as a low-cost carrier. But again, the distribution expansion, for example, everything is pushed back in one way or another to the customer. So it's basically cost neutral for us. It's just a new stream and new access to a new customer base that we can access.

Chandran Rama Muthy:If I may, sorry, if I may answer or give some little bit of feedback. I really don't know what is low cost, what is full service, because it's a bit of controversy when people come and ask, you're low cost, you're not supposed to do this. You're full service, you're supposed to do that. But end of the day, like what we heard the Thai Airways CEO just now rightfully said, you cannot control the revenue, but you can control the cost. Even full service airlines now into very cost conscious, right? So we being—

Steven Allen:I agree, I agree with that definitely as well. I'm not one for labels, Richard, and never have been. There is no real low cost anymore for me. Like, things morph, and you adapt to your markets. You know, we see that in our part of the world, in the Middle East, Flydeal, which calls themselves a true low-cost carrier, they've just entered the Amadeus sort of GDS and BSPs in a number of markets.

Chandran Rama Muthy:So the idea is like a supermarket. Try to put your product in every shelf you can. So the objective is make sure your flight goes in the optimum load and makes that profit that you want or revenue that you want. Profit is subjective, but revenue is what something you can chase for.

Rich Maslen:It's quite clear that there's a blurring of the lines now in terms of what there are, and yeah, putting labels on things is something that we all like to do across various things, and yeah, I, you know, I agree with what you're saying that, you know, we need to in some ways move away from those positions. But it's something that we've come to use and to put these labels on airlines. Chandran, as you were talking there, let's come to you again. Southeast Asia is ultra-competitive on the low-cost side. You've got so much competition. You've also got competition from the full-service airlines that are able to put some really low fares in the market. Margins are particularly very tight in that market. So, you know, how do you preserve margin resilience amid aggressive capacity expansion in the region, not just your expansion, but your rivals as well?

Chandran Rama Muthy:Yeah, it's a good question and also difficult question to answer. Every airline or every competitor, you take a look, they all, we all have the same product, aircraft. Everyone into investing into new aircraft, new seats, The hardware are the same, but the difference that makes is the software, the service, the cabin crew, the— like what our colleague from Cathay just mentioned, the pre— what passenger wants before the— and once they make a contract with you, buy a ticket from you, they want to make sure that they are well informed. Disruptions, changes, all those things must be tip-top. They don't want to learn from third party and then come and complain with you. you first. And then during the flying itself is the flying experience. For example, meals on board, it might look very small, but then it's actually a big thing. So we do give a lot of choices. So not veg, non-veg, or chicken, fish, but we give about 5 to 6 choices on board. That makes a lot of difference. My aircraft, or our aircraft, is always clean. So often I hear remarks from our friends, I fly with this airline, that airline, the aircraft is not clean. So we make sure our aircraft is always clean. During the transit, we make sure that there is a particular team that cleans the aircraft. Those small, small things that we pay attention to, that's really giving us the stickiness or the consumer loyalty coming back to us. So that makes a lot of difference. I always tell my team, treat the passengers like how you would like to be treated. So you make them feel welcoming. That makes a lot of difference. Staying with a giant competitor who's always dump the price, dump the price, dump the price, but then, but we are here, we are 12 years already in Malaysia, in Indonesia we're almost 25 years, so yeah.

Rich Maslen:Are you seeing good customer loyalty then once they fly with you, you know, those passengers stick in the future flying with you?

Chandran Rama Muthy:That's true. We do have many people returning back to us just because they love our product, They like the product, which is good.

Rich Maslen:So talking about passengers, and, you know, passengers are all about experience and wanting to, you know, to enjoy what they're doing. And it's quite hard when you're on board an aircraft to be able to offer something that's completely different. But, you know, Erika at Cathay, you're investing a lot in terms of the onboard products, especially in terms of technology. You know, it's a significant investment you're making in the customer-facing side of things. So it's a big cost. So how do you measure the return on investment that you're getting from things like IFE, Wi-Fi on board, and how does that serve as a competitive buffer during disruption or even just generally when in normal travel experience?

Erica Peng:Yeah, I think I just mentioned, right, in the past few years we have made the decision to invest more than HK$100 billion. In overall basically upgrading our fleets, our cabin product, lounge, and in-flight, and technology. I think that decision was made in the back with a very strong belief that for us to really become the truly world's best premium airline, it's very important to make sure that we are ranking the best, but also from the customer's perspective. So for example, this 100% in-flight connectivity and also 100% seatback in-flight entertainment. We're actually very proud to be the first few airlines that can do that, and of course it also took us quite a few years to prepare and making sure that with all the suppliers, everything is there, the mods kit is there, the hangars, we can make sure that we coordinate it all well, but if you talk about the ROI, we really realize that in today's world, all of us, I think, none of us can, how to say, live still in the same way as before without in-flight connectivity. Our customers are basically telling us that they really need it, they wanna be connected, they wanna live a life in the flight that's the same as on the ground, and that 100% connectivity is actually enabling that, experience for them. And then in terms of in-flight entertainment also, we are very proud to be ranked more than 2 times to be the world's in-flight entertainment offerors. And we realize also that part, it's not just to make sure that our customers are entertained, are informed, but actually the whole set of it also helps our crew and our pilots from the way they are connected and also to improve their operational efficiency, and also the way they can be more informed, for example, with our customers' information, and also if the flight needs to be delayed, their connecting information, everything is so timely. And then they can also make sure that the customers' demands can be met with this technology and connectivity. So I do see that not only this just kind of like a fluffy word about customer experience, But actually there are a lot of tangible benefits as well in terms of the efficiency, in terms of how we really improve our overall communication, the personalization with the customers, and therefore increase their willingness to pay on Cathay. And for us, this is really one of the main things that we call ourselves, we talk about the low-cost carrier and full service. Nowadays, probably the, I would say the dividers has becoming more blurred, and how are we going to continue to make sure that we firmly hold our position as the premium airline? That means you really need to invest, and then these kind of investment is actually a great example of how we continue to uphold our promise to the customers and continue to lead. Now we believe that this leadership position can be sustainable, And of course, the next generation of the connectivity is this fast speed. And then also, you know, what about the content streaming, right, video and all this? And of course, we are also very proactively providing, preparing for that. And also this, you know, future investments will come as well.

Rich Maslen:So we've got a couple more questions here. I'm gonna leave it open to you who wants to respond to this one. How does your airline instil commercial resilience against Risks, example, alternative revenue via loyalty, non-airline partnerships, etc.? Any of you? Steve, I'm looking at you maybe.

Steven Allen:Look, I can probably answer part of it. We're not in the loyalty space, but in terms of like commercial resilience, one thing that we've implemented in the last 6 months is what we call a RevOps team, Richard. So we have— there probably wasn't, we just weren't mature enough as a business There wasn't really a strong bridge between the commercial side of the business and the operations side. Probably commonplace, I'm sure, in a CX or— and I saw this operate quite well at British Airways. But we have some commercial resources that are implanted in OCC to manage the day of departure. And so they're interfacing with the call center, with the reservation systems, with other commercial, with the marketing, the comms team to manage the messaging or anything on the day with the customer mindset being obviously front of mind. We probably hadn't had that and we hadn't managed the customer that well in the past, but that seems to work quite well for us in times of disruption. We're able to get out ahead of any issues that are coming up and any re-accommodation needs. We have a customer-focused person or individual or 2 that are making commercially savvy decisions. in terms of disruption, which is helping the overall resilience and allowing our ops colleagues to focus on the operation and the pilots and the aircraft and airports and so on.

Rich Maslen:Tantrin, have you got any—

Chandran Rama Muthy:Commercial resilience, alternative revenue outside the air ticket. Like it or not, airline business, air tickets is 80% or even 90% of your total revenue. I don't really think— yes. Loyalty, non-airline partnerships, something that's small revenue, it's sometimes exciting for you, but I don't really think that these things can cover the big chunk of the cost. So the focus again goes back to adaptation. How do you adapt to the situation? How do you shift your capacity? How do you react to the competitions? And then focus always, we want to be focused on the business. Because we are not selling ice cream, we are transporting passengers from A to B. So we want to focus that particular airline part of the business rather than diverting so much on non-airline revenue streams.

Erica Peng:From Cathay Pacific perspective, actually, maybe I could also share that, you know, in the past few years we have actually restructured the overall Cathay Group into 4 lines of business. Actually precisely to mitigate this sort of overall commercial resilience issue. And then so now not only we have a dual brand strategy, so we have Cathay Pacific as a premium airline and also we have a low-cost carrier arm called Hong Kong Express, HX Express. And then so that helps us to actually capture wider sort of segments of the market, but at the same time we also have our Cathay Cargo and also Cathay Lifestyle. So that actually helps us to you know, building more, some more resilience, especially when the time is not so good, when, you know, maybe travel has become a constraint, then we could also, you know, gain business from the cargo and also from lifestyle retail type of business.

Rich Maslen:So I'd like to sort of— we've got 5 minutes left— like to sort of look at looking ahead a little bit. You know, we've, we've talked about how we react to uncertainty and some ways how we can plan into the future to mitigate the risks of it. Chandran, I'll start with you. From, from your perspective, have we changed how we look ahead now as airlines? You know, are your scenario planning models different now today than perhaps they were 5 years ago? And, and, you know, how far do you look ahead when it comes to planning for the future?

Chandran Rama Muthy:If you, if you go back to pre-COVID, we would have seen the market flooded with capacity. Then came COVID. Who can get up and running fast, he became the winner, right? Best man became the winner. Then you see in 2022, 2023, 2024, good time for most of the airlines, made very good profit because the capacity was very much in control. But the future, it looks like the pre-COVID trend is coming back to haunt us back again in the future. A lot of capacities are being planned to be inducted in market, especially in Asia-Pacific. Yes, the market is growing, but then it has to be a decent capacity growth as well. You can't put 20 flights a day from A to B, flights to go full. So in that context, we are really careful in our planning. We do plan 3 years. Once a year, we do a 3-year planning, and then after that, the focus normally is within the next 12 months, and then we see how many number of aircraft do we need in next year, the year after. 3 to 5 years, I think, is a reasonable timeframe, but we can't We can't really sleep on it because the reason is the dynamic of market changes. Today something happened, tomorrow the results will be different, right? So as such, long-term is important, but to remain sustainable in the short-term is the key.

Rich Maslen:Steve?

Steven Allen:There's probably, I think, not as much focus for us on the longer-term where annually, sort of a 3-year budget type cycle, which drives some of the fleet planning and, and that type of growth, Richard, but, uh, commercially it's more within the next 12 months. Uh, I think one thing we've found at SalamAir is we are, we are modeling scenarios a bit differently these days, particularly when it comes to the network and particularly when it comes to alternates, different scenarios where we can pivot capacity. And it was a, a learning we took from from the challenges we had with KSA in Q2. So recently the network planning team, we went through a scenario where we modeled if KSA gets shut off again, what does that look like? And the next scenario will be if the Indian market gets shut off, what does that look like? And what are we going to do? So we're probably now asking more what-ifs and running different sort of what-if scenarios just to better get ahead of that, to plan for the next black swan.

Rich Maslen:And Erica from Forbes.

Erica Peng:Yeah, definitely. I think I would also agree with Steve. Scenario planning now becomes actually the core function of us. I think one thing we do now quite differently from pre-COVID, I would say, is that because we actually keep investing in all these sort of digital and technology, now we are actually having a much better system to help us. For example, now we actually earlier this year, we have just deployed a new network optimizer system. system. So that can help us to do so many more scenario planning without, you know, straining our own team's resource. But at the same time, it can help us to do this scenario planning in a more sophisticated manner. We talk about Monte Carlo, you know, modeling, and then a lot of these actually no longer you can rely on a few people working on Excel spreadsheets. Nowadays, really investing in a system is key.

Rich Maslen:Well, I think we're sort of running a bit short of time here. Yeah, so I'd just like to sort of thank all 3 of you for sharing your views, your honesty, your insights into things, some great case study examples of where disruption has really affected what you're doing. And it reminds us about the importance of good leadership and control and being focused on the business, about velocity, agility, and trust in your teams. But I think what we've learned today is that the airline of the future isn't necessarily the one that's going to have the biggest balance sheet or the most aircraft is going to be the one that can pivot the fastest, be smart with partnering, and preserve customer belief even in the deepest of crisis. I think we've learned calculated risk and cooperation aren't opposites, and partnerships and building trust between one another is important. They're complementary forces. One gives you the nerve to act, I guess, and the other gives you the resilience to to endure into the future. In my view, and I think from what you've said there, I think the winners of this industry moving forward are not going to be the ones that are going to be sat there waiting for the storm to fly over, but going to be the ones that actually fly straight through the middle and in a confident manner. So if you'd like to— round of applause for my 3 panelists for this morning's discussion.

Steven Allen:Thank you. Thank you for having us.

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