What’s Next For North Asian LCCs?

Transcript

Will Horton:Thank you. So before lunch, we heard about the experience in Southeast Asia. So now shifting to Northeast Asia, we do know the LCC penetration rate is lower, of course, despite the great efforts of my panelists. But maybe to break out those numbers, for example, between Hong Kong and Tokyo, where Vanilla Air and HK Express were on the stage. They're flying that route and they control about 25% of seat capacity. So that's much higher than the average Northeast Asian figure you hear about for the entire region. Between Japan and Korea, LCCs are 30% of flights, and that's just in the last 6 years. And between Taiwan and Japan, that's very quickly changing as more LCCs enter. So while the overall figure may be lower than in Southeast Asia, than other parts of the world. It is very quickly changing, and we'll hear why and maybe about some of the constraints and what needs to change. I'll introduce my panelists, uh, starting in alphabetical order, and some of them have asked to share some photos. We've put together some other ones for a nice visual start. So that's Andrew, of course, with HK Express. Andrew, you've recently completed a full rebranding of the airline. This was not actually really your traditional startup, it was a transformation. So the livery came out last year, and most recently we have your new uniform. Sorry, your new uniform. And up next for you, some A321s and new destinations for Hong Kong Airport. Even though it's a mature market, these will be entirely new destinations for the city. That's Ken in the very center, and of course on your— sorry, on your far left, Ken with Jeju Air just completed a very successful IPO that surpassed Asiana, Korea's number 2 carrier market capitalization. We've just learned has also now surpassed AirAsia, which is quite impressive. And I'm told the arrows are to indicate for the stock price to go up, even though they are red. I'm told that in Korea that's actually the I love the color they use to denote going up and not going down. So congratulations to you, Ken. And you have a new logo as part of your post-IPO rebranding.

Andrew Cowen:Right.

Will Horton:And Ian, sorry, no photos of your IPO, but with Travelport working on merchandising and of course knowing quite a few regions, we can talk about the developments elsewhere and what's unique to Northeast Asia. Kwan, with Tigerair right in the middle, sorry, second from the left, Japan will be your big market, you've told us. You're part of the Tigerair group, but also some, most of your ownership from China Airlines, which is the largest carrier out of Taiwan. I think these are from a recent travel expo of yours we found. And Mr. Ishii from Vanilla Air, this is your Terminal 3. Well, you share it with some airlines. The Terminal 3 is the low-cost terminal at Narita that opened earlier this year. I think that's some of your aircraft. And then we have some internal photos of the check-in and then the racetrack-style terminal that actually won one of Japan's good design awards. Maybe you can tell us a little bit about that later on.

Andrew Cowen:Yeah.

Will Horton:So I'd like to start by asking you, has the market improved? Is Northeast Asia getting easier? We hear about some aircraft deferrals in Latin America and Southeast Asia. Andrew, what was your secret for getting A320neos quite early on?

Andrew Cowen:Well, we had a fair bit of luck, I must admit, but some of it was judgment. We had a look at the market and we thought The A320neo is over-ordered. 2,500, 3,000, I think, have already been ordered for delivery up to 2019, 2020. And we weren't in a position to order ourselves, but we thought, well, that's a lot of capacity to come into the market. And then as part of our fleet expansion, We, you know, we cast around and had a look at who looked like they had an excess. And we've been very pleased to be able to secure a package of 12 NEOs, which we will configure to 188Y. And those start to deliver from August next year. So I think we're something like the second operator of the NEO in North Asia. I think China Southern has one coming before us. So we're pretty pleased with that. And so that's NEOs. And we also are— we've signed commitments for about— for another 12 A321s. Now those are going to be CEOs. We're going to configure those in 230 wide. And really the thinking there is, although you might say there's a little departure from the LCC model, we've decided that actually the departure is not too much.

Ken Choi:Yeah.

Andrew Cowen:That the training, particularly for flight and cabin crew, is really very, very limited. But what it does do is it gives us an extra, you know, nearly 50 seats. And when you're in a slot-constrained market, as we are, slot-constrained airport, then of course it really makes sense to maximize our, you know, our utilization, our slot utilization.

Will Horton:There's also some slots in And other airports. I think you've said Phuket.

Andrew Cowen:Yeah, exactly. So, you know, there's a number of markets like that where really we could do with— we've got very high load factors consistently, you know, in the 90s. But it's the type of market where, you know, people decide— it's a leisure market, so people go— they decide on their destinations to a large extent based on their budget. You know, at least our kind of traveler. So this means that pushing the yield up is a little difficult because people will then just simply switch away. So therefore, the strategy there is with an extra 50 seats, you know, we're taking the unit cost down by, you know, I don't know, another 15 or, you know, 15 to 20%. So that You know, just helps give, A, the capacity growth that we need, but also the unit cost improvement to help, help offset that, that kind of yield cap. So that, you know, that's the plan.

Will Horton:Ken, Jeju is the oldest panel on stage, but also, sorry, the oldest LCC on stage, but also one of the oldest within Northeast Asia. How is it going for, for Jeju? What does the IPO mean?

Andrew Cowen:What's next?

Ken Choi:The growth in the regional market potential has been the main story for Jeju's IPO, and that's why I think market received Jeju Air's IPO and story very warmly, and we are very thankful to that. And, you know, our history proves that, you know, Jeju is number one LCC in the Korean market, and top-line growth has been more than 20% for the next last 4 years. And for the last 3 years, operating profit has been growing almost double. So all those growth stories, not only domestically but also cross-border international network planning, has been very successful. And I think going forward, also, there are some competition factors, but market itself will pan out, and opportunities, opportunity will be ample for the, for Jeju Air. Particularly, you know, I thought it's funny to how you categorize the Northeast Asian market, whether you include China or not include China, it's 2 very different stories. But I think even carving out China, Currently, Jeju Air's Greater China business is about 15%, but with some expectation of open skies and more relaxed regulatory environments, I think the Korea number one LCC's position will be very promising.

Will Horton:And what does potential liberalization, or even some incremental steps, mean for For all of you, how will that change business both for yourself and potentially your competitors? Maybe, Kwan, you're one of the youngest airlines in Northeast Asia, but it seems you're already experiencing some of the constraints in the region. So how are you finding that?

Kwan Yue:Well, for a start, I guess I'm kind of like the new kid on the block. I only started last year. And I don't have a domestic market as well, I think just like Andrew. But I think, well, our last 14-month experience has really been very encouraging because when we first started, our business plan really is to grow to 12 aircraft in 3 years, serving the Northeast market as the main market. In fact, after hearing what the Southeast is facing this morning, I'm quite happy I'm sitting in the Northeast. I think potentially, I think if you look at the Northeast for LCCs, sitting like about 12%, 13% penetration today, I think the opportunity is really enormous. And that is one of the reasons I think why we are able to grow at a faster pace than what we have planned for. I'm picking up my 7 aircraft Next month, after 14 months of operating. My 8th aircraft will come in January, which puts me in about an aircraft growth, one every 2 months. So I think that is possible because the Northeast market is really very good for us, Japan especially. I'm already flying into Tokyo, Osaka, Okinawa. I'm going to Haneda next month. Cross-straits, yes. I think cross-straits is like Ken say, even if you leave out mainland China, I still have actually a lot of other areas to catch up. So I'm not particularly focusing on China right now, although I'm starting my first China port next month as well. So my focus right now, at least in the first phase of the business, with 12 aircraft is really focusing in the northeast and partly in the southeast. I have traffic rights to southeast. I have— I don't even have enough aircraft to start looking at it. I mean, Vietnam is one. I haven't even started Philippines. I haven't started Malaysia. I only have one flight to Thailand, one Singapore in the southeast. And if you look at geographically where Taiwan sits, I'm actually sitting in the center of Asia. I cover the whole of Japan, I cover the whole of Korea, I could cover 3 quarters of China and almost the entire Southeast Asia all the way to Singapore, apart from maybe Indonesia, which is a little too distant for me at this point. So geographically, I think I am sitting in a very nice location. I'm sitting in the Northeast where penetration rate is still very low, so I see myself moving very fast in the next few years. And I'm certainly very optimistic, as I said, even without China.

Will Horton:Mr. Ishii, Japanese are known to be very efficient travelers, often taking very small suitcases, if much luggage at all. How are ancillary revenues for you? Are they that important? You have moved into profitability. So what's the picture there for you?

Tomonori Ishii:That's why I can come join here. We were very suffering from— because 2 years ago, we completely changed our model from AIG style to vanilla style. So we suffered a lot to change everything. And also, we suffered from short of crew. But now we can, on the way to grow, we just, it's kind of a choice and focus. We only have 3 domestic routes and 3 international routes, but we concentrate on especially domestic between Narita and Sapporo. This summer we increase the frequencies up to 8, and the number one capacity we offered. And also for international routes, so we concentrate on Taiwan routes. So from Narita to Taipei, we have 4 flights a day. And this is number one for frequencies. So I'm sure, so because we— First, we planned we should have 10 aircraft by the end of this year, but now just 8. But we can make a profit for the first time, for the first half of 2015.

Kwan Yue:Wow.

Tomonori Ishii:So that's very— we are confident. Our model is very workable, and we are going to Get more inbound and also the outbound. Maybe later I will mention about how we, yeah, succeed.

Will Horton:Normally airline LCCs are ceding things to ancillary revenue. What's your view on how merchandising is going in, in Northeast Asia, other regions? Will Northeast Asia lead ancillary revenues one day?

Ian Heywood:Oh, one day. Today, no. Like a lot of things I think just been discussed on the panel, North Asia is catching up to the rest of the world on LCCs. And, you know, perhaps it was led to start with by US, then Europe. Southeast Asia, I think, has overtaken everyone now, and North Asia is going to catch up very, very quickly. So I think there's a huge room for growth there, and particularly on merchandising and on the different ancillaries that are being sold. Again, similarly, there's some regulatory problems that you have, issues, so you can't do necessarily— you can ask your panelists, they're much more qualified than me on what they would like to do if they were allowed to do it. But they, you know, you can see that developing as the regulatory issues you know, fade away and you're allowed to unbundle, you're allowed to charge more for your ancillaries and your overall price, then you can— then that will happen. It's an essential revenue stream. It's always, always good that, you know, you normally look at a low-cost carrier and they are leading the market, and then that will, you know, follow what's happening with the traditional carriers. The And you can see that traditional carriers all throughout the world are rapidly trying to unbundle because that becomes an essential part of their revenue. So you can see that that will happen in North Asia, but not at the moment, not to a great extent at the moment.

Will Horton:Are there any regulatory constraints you face on ancillary revenue, also maybe just general revenue, TATs filing, fares in advance, notification of fares?

Ken Choi:Regulatory issues hindering promoting the ancillary revenues? Well, some of the cases in Korea, I think there's not much of a regulatory issue, but more of a market reception issue. But I can think of a few, for example, like Fairtrade, Commission, they probably regulate your overcharging, the cancellation, and rebooking charges. They try to regulate that a little bit if there's too much complaints from the consumer groups.

Tomonori Ishii:Mm-hm.

Ken Choi:But Jeju Air has been frontier in exploring new type of ancillaries in Korea. In fact, about 5 years ago, we had been running more of a hybrid type of models, but we are moving very aggressively on kind of a no-frills best practice from the better-run LCCs globally. So, you know, here and there we kind of have missteps and misreception from the markets, but generally the Korean market has been receiving those as-you-prefer type of services. So in fact, about 5 years ago, our ancillary revenue to the total revenue accounts for about 1%. This year, it's close to 7%. So we are pushing it very aggressively.

Will Horton:At the same time, we are Kwan, being part of the Tigerair Group, you were able to launch with much of Tigerair's IT infrastructure. How did that help? Were there any hindrances? Are there things you'd like to develop that you can't develop on the group platform?

Kwan Yue:Well, although we are part of the Tiger branding, it is more kind of like a franchise between us and Tigerair. and the Tiger Group in Singapore. Insofar as, of course, running the model, the LCC model, the challenges that we faced really during the startup is the regulatory understanding of how LCC works in Taiwan. So there were a lot of, in a sense, constraints how an LCC runs that the Taiwanese authorities are not familiar with. A very good example is when we, when we did a startup, we couldn't sell tickets until we received the AOC. And that was really quite painful because you need to have an aircraft in-country before you get your AOC, and you can't even market your network until you get the AOC, which means you have an aircraft sitting on the ground until the market is able to purchase tickets out of you. So these are some of the things that I think we are kind of grappling with in the first few months. I've always said that although we are starting up and should expect a lot of things that a startup would expect in the first 1 year, But the problem, because we are kind of like, as I've said earlier, the last kid on the block, our first year has always been labeled internally as a 10-year leap because we got to do the catch-up with the other foreign LCCs that's already operating in Taiwan. And if you look at Taiwan today, there are only 2 Taiwan-based LCCs, me being the first, and we have a second one in Taiwan right now. But there are 17 foreign LCCs operating in and out of Taiwan, and this is where we have to compete with the foreign LCCs, and yet the regulators are kind of not catching up with the kind of things that an LCC needs.

Will Horton:Certainly, the 17 LCCs in Taiwan was a big reason for both, I think, the government and the airlines to say we need local We need local LCCs. Mr. Ishii, you want to say something?

Tomonori Ishii:I think the most important things, especially in Japan, if LCC can succeed, first punctuality and stable operation. Also, we have to compete with ground transportation and everything, so quality is very important. So we stick to the on-time performance ratio, on-time performance. just target the 85%. And also the in-service ratio, 99%. Usually we are so very bad on time performance, but now we try to— this is most important in the business in Japan. Also the transparency. So we announce every month, announce the performance, our load factor, Number of passengers, also the ratio of on-time performance, also the ratio in service ratio every month. So that's most important. So one day I went to some lecture at the university before the 500 students. Young student is our target, just 18 to 21. But I got many— comment, they think LCC is very cheap, so that cheap fare, maybe they will say neglect some safety. So I have to persuade them this is the most important target. But even such, so we need more say, this we spend a lot, we very so concerned about the safety.

Andrew Cowen:Thank you.

Tomonori Ishii:Safety first. So that is the most important thing.

Will Horton:Certainly initially in the early days of Japan's LCC days a few years ago, there were some operational challenges some of the airlines, the predecessors, had. And you mentioned an 85% on-time performance, which I think globally would be the envy of many airlines, but in Japan when ANA and JAL are above 95%, that is a difference for the local market. Andrew, on-time performance. You're the most punctual airline in Hong Kong. Shifting gears a little bit, you're part of the HNA Hainan Group. How much do you or don't you have to do with them as part of a group strategy?

Andrew Cowen:I very much agree with Ishii-san that, you know, really in executing our transformation to LCC, we had to really in many respects go back to basics. And some of that was about operational performance, but some of it is also about reputation building.

Ian Heywood:Yeah.

Andrew Cowen:People tend to— customers, especially for HK Express, 2/3 of our passengers are in the age group of 18 to 34. So there's many infrequent travelers there, many new travelers, and so on. And they just didn't really know, don't know about LCCs. There's a bit of this sort of idea that, am I going to sit on a wooden bench when I get on board? You know, do they throw the food at you? You know, stuff like this. And actually, you know, it's nothing like that. And, but for both that customer perception, but also the operation and delivery, you know, we had to focus exactly as Ishii-san's saying, very much on getting the basics right.

Tomonori Ishii:Mm-hmm.

Andrew Cowen:Get the on-time performance, you know, up to, You know, the, as you said, the leading OTP scores in Hong Kong. But if nothing else, because that supports the utilization. And utilize it, you know, if your high utilization is fundamental to your cost structure.

Tomonori Ishii:So the—

Andrew Cowen:there wasn't— there was quite a lot to do, you know, change mindset. Certainly part of our network changes, and part of the reason we focus quite heavily on Japan is, A, the market demands it, but B, we don't have to deal with so many ATC issues. Stripping away the ATC issues actually stripped away the biggest excuse for not achieving on-time performance, and then started to bring to the surface things like, you know, miscounted bags and late buses.

Kwan Yue:Yeah.

Andrew Cowen:And late fuel trucks and all this stuff. And, you know, we've had to really attack those. We still have— there's still quite a lot of legacy, you know, issues. One of the issues we're fighting with a number of our— in a number of our Japanese airports, just to give you an idea, is that many refueling companies will not allow refueling when passengers are either embarking or disembarking.

Will Horton:Right.

Andrew Cowen:Now, this is very old, you know, conservative policy. And why it's an issue is, of course, typically an LCC can turn around within about 20, 25, 30 minutes. If you've got a late inbound, then you want to— even if you're scheduling 45 minutes, you want to try to make up some of the time. But we're being prevented from doing that.

Ken Choi:Yeah.

Andrew Cowen:Doing so by the refueling agent saying, we're not going to touch the aircraft until the passengers are off. And this is ridiculous. So, you know, I certainly look forward to working with some of our Japanese friends to try to, you know, change this policy because it's— I don't know anywhere else in the world, to be honest, that still requires that. And the issue is, I mean, last week there was a publication that highlighted the most efficient airports in terms of on-time performance in the world. And quite justly, Japanese airports, I think, were— there was something like 6 Japanese airports in the top 10.

Tomonori Ishii:Mm-hmm.

Andrew Cowen:But of course, that fantastic record is compromised if you have old-style regulations like this non-refueling, you know, on board, which of course really represents no real Kwan, you mentioned by the end of the year you'll be entering the cross-strait market between Taiwan and mainland China.

Will Horton:I think your initial route is just about 2 weekly or so. The cross-strait market has been growing a lot since it sort of started to open up late last decade. Very popular, but mostly between Beijing and Shanghai to Taipei, and now those slots are hard to get into, the 2nd, 3rd, 4th tier cities, the carriers on both sides are exploring, but the yields and profits just aren't there. So how does— does China Airlines talk to you about how there might be some synergies? Maybe it's better for Tigerair Taiwan to fly one of those more leisure routes than a China Airlines aircraft.

Kwan Yue:Well, I think for a start, between China Airlines and myself, which which is 90% owned by China Airlines. We don't have as much restrictions as I think with many of the other full-service airlines dealing with their subsidiaries, for a start.

Tomonori Ishii:Mm-hmm.

Kwan Yue:You take an example today, I'm flying to all the cities that China Airlines is flying to. I mean, China Airlines flies to Singapore, I'm here. China Airlines flies to Bangkok, I'm in Don Mueang. I'm in Narita, where China Airlines is. I'm in Okinawa where China Airlines is. In fact, in Okinawa, you think about it, in summer, which is only 55 minutes between Taipei and Okinawa, China Airlines puts in a 747 and the load is full, you know. And yet I'm operating into Okinawa as well, and I'm operating into Osaka. So between the parent company and myself, I must say that I'm actually quite fortunate fortunate that we are able to operate into all the destinations currently they're operating into. The only thing with the mainland Chinese market is that it's the number of traffic rights that's available between China and Taiwan. Now, when that was first opened about 7 years ago, all the rights, of course, were already taken up by the existing airlines, you know, in Taiwan. So there are not many of those so-called good destinations— Shanghai, Beijing— that's available. And up to now, they have not increased that amount of traffic rights between the 2 countries. We believe it's going to be coming shortly, now that it's already 7 years and that has not been increased. What we are currently getting are those leisure destinations that the other airlines are not taking up the full capacity, and that's where we are starting next month, the leisure destination to Changsha Jie, which is, you know, a purely tourist destination that China Airlines doesn't operate. Not that because they do not want to operate into that kind of destination, it's just that, you know, that there are just too many other more profitable destinations in China that they already operate Yeah, the coordination between us and China Airlines is, as I said, quite minimal, so to speak. You know, we are not restricted by operating into destinations that they're already operating.

Will Horton:Ken, between Korea and China, it used to be quite easy to put on charters that were almost effectively scheduled flights, but there's been some clampdown on that. How is the China market change for you? And one day in the future when there's open skies, your fleet will double, triple. What will happen?

Ken Choi:Well, it's kind of a difficult guess what's going to pan out between Korea and China, especially in the aviation market. I think it has some orders like FTA has to go smoothly by end of next year, and then I think some of the service sectors will open up. So I don't think it will be drastic and dramatic, but for the time being, you know, every 2 years the air talks, Sino-Korea air talks, has been running. So we would like to make sure that that has been run and, you know, some of the new routes has been distributed to the LCCs in the right orders. So far, I think the traffic rights distribution has been mainly favored to 2 big FSCs, and the rest of the LCCs has been treated all equal. But hopefully now, the Jeju is very apparent number 3, not only in scale, but also, you know, operate passengers in the Incheon Airport by all, any scale. So hopefully we get better traffic rights allocation. And for the time being, we are very diligently running the charter services to key areas that we can potentially gain the traffic rights to Chinese market.

Will Horton:When you say you want traffic rights distributed in the correct order, is that going to be based on Market capitalization, or— joking.

Ken Choi:If that's the precondition, then we'll work very hard to achieve that market cap as reasonable as possible. But again, I think in this industry, it's very conservative. And also, there are many reasons for the regulators to distribute the traffic rights in their own way. But, you know, like Jeju Air, from our own position, we have to keep addressing.

Will Horton:Ian, we're hearing about all of the many nuances that are shaping this market to be different from even Southeast Asia, let alone Europe, North America. What do you think the airlines within these constraints could be doing? What do you think are maybe some constraints that they should try to and can break down?

Ian Heywood:Well, I think obviously You know, some of the, some of the regulatory constraints just does mean talking. And I think if the airlines can work together to put pressure, you know, I think your example of refueling is a, is a classic. I mean, that's absolutely, you know, a great example of something that should be so easy to change and then can make such a difference. So if you can have the airlines working together to put pressure on the operators You know, that will, that will drive things forward. I think from a distribution point of view, where I suppose my specialist comes in, it's, you know, working together to provide that value. If we can't provide value to these gentlemen, then, you know, we don't have a future with them. And their operation has got little nuances, so we have to keep changing that operating model. And I think some of that's going to come in the connectivity. connectivity as well of, you know, there's a lot of point-to-point growth where, you know, the low-cost carriers do a pretty good job on selling that themselves. So as they get more regional, then our value increases. And then as their operation becomes more complicated, we step in and our value increases. And so that's, you know, as they go through their maturity, as they start to get hit glass ceilings on the limits that they can carry, then they look to continue to grow. So then you start looking at how can we bring in more of the corporate sector. So you always start, tend to be with the leisure sector, easiest to get direct, low cost. Then you look at the corporates. Then you're looking at bringing in the travel agents more. That's where we come into that field. And then also— And then also So when you, when you go beyond that and you start looking about some of these connectivities, and I think this is going to be interesting on where do we go in a connectivity model. You, you started talking about it in the, in the last session, uh, and, and John mentioned about the intergroup connectivity, and you can see that with some carriers like AirAsia, you can see where there's tremendous, you know, growth for them to connect.

Tomonori Ishii:Yeah.

Ian Heywood:But that will continue perhaps across different low-cost carriers and how can they help each other there. But then also, can the low-cost carriers feed traditional airlines? And I think—

Will Horton:Let's ask them. Are you going to feed full-service airlines? Will you feed other low-cost airlines? Will it be a 2-way partnership or do you want your partner airline to do most of the work and potentially the risk? What are the partnership approaches, but also within your own network, are you pushing many, many connections? I think maybe Mr. Ishii, with your network, you really have— you're selling maybe just Sapporo to your other domestic points and Sapporo to international.

Tomonori Ishii:We, Vanilla Air, is 100% owned by ANA Holdings, and they support us through subleasing aircraft, purchasing oil, And buy our seats for— and the mileage club members and also long personnel, etc. But we never— at this moment, we don't have any plan to have a codeshare or operation by feeding. Also, we decide, so as he mentioned, so For the time being, we decide our business plan and network plan independently, and there's no coordination with ANA and my colleague airline Peach. So we compete each other. Maybe I think so because the market for LCC in Japan and North Asia is not so mature. So for the time being, There's many room to expand individually, but in the near future, if this market getting matured, maybe I think we need some coordination for our dual brand strategy, maybe in the near future. So for the time being, I think so this is one of the best model for partnering with full-service carrier, right? Yeah, I think it's so for the time being. So, and sorry if this is not the topic, but I just want to say something because in Japan, it's a typical— just it's called the Vanilla Effect. Vanilla Effect. Last year, we opened a new route from Narita to Amami, southern part of Japan near Okinawa. Used to be they have one daily flight between Haneda in the very adjacent, so downtown Tokyo located, and Amami with very high fare. So we just start operation. using grants in aid. And we generate almost double the number of passengers through the whole year. And the Amami City office announced it was about $35 million direct and indirect effect in their economy.

Will Horton:I think that's a very classical example of LCC stimulating traffic.

Tomonori Ishii:Because now, say, Japan is facing population decrease. So overcoming population decrease and also vitalizing local economies, this is one of the most important subjects in Japan.

Will Horton:So you want to diversify the tourism and not just have everyone in Tokyo.

Tomonori Ishii:It is one of the LCC's role, maybe, I think so.

Will Horton:Ken, maybe you had potentially one of the bigger partnership developments with the public talks with Singapore Airlines. Going forward, what are the potential partnership opportunities with low-cost and full-service airlines?

Ken Choi:Well, probably we are the only one sitting in the panel, that being independent, not owned by any parent airline companies. But, you know, there are always, you know, the pros and cons to that, but, you know, our growth has been spurred by quick decisions and very independent management, and that has you know, put us up to this level. And I think, you know, being as an independent carrier, especially based in Korea, I think that's alliances, partnerships, very flexible forms of working together is very important strategy for Jeju Air. And in fact, last year we were talking with Singapore Air, and that kind of partnerships will continually— we are going to pursue. In fact, a good outcome for that is We have some interline products from Singapore to Incheon and Gimpo to Jeju, and, you know, that kind of new routes developments and whatever the feeding relations, we are actively looking, and we hope fellow airline friends in here also would like to, you know, welcome to work with Jeju.

Will Horton:I'd like to conclude by asking all of you to give a quick response to What regulation would you like to change? And ideally, please don't mention anything that's been said before or anything about slots, traffic rights, and the usual suspects. And you get extra points if you can tell me a regulation you do like. And Ian, you can partake as well. Maybe you'll have a harder time. So we'll start down at the end with you, Ken. What would you like to change? Is there anything you'd keep for regulations? As Jeju Air?

Ken Choi:Well, the regulations, I think, these gentlemen, we can talk about the regulation constraints and some difficulties working with your governing authorities. But I think it is all part of our business. So we are facing the constraints in the domestic market infrastructure and slots, and also approvals and safety issues. But I think this is just part of our running airline business.

Will Horton:Kwan, is there anything specific you'd like to change or keep?

Kwan Yue:Well, after operating in Taiwan for 14 months, I think Taiwan is one country where the regulations have been fairly archaic because it has not been changed in the last many years. And I think what really, if you ask me what I would like Taiwan to do, is really not to make it any worse. So if anything good that comes out is not to change anything that is going to regress. One good example is Taiwan is currently reviewing the flight time limitations. The Labor Department is trying to align the flight time limitation to what the labor limitation of 12 hours working hours a day into the airline industry. So this is what I mean by regressing rather than going forward. So I think, I think it will take a while for Taiwan to to move with everyone else. So certainly, if you ask me, I would be happy if they don't change anything to make it even more difficult. Of course, on the plus side is that if they could move with everyone else.

Ken Choi:I second to that.

Will Horton:Mr. Ishii, what would you change?

Tomonori Ishii:Not only the regulation, but also the many charges. So I came about to say, when we send many passengers next year, we have to pay a lot to the airport because the facilities, everything. But usually, if airport is not only the cost centre but also the profit centre, so if we send a lot, then so maybe we should get more such a discount, so charges, everything. Also the landing charge, everything.

Ken Choi:Yeah.

Tomonori Ishii:same fare, but I think we generate new demand, so we send a lot of people, customers, then we should get— Something back for that. So I ask, you should charge special LCC, some charges you should make. So I often ask airport staff, Right, so, but they say this is fair, but I think from my point of view, it's not fair. We send a lot and we generate many demands, so in that case, we should get more.

Will Horton:Inter-Hong Kong LCC charges don't show much difference. What would you change in your various environments?

Andrew Cowen:I want to go for the bonus point first, okay? The regulation I like Is the deregulation that led to LCCs. That one work?

Will Horton:We'll give you a gold star for that.

Andrew Cowen:Bonus point, okay. Actually, the, the biggest regulation— regulatory issue that we have is that for many airports that we fly to and from, there's still an effective duopoly of many of the suppliers. So whether that's fuel or ground handling handling or catering and so on. And it's not, it's not quite a regulation in the sense of a civil aviation regulation. It's, it's usually an airport-driven thing. But this is where there's quite a lot of cost. There's clear duopolistic behavior, you know, in pricing and so on. This is one of our biggest— we've got in our cost structure all our, all our cost components.

Ian Heywood:Yeah.

Andrew Cowen:components going down except for airport suppliers. You know, and this is just due— I think all these guys, I think it's the same. It's just duopolistic pricing.

Tomonori Ishii:And surprise—

Andrew Cowen:Whilst that's a little bit understandable in some of the smaller airports, we have these duopolies prevailing at each of the capital city airports, really, which in my opinion, you know, is against the you know, the aviation interest. So I'd change that one.

Will Horton:Ian, last word to you. What should change?

Ian Heywood:I think mine's easy. It's particularly for distribution companies, it's opening up of China. Allow us, just allow us to operate. A level playing field would be very nice. So I see Peter's graphs of this massive growth and, you know, we can only play on one half of that, which is the half that's outside of China. So opening up of the Chinese market.

Will Horton:Anything you'd keep?

Ian Heywood:Oh, I think the, yeah, the biggest one's got to be anything to do with safety. You know, the whole of the industry, it's been mentioned on this panel, it gets mentioned on probably every panel, it's health and safety, you know, of the operation. So any of the regulations that are stipulating that safety, they are there. And I think the biggest thing is Anything outside of that, most probably get rid of.

Will Horton:Okay, good note, and hopefully an optimistic note to end on. Please thank me and join Ian on our panel. Thank you all very much.

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