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Thursday, April 14, 2011
Tony Tyler takes flight to a new horizon
Special to The Japan Times
HONG KONG — Tony Tyler has one final thing to do before he flies off from Cathay Pacific Airways to take over as chief executive officer of the International Air Transport Association (Iata), the aviation club that tries to make the world safe for airlines: he is selling his collection of mementos and model aircraft accumulated over his 33 year career, with the proceeds going to the disaster fund for Japan after its triple tragedy of earthquake, tsunami and crippled Fukushima nuclear plant.
Even after a hectic merry-go-round of farewell parties that have taken up most of the past month, Tyler is remarkably chipper, cheerful and smiling, and almost as slim as the proverbial rake. He certainly does not look like a man who is days away from retirement.
He explains that he could have stayed as Cathay's CEO for another year, but then he would have hit the automatic retirement age of 57. "I thought that this is a great job (to be CEO of Iata). If I had just waited until retirement age, the job is not going to wait for me."
So he decided to step down early and return to Europe to Iata in Geneva.
Being at Iata, which has 230 airlines as members, representing 93 percent of scheduled international air traffic, "keeps me in the industry, but not running another airline. When you have to run an airline like Cathay, gvvoing to run another airline would be quite difficult. It is a CEO position as well. The guys I will be working with are people I know, my fellow airline CEOs on the board of Iata, who are all good people I know well and look forward to working with. It's an important job and it's got to be done right."
Tyler makes it plain that he feels too fit to be put out to pasture. He says: "Although I am apparently nearly 56, I don't feel (and his voice rises in emphasis) like that."
It's odd that big companies like Swire, which owns almost 45 percent of Cathay, and which Tyler joined after leaving Oxford University, have not updated their retirement policies to take account of changing working conditions.
In the bad old days before air-conditioning, besuited expatriates sweated in 35 degree summer heat and 90 percent humidity, downed gin and tonics to ward off malaria (because of the quinine in the tonic) and other ailments, and were probably burned out long before 57 and keen to go back home to England.
"The world has changed a lot," said Tyler. "We probably work harder now. It's pretty unrelenting now with 24-hour, seven-days-a-week information bombardment, and we work long hours and intensively. On the other hand, people are much more aware of health and how to manage it and it's also a healthier place."
Tyler and Cathay have been on a rollercoaster ride since he became CEO four years ago. But he is flying out as the airline is riding high, though the turbulence of high oil prices and uncertain economic recovery in many places. After record losses of HK$8.69 billion (U.S.$1.13 billion) in the financial downturn of 2008, Cathay recovered in 2009 and has just reported record profits for last year of a massive HK$14 billion.
Cathay is the world's 10th biggest airline in terms of passengers and the world's biggest in freight apart from dedicated freight carriers like FedEx and UPS.
Equally important it has managed to maintain star quality performance, and is one of only seven airlines with the coveted Skytrax five stars. Along with the record results, Cathay announced new aircraft orders, so that it has 91 new aircraft on order to supplement its fleet of 127.
"I think in general, the company is in very good shape or there are solid plans in place to put it in very good shape," says Tyler. The finances, the network, the fleet, the management, the pilots and cabin crew, the product, the ground staff, the team, all, all in "good shape," when they are not in "great shape" or even "fantastic shape." Cabin crew and ground staff in Japan and Bahrain get Tyler's "fantastic" award.
Cathay plans to fly soon to Chicago and to add more flights to New York, as well as add new destinations to China. It is rolling out enhanced business class seating, where is has listened to criticisms of the previous lie-flat seats being too narrow and constricting. The new aircraft, says Tyler, will ensure that "the Cathay Pacific passenger fleet will basically be all very modern twin-engined aircraft, Boeing 777s, Airbus A350s, A330s and some A320s, which will give us some inoculation against high fuel prices to a great extent." The 777-300 ER (extended range) is 25 percent more efficient than the four-engine 747 jumbo jet.
If Cathay had had more than its then sole 777-300 ER for transpacific flights in the horrible year of 2008, it might have avoided the loss, Tyler says.
"Some airlines have gone the four-engine route, and if fuel prices go up they are going to have a pretty miserable time," Tyler notes. He winces at suggestions that oil may rise to $200 a barrel, on which airlines would pay up to 10 percent more to produce aviation fuel. "$200 means the world changes. There is no way that the industry is profitable at that level without very heavy fuel surcharges. Fuel charges rise, prices also go up and then you stifle demand."
Cathay passengers will have to wave goodbye to the iconic 747 from next year, though the airline will keep its 747 freighters for a long time. "The speed at which the 747s exit the fleet will depend on traffic demand and the fuel price," says Tyler. "If the fuel price goes up, we will find these aircraft becoming uneconomical much quicker and we will want to get rid of them. But if traffic maintains its growth, we cannot get rid of them until we have enough replacement aircraft coming in, so that's really over the next five or six years."
Tyler made careful but tough decisions on its future fleet, rejecting both the massive four-engine Airbus A380, which can seat up to 800 people packed like sardines or 500 in comfort, and the ultra-modern but problem plagued Boeing 787, for which All Nippon Airways is the launch customer. The Airbus A350, which also still has to fly, beat the 787 in Cathay's competition.
The biggest long-haul passenger aircraft will be the 777-300 ER carrying about 300 passengers depending on the configuration. "We will probably play with the configs as time goes on," Tyler says.
But doesn't he see the need for an aircraft carrying 400 to 500 people? "No we don't. We would rather have frequency and our customers are saying frequency, so we would rather add frequency profitably." The 777 is optimized for routes of 12 hours or more, while the A330 is super-economical over eight to 10 hours.
The other advantage of the 777-300 ER is a word not often mentioned in relation to passenger traffic — freight. Tyler adds, "The 777 is a very good freight carrier, so you can fill it up with passengers and still carry up to 20 tons of freight depending on how far you are flying, and that is not seen by anybody and it does not come out in the fuel burn per seat cost, but it is very important.
"If you are based in Hong Kong, which is the world's biggest freight market, you have to take that into account. Airlines elsewhere that are not blessed with having a huge freight market on their doorstep may have different economics, so I am not criticizing anyone who has got the A380. All I am saying is that for Cathay Pacific there are better ways of doing business. The A380 and bigger aircraft generally will have a place. When we are in markets where we can't add frequencies any more, then bigger aircraft such as the A380 and the Boeing 747-8 intercontinental may feature in our plans, provided fuel prices stay stable.
"The 777 flying the region is also really efficient for Asia. We can have 400 seats and 15-20 tons of cargo in the belly, and 45 of those seats are premium seats, so we get some good yields at the front end, and can afford to sell pretty cheaply at the back end and compete with the new generation carriers who are operating much less efficient aircraft."
Cathay gets 30 percent of its revenues from freight, just over half of which is carried by freighters, the rest in the bellies of passenger aircraft. The dedicated 747-8 freighters carry 120 to 125 tons, and other 747s take around 100 tons each, "and out of Hong Kong, they are all going full," Tyler says.
"We carry apples to the United States, and we carry cherries back," Tyler says. What apples does Hong Kong grow? He relishes his joke: "We carry Guangdong-made Apples (computers). We love the iPad too. We love it when Apple does a product launch."
Tyler admits to a few mistakes: "The whole fuel hedging problem happened on my watch and I regret that (when Cathay lost about $1 billion as fuel prices rose to $150 a barrel, then fell sharply when the global economy collapsed after the financial crisis). It was difficult and most airlines got burned. I waived my bonus as a penance. It has got to go down as a black mark. Some airlines did not hedge at all because they could not afford to and they ended up doing rather better, but that's life isn't it.
"It is something obviously I regret. Other than that, things have gone very well. I think that the way we managed our way through the crisis was the right way. I believe strongly in keeping the network intact and keeping the team together because fundamentally I felt that the Asian traffic market was going to bounce back — and it did — and the premium market came back and cargo came back, and if we had done radical surgery to the airline, we would not have been in a position to capitalize on the recovery as well as we did," leading to record profits.
He emphasizes the value of working together through the crisis: "If we had laid off staff we would have had morale and trust issues for a long time. I am not saying that it may not be necessary at some time in the future to take those drastic steps, but certainly while I was there we were able to avoid them. Staff took unpaid leave and later on we paid them back."
Just to prove that he has not gone all soft and cuddly, Tyler says that Cathay looked on repayment of the unpaid leave, "as a downpayment on the next time." He remembers that it was the second time in a decade that the airline had asked staff to take unpaid leave when faced with a crisis. The first came when Hong Kong and much of Asia were hit by SARS (Severe Acute Respiratory Syndrome). Tyler adds: "Institutional memory is long and strong, and if the airline runs into problems again, I hope that the staff will remember."
Tyler's emphasis on the importance of the team contrasts with the reputation he won at the turn of the century when he was the prime mover in taking on and forcing through heavy pay cuts on Cathay's highly paid pilots. He says he has no regrets: "We had some very difficult times in the late 1990s and early 2000s, and had to be quite firm and tough, bloody even. If we ever had difficult times again, I would take those same decisions without any hesitation at all. They helped to keep us competitive."
Tyler comments that the biggest difference in taking over as CEO was "that the buck stops here. Particularly on safety issues, as the CEO of an airline you do feel that 24 hours a day. Every time your phone rings you want to know that everything is all right. And you never forget that, and it does inform how you approach the job. I have only three people who report to me, the chief operating officer, the finance director and the head of safety. That reflects the priorities of the job. That is something that until you get your feet under the desk you don't fully grasp — yes, it's me now."
Although only three people report directly to him, his 33 years with the airline have given him a special network. "In this management office, are all the directors, and although they don't report to me directly I have known them all for years and years and talk to them all the time. So it is not as if I operate in a bubble. Having worked in the company for 33 years, I know lots of people in less elevated parts of the company who have become good colleagues and trusted friends, and they will tell me what is going on in the engine room, so I don't have to depend on the filtered stuff. I have enough friends all around the place who trust me enough to tell me what is happening."
When he leaves Hong Kong, Tyler says it will be farewell, but not goodbye. As CEO of Iata, he will no doubt visit the important aviation hub of Hong Kong very often. But he also plans to buy property in Hong Kong, so that when he has done his stint in Europe, he will have a place in the city where he can spend the pleasanter months of the year. By then he hopes that the unhealthy Hong Kong air will have improved. "The air quality here is something I will not miss," he says.
Cathay has a delicate balancing act with mainland China, not only because of Hong Kong's status as a special administrative region of China. Mainland flag carrier Air China has 30 percent of Cathay, and Cathay has 18-19 percent of Air China. Tyler says rumors of an Air China take over of Cathay are unfounded since the Chinese airline can't go above 30 percent without making a general offer and the U.K.-based Swire family has almost 45 percent and has shown no inclination to sell. Air China is in a different airline alliance, belonging to Star, along with United Airlines, Lufthansa and All Nippon Airways, while Cathay is in oneworld with American Airlines, British Airways and Japan Airlines.
But Tyler describes relations with Air China as "excellent. We are working together on commercial things, bringing value to each other's operations. We are doing lots of things, cargo being one particular example. We are doing a lot on passenger traffic as well between Hong Kong and mainland China, feeding each other's gateways. We have got a lot of procurement, experience swapping, secondments of staff. So we have a very good working relationship and I see that continuing."
Indeed, he says that it is easier doing business now than it was before July 1997 when Hong Kong was a British colony. "Before 1997 you had to put up with the stupid question of 'what's going to happen after 1997? I do business here and I am worried' — to which the answer was 'Nothing. What's going to happen in your country in ten years time? How do you know?'
"Working for the airline, we were very aware of the political arrangements being put in place. We also had exposure to the way that the mainland operated and the way that they negotiated the civil aviation arrangements. And of course seeing the new airport opening in a year or so and the great opportunities that provided for aviation, I was confident that the prospects for business were good.
"Hong Kong did not go through the post-colonial backlash that a lot of colonies went through. Hong Kong people did not say, 'Right you British bastards, we are in charge; now it's our turn.' Hong Kong people, being very pragmatic and sensible, said, 'Let's get on with it.' And that's what happened. Hong Kong people are more self-confident. The British did a fantastic job in Hong Kong and the Brits don't need to apologize for their behavior. If rule had changed 30 years before the handover, Hong Kong wouldn't have been the place it has become today. It was right that the British should hand over the reins, and the way that it has been managed since has shown that Hong Kong people may be pragmatic, but so are the mainland people."
But he will miss Hong Kong: " I shall miss the food. I shall miss friends and being able to plug my guitar in various clubs and pubs. Hong Kong has all the best attributes of a big city and all of the best attributes of a small village. If it is not unique, I don't know anywhere else that has got these. It is a remarkable place. As to the small village, everywhere you go, you are going to bump into people you know and you like.
"While I have been here I have played rugby at — I put it in inverted commas — at international level, represented Hong Kong (10 times, plus one appearance in the Sevens), which I would never have done if this was a big place. Also with my relatively limited musical talent, I have been able to have a lot of good fun by playing in public with good friends and for good friends, which I would never have done elsewhere. And yet Hong Kong is a leading world city. It is a leading world financial center, a leading world transport center. We are a world city and yet we are a small place where you can quickly get to know lots of great people and do things that are at a sort of village level."
Kevin Rafferty is a financial journalist based in Hong Kong.