BORN to LEAD Brought up in a Family of Entrepreneurs, Airline CEO, Aireen Omar, Was Headed to the Top in Banking

Vol. 22 No. 7 September 2015 orientaviation.com

BORN TO LEAD Brought up in a family of entrepreneurs, airline CEO, Aireen Omar, was headed to the top in banking. Then AirAsia came knocking

Indian government Virgin Atlantic Boeing leads fight to procrastinates on rebuilding in the region re-instate the U.S.’s aviation reform with airline partners Export-Import bank SPECIALInside REPORT China’s An Orient booming Aviationairlines: update The difference is monumental.

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COVER STORY

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ORIENT AVIATION MEDIA GROUP Mailing address: GPO Box 11435 Hong Kong Office: 17/F Hang Wai Commercial Building, 231-233 Queen’s Road East, Wanchai, Hong Kong Tel: Editorial (852) 2865 1013 E-mail: [email protected] Website: www.orientaviation.com Publisher & Editor-in-Chief BORN Christine McGee E-mail: [email protected] TO LEAD Chief Correspondent Tom Ballantyne Tel: (612) 9638 6895 AirAsia CEO, Aireen Omar Fax: (612) 9684 2776 had a stellar career in banking. E-mail: [email protected] Then AirAsia came knocking. Greater China Correspondent Dominic Lalk Tel: (852) 2865 1013 E-mail: [email protected] COMMENT 27 All Nippon Airways, a new Skymark investor, to

North Asia Correspondent 7 Thwarting the Cyber threat acquire more slots at prized Tokyo/Haneda? Geoffrey Tudor 30 Boeing leads battle to re-instate U.S. Ex-Im Bank Tel: (813) 3373 8368 E-mail: [email protected] NEWSMAKERS after Congress voted it down 9 Qantas CEO looks happily north after Jetstar India Correspondent R. Thomas Hong Kong vetoed MAIN STORY Tel: (852) 2865 1013 14 New and pressing danger: Cyber Security a E-mail: [email protected] priority issue for industry Photographers Rob Finlayson, Colin Parker, Graham Uden

Design & Production Chan Ping Kwan

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ADMINISTRATION 9 AirAsia group CEO Fernandes pondering a career General Manager change? Shirley Ho 9 Yet another bureaucrat to take charge at Air E-mail: [email protected] India EXECUTIVE PROFILE ADVERTISING 28 Asia-Pacific Virgin Atlantic boss seeking airline

South East Asia and Pacific NEWS partnerships to re-build the carrier’s regional Tan Kay Hui 10 Shocked by Thailand’s slow response to safety presence Tel: (65) 9790 6090 E-mail: [email protected] oversight shortfalls, says Association of Asia- Pacific Airlines director general The Americas / Canada Barnes Media Associates Ray Barnes NEWS BACKGROUNDERS Tel: (1 434) 770 4108 Fax: (1 434) 927 5101 11 India disappoints aviation reformers E-mail: [email protected]

Europe & the Middle East REM International Stephane de Rémusat Tel: (33 5) 34 27 01 30 Fax: (33 5) 34 27 01 31 E-mail: [email protected] SPECIAL REPORT © All rights reserved Inside Mainland China’s booming airlines: an Wilson Press HK Ltd., Orient Aviation update Hong Kong, 2015 31 The only way is up for Mainland China’s carriers

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Thwarting Cyber attacks

Protecting the enormous amount of data airlines hold in to crash, check-in counters to freeze and ground handling their IT systems is a major security issue for the aviation operations, flight planning and other aspects of operations to industry. grind to a halt. International Air Transport Association (IATA) director Attacks on external services, such as electricity grids or general and CEO, Tony Tyler, told delegates at a recent communications networks, would have a similar impact on Singapore security conference that in one recent month airlines that would create chaos as well as financial losses alone, the association identified and blocked an average and reputational damage to the airlines attacked. of 80,000 suspicious connections per day, detected and Experts and industry insiders have told Orient Aviation cleared 891 viruses and resisted five ‘brute forcing’ attempts it is not a matter of if an attack will happen but when. LOT (overpowering a computer’s defences by repetition) to Polish Airlines has already been a victim of hackers. It was connect to IATA accounts. forced to cancel flights after a hacking attack. The first line of attack to come to mind is that terrorists Asia-Pacific carriers know the issue must be addressed could hack into airline data bases and play havoc with airline with priority. IATA’s Tyler has red flagged it, but has said the systems. Security experts don’t discount this threat, but industry can’t counter hackers with one arm, metaphorically they cautioned in Singapore that the possibility of terrorists speaking, tied behind its back. bringing down aircraft was remote. Industry cooperation, while an absolute necessity, Airlines also are most mindful of the damage hackers will not get us where we need to be, he said in July. could do to their businesses. The IT systems that interlink an “Governments have resources and access to intelligence airline’s various departments are not stand alone systems. that the private sector cannot achieve. They also have a They are interconnected to the systems of airline partners, responsibility to use these resources to support industry including GDSs, airports and a host of other service efforts. We have an example of this approach in the decades providers. of successful government-industry cooperation on safety. Hackers can gain access to airline systems through these Unfortunately, we have not achieved this level of cooperation “back doors”. If they succeed, fraudsters will find a pot of in security,” he said. gold: the personal and credit card details of hundreds of Let’s hope we won’t have to wait until a major Cyber millions of airline customers. Security breach happens for this government-industry Hackers with malicious intent also could cause systems relationship to change. ■

TOM BALLANTYNE Chief Correspondent Orient Aviation Media Group

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SEPTEMBER 2015 / ORIENT AVIATION / 7 Fraport_SoE_202x273-5_RZ.indd 1 30.04.15 15:45 NEWSMAKERS

Qantas looks happily north after Jetstar Hong Kong is vetoed

August was a winning month for Qantas. A Earlier this year, the ACCC said in a draft the two countries by linking to key hubs and day after announcing a dramatic turnaround report that it would not approve the alliance. offer connectivity to each carrier’s behind in profitability, to US$713 million for the Its backflip is believed to be the result of and beyond networks,” said Joyce. The latest fiscal year, the airline group’s CEO, Alan lobbying from the Australian and Chinese business alliance was originally announced Joyce, received some news that put an even governments. last November alongside the signing of the bigger smile on his face. The two airlines already have a reciprocal Australia-China Free Trade Agreement in Australia’s competition watch dog, codeshare agreement on 17 flights a Canberra. the Australian Competition and Consumer week between Australia and China A few weeks earlier, Joyce was Commission (ACCC), announced its approval and several onward domestic not so happy. Speaking at an of an alliance, for the life of five years, destinations in both countries. Australasian aviation summit in between Qantas and Shanghai-based China The alliance will enable the Sydney in August, he vented Eastern Airlines (CEA). The ACCC said the partners to deliver expanded his anger at Hong Kong’s July two airlines must boost capacity between services, better departure decision to reject Jetstar Hong the countries by 21% over the 60-month and arrival schedules, shorter Kong’s application for an air period and report fares on both carriers each transit times at Shanghai, operator’s certificate. month. increased frequent flyer The decision to refuse Chinese visitors are predicted to benefits and a wider range of Jetstar Hong Kong a licence to contribute up to $9 billion annually to the onward connections, Qantas said. operate raised the real threat of Australian economy by 2020, with analysts “The joint venture with governments “interfering forecasting the alliance has the potential to China Eastern allows in the markets and match the benefits of the Flying Kangaroo’s us to increase taking away fair partnership with Dubai’s Emirates Airline. capacity competition”, For Joyce, the news was especially sweet. between he said. ■

Fernandes pondering career change?

Are the demands of the airline business has criticized the body, which oversees leadership and preparing for his departure. wearying AirAsia co-founder and a 10 nation regional bloc, especially in AirAsia has had a difficult year. Last chairman, Dato Tony Fernandes? It seems relation to standardizing airline oversight, month, its Malaysian arm reported a unimaginable, but when he was asked in an crew qualifications and safety regulations second quarter profit of 243 million ringgit interview last month if he would consider between member countries. (US$64.3 million) compared with a 367.2 moving on from AirAsia, the 51-year-old serial Fernandes has said “good leadership million profit for the same period a year entrepreneur told the Bangkok Post “my time is to know when to go and to refresh the ago. Fernandes said the low fuel price had is coming. Maybe in the next two years”. organization with young and energetic helped counter the decline in the ringgit for In the interview, done in Jakarta, leaders”. He would not talk specifics about the quarter. “The Group has hedged 50% Fernandes did not say what he might do after a successor, but said the appointment of of its fuel at US$88 per barrel this year. We AirAsia, but expressed a keen interest in Aireen Omar (42) as chief executive of remain unhedged for 2016,” he said. See leading the Asean (the Association of South AsiaAsia in 2012 was part of the process Born to lead, AirAsia CEO, Aireen Omar, East Asian Nations) Secretariat. Fernandes of bringing new people to the airline’s page 20. ■

Yes, another bureaucrat to lead Air India

A former India railways boss, mechanical Railways Organisation for Alternative Fuels. customer and cabin service range from engineer Ashwani Lohani, is to succeed His reputation shone bright in his previous adequate to woeful by any global measure. Rohit Nandan as chairman and managing job, where he rejuvenated the failing Madhya Lohani’s predecessor, Nandan, who director of flag carrier, Air India. Reaction Pradesh Tourism Development Corporation. will move up to the ladder to secretary to to Lohani’s appointment has been cautious. With years of losses behind it, reviving the national government, tried but failed With no aviation experience, critics wonder Air India is a colossal task for Lohani, to contain the carrier’s growing debt and how he can turn around a chronically especially as Etihad Airways’ investment and staffing problems. As a result, the national enfeebled carrier that only exists because management involvement in Jet Airways is government is reviewing the terms of its of government beneficence. Lohani, who steering the Mumbai-based carrier towards funding support for the flag carrier’s current will move to Air India later this month, is the sustainable profitability. Air India’s on restructuring/turnaround plan, which was chief administrative officer of the Indian time performance, product offerings and approved in 2012. ■

SEPTEMBER 2015 / ORIENT AVIATION / 9 NEWS

Shocked by Thailand’s failure to fix oversight lapses Says regional airline association director general

By Tom Ballantyne

sia-Pacific’s leading this is an important issue that Thailand present a grim picture of airline association must be fixed. Even when the air safety standards in the region. said it is shocked shortcomings were highlighted Herdman said the industry by the failure of the response was not sufficiently is actually “extraordinarily safe”, Thailand to correct quick. They had sixty days even when the regulator does not Ashortcomings in the country’s and asked for more time. It’s keep up with the airline industry. safety oversight procedures very frustrating because it is “You can have a very safe industry identified by global industry jeopardizing the reputation of with lax regulatory oversight, but auditors. Thailand’s airlines,” he said. it’s not desirable,” he said. The director general of “People don’t distinguish “It would [probably] be the Association of Asia-Pacific between the fact that this is heresy to say it, but there’s a Airlines, Andrew Herdman, a commentary on regulatory grain of truth in the fact that said Thailand is facing bans or oversight. It doesn’t mean the regulatory oversight could be restrictions on its airlines because airlines or the airports are unsafe.” non-existent and you could still be Association of Asia-Pacific it has been slow to respond The most recent audit, by the Airlines director general absolutely fine. But you are more to International Civil Aviation FAA in July, found several flaws Andrew Herdman: ‘People don’t comfortable if you have regulatory Organization (ICAO) and U.S. in Thailand’s air safety systems, distinguish between the fact oversight to make sure it stays Federal Aviation Administration including a serious shortage of that this is a commentary on that way. It deters anyone from regulatory oversight. It doesn’t (FAA) demands to improve qualified staff to conduct safety thinking they can take shortcuts.” mean the airlines or the airports air safety management and inspections of airlines. It gave are unsafe’ Earlier in the year, after the inspection systems. the DCA 65 days to rectify its safety auditors published their The FAA and ICAO issued problems. European Union will place Thai findings, Indonesia banned Thai- recommendations for air safety If it fails to meet the deadline operators on a black list, halting registered airlines from increasing improvements in Thailand after the FAA will likely downgrade any services into Europe. THAI flies their flights or changing the types separate audits of Thailand’s Thailand’s status from Category 1 to Brussels, Copenhagen, Oslo, of aircraft that fly into the country. Department of Civil Aviation to Category 2, which would mean Frankfurt, London, Stockholm, Thailand’s Minister for (DCA) exposed serious flaws and any Thai-registered airline now Zurich, Madrid and Rome, Transport, ACM Prajin, said the shortcomings in its operations. operating to the U.S. can continue although it has announced plans decision would not impede Thai “Thailand was a shock to fly there, but cannot add to drop Madrid and Rome. Airways International (THAI) as because it has a huge travel and destinations or change aircraft As a result of the audits, the flag carrier did not plan to tourism sector, a huge aviation types. many countries in Asia and Europe increase flights to Indonesia. history and yet it has been Ironically, that would have have increased inspections of THAI operates seven flights caught out because they’ve little impact in Thailand. Thai Thai-registered aircraft when they out of Suvarnabhumi airport have insufficient resources,” said Airways International (THAI), arrive at non-Thai airports. to Bali weekly and 10 flights to Herdman. “If it was Cambodia or which is the only Thai airline Thailand’s situation has shone Jakarta each week. Myanmar, who may have a plan operating to the U.S., announced a spotlight on safety oversight The Indonesian Transport but are struggling to implement last month that it would terminate in several Asian countries. With Ministry said it would also ask it, you might understand the its only U.S. service, Bangkok- Los airlines in Indonesia still on the to check airlines’ operation situation. Angeles, from October as part of European black list (State-owned certifications for chartered flights “But aviation and tourism its latest restructuring. Garuda Indonesia is exempted) to determine if they are in line is a critical part of Thailand’s More serious would be bans and the Philippines only recently with required standards. No Thai economy so its leaders don’t imposed by Europe. If Thailand restored to Category 1 by the carrier operates chartered flights need to be persuaded that fails to meet ICAO demands, the FAA, the negative results in to Indonesia. ■

10 / ORIENT AVIATION / SEPTEMBER 2015 NEWS BACKGROUNDER

Getting in India disappoints step with global industry Reducing the tax burden: aviation reformers Service taxes should not be applied outside India for overflight charges, global Buoyed by the election of prime minister, Narendra Modi, distribution systems, extra baggage fees and interna- India’s airline industry expected the new government would tional tickets quickly modernize the country’s aviation oversight and Competitive fuel pricing: fuel pricing and the supply planning. Twelve months on, reformists are fighting a rear chain to deliver fuel at airports should be open and guard reaction from airlines who prefer the old ways. market competitive Cease cost gouging by airport operators: Support the Airports Economic Regulatory Authority (AERA) TOM BALLANTYNE reports in its ruling that Delhi airport charges be reduced by 78%, nternational Air Transport “If we can work together to few days after Tyler’s public plea allow proper and transparent Association (IATA) director build regulations that meet the that the long awaited reforms procedures to assess the general, Tony Tyler, did public interest, are consistent to aviation policy promised proposed privatization of Jaipur, Kolkata, Ahmedabad not hold back in his with global standards and can be by Narendra Modi won’t be and Chennai airports and keynote address at a recent implemented efficiently then we arriving anytime soon. “We are airport charges at Hyderabad Iconference in Delhi. are all winners. And we will avoid completely rewriting the draft Airport “While demand growth the angst involved in unwinding aviation policy. We are working Smarter regulation: revise is robust and some airlines are mistakes,” he said. on a sensible policy,” said Civil industry regulations so they generating profits, sector-wide Disappointingly, it emerged a Aviation secretary, R N Choubey, are consistent with global losses for India are still expected who added the revised strategy standards and ensure they to exceed $1 billion this year,” he would examine reducing fleet are subject to rigorous cost said. “Onerous regulation and acquisition costs and airport benefit analysis and are in processes, debilitating taxes regulation. the public interest and expensive infrastructure It would include removal of are holding up the the much debated 5/20 rule, embark on a range of significant industry’s ability to deliver which requires airlines to reforms “the Indian media are greater economic benefits operate for five years and speculating that Modi has so far to India,” Tyler said. have a least 20 aircraft failed to deliver India from its Speaking at Aviation before they can fly ‘morass of red tape’. It brings us Day India, organized internationally. Once the to the question of what evidence by IATA and India’s policy is revised it will be is there that real change is taking Ministry of Civil Aviation put up for public comment, place in aviation”? and the Confederation expected to be a lengthy OAG said it was not the of Indian Industry, he process, he said. first time India was perceived as said India needs smarter Coincidentally, the being close to a breakthrough in regulation. announcement was made air travel. “Last time, the boom as a new report was released times led to bust as excitement that criticised the slow pace about market potential meant of aviation policy change in the sector lost focus on the India. Written by global aviation business basics,” OAG said. data specialists, OAG, it With more capacity than said a year after the demand and fares lower than new government costs, the industry stagnated announced and several airlines fell by the it would wayside.

SEPTEMBER 2015 / ORIENT AVIATION / 11 NEWS BACKGROUNDER

Said OAG: “The question is, added they had still recorded are we there again? Is anything average annual growth of 12% Ghost airports different this time around? a year since 2005 and averaged “Will Modi’s government be 10% annual growth in the India has invested more than US$50 million since 2009 building eight domestic airports that do not receive scheduled flights, able to change the operating international market during the Reuters news agency reported last month. The report said the environment so that the most same period. ghost terminals, built largely by the previous Indian government, competitive airlines thrive, or India has a vision of were planned as part of a grand scheme to construct 200 “no frills” will policy be determined by becoming the third largest airports across India to encourage air travel in remote provinces. protecting special interests?” civil aviation market by 2020. To compound the issue, the Indian Prime Minister, Narendra Tyler said aviation and Ambitiously, the India Brand Modi, approved funds of US$413 million to build four new airports aviation-related tourism Equity Foundation forecast it in another remote province, Bihar, which will hold elections later supported seven million Indian could become the largest Asian this year. jobs and $23 billion of India’s market by 2030, a statistic that Reuters said more than half of the 100 domestic airports GDP. “The healthy growth of most serious analysis forecasts operated by the Airports Authority of India (AAI), had not received a scheduled flight this year because of insufficient demand. the sector has the potential for China. “Every state government wants to have a big airport, but you to expand these benefits In IATA’s latest 20-year have to look at it from a national perspective and ask where are tremendously. But there are forecast, India is expected to airports needed and where is the growth? the CAPA consultancy immense challenges which must grow by an additional 266 million said. be overcome, as demonstrated passengers, to reach 367 million Meanwhile, India’s main airports, particularly Delhi and by sector’s financial by 2034, making it the third Mumbai, can barely cope with passenger growth, now forecast performance,” he said. largest market by 2031, after the to exceed 20% annually. IATA’s priorities included United States and China. reducing the industry’s taxes and “Having said all this, the of low-cost airports to promote But the government should stick airport charges, competitive fuel propensity to fly in India is still air connectivity. A draft civil to its original plan – encourage pricing and lower provincial fuel very low. In 2014 there were 63 aviation policy was released in competition among airlines, taxes. airline passengers to, from and November 2014 for consultation. open international access and “Regulation is holding back within India for every 1,000 of It prioritized the development of focus on infrastructure, OAG the development of the sector,” the population. This compares six airports as the country’s major said. said Tyler. “Well-intentioned with 242 in China, or 1,689 international hubs. The policy has Speaking at the IATA regulations, but which are in the U.S. While the Chinese been strongly opposed by many Aviation Day, G. Asok Kumar, a inconsistent with global propensity to fly is four times that of India’s states who believe joint secretary at India’s aviation standards, make doing business of India, in many ways this shows they will be excluded from direct ministry, said “thrust areas” in in India very difficult for why there are such expectations international air services as a the new policy would include airlines. India imposes rules and for the Indian air transport result of the new policy. setting up low-cost airports. requirements that are not seen sector,” said OAG. Approval of the policy, He said the country needs anywhere else,” he said. In their manifesto, the BJP expected to be ratified in the about 200 to 300 airports. At The OAG report described [government] party promised first half of the year has not present, there were around 93 Indian airlines as riding a roller modernization of existing materialized, OAG said. operational ones and scheduled coaster in the past decade, but airports and the development It also was hoped the 5/20 carriers were operating to a little rule would be abolished by now. more than 70 airports. While this still appears to be the The government had plan, there’s been no movement planned to implement the yet, said OAG, especially as some proposed new aviation policy airlines are lobbying to maintain from January this year, he the rule. said, but it could not reach a For India’s home-grown consensus on the changes with carriers such as IndiGo, Spicejet stakeholders so it had to be and Jet Airways, the policy deferred. change would remove part of He said his ministry was their competitive advantage. working with states to bring They have had to wait to gain down Aviation Turbine Fuel international air service rights. taxes, which can be up to 50% It is possible too that some of an airline’s operating costs. states are lobbying hard to delay Moderate fuel prices are a key changes to fuel tax policy, as fuel component to making the India’s ghost tax income is a rich source of industry competitive,” Choubey airports revealed funds for provincial governments. told the conference. ■

12 / ORIENT AVIATION / SEPTEMBER 2015 15T1868_ATR_54_OrientAviation_GB_202x273mm_HR.pdf 1 06/08/2015 09:09

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atrbroadcast atraircraft atraircraft atr MAIN STORY NEW AND PRESSING DANGER Successful Cyber attacks can paralyse airline operations

Governments should shed their wariness of sharing security information with airlines if Cyber attacks are to be thwarted, says the global airline industry.

Tom Ballantyne reports

14 / ORIENT AVIATION / SEPTEMBER 2015 MAIN STORY

hether it is terrorism, plain and simple criminal activity or someone with MH370 investigations malicious intent, Cyber Security has attacked by hackers? emerged as a major topic of discussion in the aviation industry, the head of Hackers allegedly stole information about MH370 Wthe International Air Transport Association (IATA) told investigations a day after the aircraft went missing on March 8, 2014. Malaysia has been investigating the alleged delegates attending the recent Civil Aviation Cyber Security hacking of computers and email accounts of officials Conference in Singapore. involved in the search for MAS flight MH370. Apparently, “This is a new and dynamic threat and we will likely the hackers siphoned off classified information and always be on a steep learning curve. And it is such an transferred the data to a location in China. The Malaysian important and urgent issue that we need to climb that curve government said 30 computers belonging to those involved fast,” said IATA director general and CEO, Tony Tyler. in the international search for the jet were infected by mal- “Industry co-operation, while an absolute necessity, by ware disguised as a news article about the disappearance itself will not get us where we need to be. Governments have of the plane, which the hackers sent to ranking officials. resources and access to intelligence the private sector can The hacked emails “contained confidential data from the never achieve. officials’ computers, including minutes of meetings and classified documents”. “They also have the responsibility to use these resources to support industry efforts. “We have an example of this approach in the decades of successful government-industry co-operation on safety. Unfortunately, we have not achieved that level of co-operation with security. “A key component of risk is information sharing. Today, constraints on national classification systems and ambiguities around the legal rights and mechanisms for sharing information across borders are particularly challenging. However, the significant risks of not sharing information demand more progress in this area.” For everyone at the conference, organized by the Singapore government, the sensitivity of the subject was clearly evident. The gathering was hardly publicized and invitation only. The Association of Asia Pacific Airlines’ (AAPA) tatters. A successful Cyber attack director of regulatory and industry affairs, on an airline could paralyze operations and result in Beatrice Lim, was a moderator at the conference. thousands of stranded passengers.” “Some governments think Cyber Security is only about IATA, which operates a global financial system that terrorist threats and hacking into planes’ systems, but Cyber handles some $388 billion annually in air travel related Security for airlines also has a commercial dimension,” Lim revenues, has upgraded protection of its systems against an told Orient Aviation. ever-growing threat of Cyber assault. “You are talking about credit card fraud, identity “In March, for example, we identified and blocked an fraud, frequent flyer fraud and the breaching of airline data average of 80,000 suspicious connections per day, detected bases. There is concern that a hacking threat exists and that and cleared 891 viruses and resisted five ‘brute forcing’ (over personal information, passenger information and credit card powering a computer’s defences by repetition) attempts to details can be stolen.” connect to IATA accounts,” Tyler said. For the most serious issue of all: taking down an “No business is immune, but aviation is a specific target aircraft, airlines are talking very closely with governments for those intent on doing cyber mischief and theft, or worse. and security service providers, Lim said. “The nature of the Airlines are the highest value target for fraudsters and close threat is not fully understood. Generally, the security experts to fifty percent of all phishing attempts are made against at the conference thought the possibility of bringing down airlines and airline passengers, according to one Cyber an aircraft was fairly remote.” Security firm with which we work.” Phishing is a fraudulent In his address Tyler said: “Each day seems to bring fresh attempt to steal personal information, usually via email. news of a security breach or data theft. Tyler continued: “I imagine this level of activity is “Damage from such attacks can run into hundreds probably fairly typical for a major financial institution or of millions of dollars and leave a company’s reputation in retailer. Cyber attacks are a fact of modern life. But aviation

SEPTEMBER 2015 / ORIENT AVIATION / 15 MAIN STORY

that controlled the carrier’s flight plans. It took five hours to repair the damage. One of the issues also to emerge in the heightened debate is that airline IT system failures are being headlined as hacking attacks, even if they are not. In July, a computer router error that grounded hundreds of United Airlines flights in the U.S. was LOT Polish Airlines widely reported to be have been was hacked in June a hacking incident. Instead, it was an internal system failure. “Stories that wouldn’t have been given the Cyber label in the presents a special target past are now being labelled as for those who seek to damage or disrupt the hacking attacks. You have to be integrated air transport network upon which the global very careful about assigning the economy depends.” word cyber to faults or malfunctions at airlines,” Herdman The AAPA’s director general, Andrew Herdman, told said. Orient Aviation the issue has been on the association’s The AAPA is advocating a mindset change to deal with security committee agenda for some time. “But that’s not Cyber threats. “The development of firewalls has resulted in sufficient because it can’t just be compartmentalized. It’s on a a attitude that persuades us we are protected and can keep list of emerging threats along with a few others. out hackers,” said Herdman. “But now there is a realization it’s a business risk “The new thinking is that there is no immunity from management issue and that there must be analysis of how attacks so these threats must be detected. It’s a bit like the these risks are managed. It is receiving more attention and it old physical security. It’s no good saying we’ve have a fence is being discussed at a higher level.” and we have a wall. Airline IT systems are linked with the systems of partner “They have to be monitored to determine if there airlines, global distribution systems (GDS), airports and have been break ins or theft or if there has been systematic service providers. The information they can store is vast, stealing over a long period. In terms of Cyber threats you including the personal details of hundreds of millions of have to ask is it smart to have a single button that can passengers. download 75 million names and addresses of customers? Is it It is not only aviation’s own systems that need greater smart to keep credit card details unencrypted?” protection. Airlines are dependent on electricity grids and AAPA’s Lim believed part of the problem was the ivory communications networks. Attacks on these basic services tower mentality that often exists among IT professionals. have the potential to cause chaos for airlines, produce huge They must be a able to move away from regarding IT financial losses and damage an airline’s brand. departments as places where staff speak their own language, Herdman said no-one should think Cyber attacks, don’t talk to anyone and stare at a screen all day thinking whose victims have included Target, Sony, J P Morgan nobody understands them. and the U.S. Defence Department, are isolated incidents “IT people have to talk across departments. They have that can’t happen to airlines, but he is not aware of specific to understand the business as well. Their job is not just attacks at any of the region’s carriers. “Airlines are like updating the virus scan,” Lim said. banks. They don’t talk publicly about sensitive issues,” but he “One question that needs to be asked is who takes added he would not be surprised to learn that incidents had ownership of the risk?” said Herdman. occurred. “We have done away with paper There have been attacks on tickets, but now we have e-ticket fraud carriers elsewhere. The most recent Close to 50% of and frequent flyer fraud. There are known incidence was in June at LOT all attempted email fraudulent attacks that tend to involve Polish Airlines. Hackers caused the frauds (phishing) finance departments. cancellation of 10 domestic and “Cyber threats that might be from international flights. Some 1,400 are made against airlines terrorists go to the security department. passengers were stranded at Warsaw’s and airline passengers There are also other areas of airline Chopin airport when the hackers operations where Cyber breaches could attacked the ground computer systems IATA July, 2015 occur. Do the IT people take the risk?

16 / ORIENT AVIATION / SEPTEMBER 2015 MAIN STORY

Or is it the responsibility of the security people? “The answer has to be a combination of these IATA acts on Cyber threat departments. Policies have to be developed to address the Last year IATA launched an Aviation Cyber Security range of issues from all Cyber threats.” toolkit. It also has developed a three pillar strategy to It has been suggested that airlines employ expert hackers address Cyber threats to aviation. They are: to test their systems. “Forget the idea we are impervious to • Working to understand, define and assess the threats attack,” said Herdman. “Think about it: OK, if they do get and risk of a Cyber attack. in how do you stop them running off with a whole load of • Raising awareness of Cyber Security issues and stuff? identifying reporting and information sharing mechanisms. “The military has been doing it for years. They • Advocating for appropriate regulation and mecha- employ people to attack you. Test you out. Role-playing to nisms for increased cooperation in the industry and with understand weaknesses. There is a bit of that going on.” governments. In July, United Airlines confirmed it had awarded “IATA’s role in this regard is to assist airlines in devel- oping a robust Cyber Security strategy and to help drive millions of frequent fly miles to hackers who uncovered gaps co-ordination of global efforts to address Cyber threats to in its web security. It paid out two awards, worth one million aviation,” said IATA director general and CEO, Tony Tyler. miles each, that could provide dozens of free domestic flights on the airline. The Chicago-based carrier hopes to take the lead in airline web security by offering “bug bounties” for address. ere. If you disagree on the definition of the problem uncovering Cyber risks. then you won’t agree on what should be done” Herdman said one of the weaknesses of airline IT is its He said a lot of the people thinking of using Cyber interconnectedness to third party systems. “We outsource the attacks as a weapon aren’t terrorists. “One of our concerns frequent flyer program, or our distribution system means that is that governments will use Cyber attacks as a weapon our reservation systems are by definition interlinked with themselves. They may be as much part of the problem in GDSs, alliance partners and so on,” he said. terms of what governments are trying to do,” he said. “IT people say your weakness from network penetration “As an example, look what governments have done is always at the outside. The hackers don’t go through your to banks by demanding back doors to the Swift payment front door, they go for the side door, which is a permanent system, their reactions to the Snowdon revelations and all the connection to some other business in which an airline has a rest of it.” Governments, he added, want your systems to be partnership. Understanding the mindset of the people who secure but not invisible to them. are looking for weaknesses in airline systems is important One aspect of cyber threats that has been largely because everything is interconnected now.” dismissed is someone hacking into an aircraft system and One of the AAPA’s concerns is how the government taking control of a flight. The possibility arose earlier this will define Cyber Security and how it will regulate to avert year when a United Airlines passenger, Chris Roberts, attacks. “Thou shalt do this, thou shalt do that and will that claimed to have hacked into the plane’s Wi-Fi system on a be helpful or otherwise?” asked Herdman. “That’s why the flight to New York, over-writing code that enabled him to industry is talking to other sectors, direct the aircraft to climb. talking to governments about He claimed to have done this 15 to 20 times since 2011. the problems we need to Roberts was questioned by the U.S.’s Federal Bureau of Investigation, but there was no proof his claims were true. Whether it is terrorism, Boeing (Airbus has similar plain and simple criminal activity separation of systems) said or someone with malicious intent, its entertainment systems are “isolated from flight and Cyber Security has emerged as navigation systems” and that a major topic of discussion its planes have more than one in the aviation industry navigational system, “multiple security measures” and “flight Tony Tyler deck operating procedures that Director general and CEO, help ensure safe and secure International Air Transport Association airplane operations”. While the industry focusses on defining exactly where the cyber threats lie and what needs to be done to protect against them, everyone agrees airlines need to continue working on making their IT systems as robust as possible and be prepared to act quickly when an attack happens. ■

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BORN TO LEAD

AirAsia is going through a profit trough, but it’s a temporary glitch, says the airline’s CEO, Aireen Omar.

Tom Ballantyne reports from Kuala Lumpur

20 / ORIENT AVIATION / SEPTEMBER 2015 COVER STORY

or the AirAsia group 2014 was its toughest year given little more than two months to move. Normally such since its bells and whistles launch in December a re-location could take nine months or more. The airline 2001. Political unrest in Thailand, weakening group said it has suffered, and continues to suffer losses, as a regional currencies and fleet over-capacity were result and has sought $100 million in compensation from the draining profits from the darling of the region’s airport operator. Fbudget carriers. Omar believed the issue would take some time to resolve. Adding to the group’s troubles was loss-making AirAsia She is so exercised by the situation the airport operator has X, struggling franchises in the Philippines and Indonesia and imposed on her carrier that she hinted the group could move start-up costs of a franchise in India last year. its main hub beyond Malaysia. Then, the worst of all happened. On December 28, an It may seem unthinkable, but Omar said decision- Indonesia AirAsia A320 fell out of the sky over the Java Sea, making at Malaysia Airports has been slow and meetings killing all 162 passengers and crew onboard. to resolve issues have been repeatedly deferred. “They need AirAsia co-founder, Tony Fernandes, and his team were to start thinking more commercially, more competitively. rightly praised for their handling of the QZ8501 tragedy, but Otherwise, they will lose out to other airports in the region, from the outside, AirAsia, run by CEO, Aireen Omar, and its which are just dying to get more airlines to hub at their subsidies, looked decidedly shaky. airport,” she said. But if anyone believed the company was crumbling, AirAsia has been thinking about its position at KLIA they should think again. Sitting at the heart of operations for more than a year as a result of its forced move to KLIA2. at AirAsia Berhad in Kuala Lumpur, the graduate of the Her reasons? “Number one, it’s not fit for a low-cost carrier London School of Economics with a Masters in Economics operation and, number two, it’s an airport that is not ready from New York University, sets to be opened because of the poor you straight. We are particularly optimistic conditions”, she said. She said the problems in “If you look at Senai airport the Philippines and Indonesia about AirAsia Japan and in Johor (the state borders will be resolved despite market very enthusiastic about the Singapore) that’s a privately skepticism. Some analysts value it will add to our network. run airport and they are so believed the extra millions of commercial. They know what it dollars in loans extended to the It allows us to go further. takes to bring in revenue to the two unprofitable airlines won’t be From North Asia you can go airport. They know who they recovered for years – if ever. as far as Russia. Who knows? need to work with to make sure Omar begs to differ. the airport continues to have that Speaking to Orient Aviation in Maybe there is potential for A330s traffic support,” she said. temporary offices at the capital’s to go further, to the U.S Pressed to say if the airline newest airport facility, Kuala group could actually move Lumpur International Airport 2 Aireen Omar elsewhere, Omar told Orient (KLIA2) last month, the global CEO AirAsia Aviation: “Well, if they continue financier turned airline CEO to be like this you never know.” said finding a resolution to the problems in the Philippines She laughed and added: “Maybe there will be more aircraft and Indonesia is being driven personally by Fernandes. deployed in Thailand. The Thai airport authorities, especially “He is very focused on it. I am quite confident that at Don Mueang (Bangkok’s LCC airport), are very open,” eventually the debt will be repaid. Thailand used to be in that she said. position, but it has recovered. It has recovered very quickly “Indonesia airport authorities also are clearly keen to (Omar spoke to Orient Aviation before the Bangkok bomb attract more LCCs and they understand what is needed to attack on August 17),” she said. facilitate that. For me, it will be sad for that day to come “We believe the same can be done with the Philippines because we started in Malaysia. We grew in Malaysia. The and Indonesia. It will take a little bit longer and it may take brand grew from Malaysia.” more assets because each country is unique, but I am quite Of more immediate concern to Omar is controlling confident Tony will turn it around.” costs so the airline can deliver low fares, improve operational It isn’t the only battle AirAsia has on its hands. The efficiency and expand the network across the region. carrier is in disagreement with the Malaysia airport authority The AirAsia group’s operating model is not always about the impact of its forced move from the low-cost understood, either by the industry or the flying public. It terminal at KLIA to a new facility, KLIA2. It claims the requires each affiliate airline to be majority owned by local airport authority’s terminal was not ready to accept the investors. Each of the subsidiaries has its own CEO, but carrier. It has also taken legal action to be compensated for Omar said no-one acts independently of the interests of the a runway that AirAsia said is poorly built and damaging the total group. airline’s aircraft that use it. The heads of each airline gather regularly at meetings In the case of the hasty transfer to KLIA2, AirAsia was usually chaired by Fernandes. Said Omar: “That’s really

SEPTEMBER 2015 / ORIENT AVIATION / 21 COVER STORY

AirAsia would consider moving AirAsia headquarters from Kuala Lumpur if the management of the airport authority does not improve

important. All the CEOs report to him. He sets the Omar, when it was realized “potentially that there may be immediate goals and the strategy for the next five years. some excess capacity in the market. We thought it might not We decide if we need to update our technology, locate new be a good idea to take all the deliveries that were scheduled. destinations and market the new routes. It’s a joint effort of But over capacity is not a problem in every market”. the whole group.” Operating as a group, AirAsia is extremely flexible. It can The regional heads of all key roles, from chief commercial move aircraft from one group member to another depending officers, route revenue managers and maintenance and on market conditions and demand. “It’s all about timing. branding, also meet regularly to synchronise operations and Lion (Indonesian LCC Lion Air) is dumping capacity avoid network cannibalisation in overlapping countries. everywhere. That’s probably not the right way of doing it,” AirAsia branded carriers operate a fleet of 188 Airbus she said. A320s: 82 in Malaysia, 44 with Thai AirAsia, 29 at Indonesia One benefit of the controversial airport move was AirAsia, 18 with AirAsia Zest (in the Philippines), 10 with that if forced AirAsia to streamline operations. Working Philippines AirAsia and five with AirAsia India. round what Omar called “the airport’s deficiencies” meant There also are 21 A330-300s with long-haul LCC spending more time on ensuring passengers were transferred AirAsia X and its offshoots in Thailand, Indonesia and the efficiently. Philippines. The group order book has 41 current model “I can’t believe how many aircraft hours I have been able A320s to be delivered and 300 A320neos on order, which are to retrieve, so we can introduce even more routes. We are to begin arriving with AirAsia carriers late next year. operating more efficiently by improving aircraft utilization AirAsia X has ordered 55 A330-900neos and 10 and scheduling,” she said. A350-900s. All of these are not only for growth, but to Omar said AirAsia is waiting keenly for single ASEAN replace ageing aircraft. To address over-capacity, AirAsia (Association of Southeast Asian Nations) skies to be fully has deferred some deliveries and will take only five new jets introduced because it would bring more efficiency to the this year. They will go to its Thai and India subsidiaries and group. ASEAN Open Skies officially began this year, but so new brand, AirAsia Japan. The Japan carrier, born out of a far, it does not include regulatory standardization between failed short term joint venture with All Nippon Airways, is member countries. awaiting approval of its operating licence and has plans to As a result, when aircraft are moved between countries, start flying next year. airline groups’ fleets have to meet different regulatory The decision to defer deliveries was made, explained standards for licensing, training and all other aspects of their

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operations across national borders. “I am eager to see Open Skies being 100% open, but it AirAsia is Tony’s “baby” won’t come overnight. It may not be in the next two, three AirAsia CEO, Aireen Omar, quickly dismissed the or four years, but they will eventually arrive where Europe is notion that AirAsia co-founder, Tony Fernandes, has let today,” she said. his various non-airline interests distract him from AirAsia. Omar said AirAsia’s playground is ASEAN and “Obviously, he has his own personal interests in other beyond. “We want to offer the most frequency to any of the areas, but his heart has always been with AirAsia,” she said. destinations that we fly and connect, not just between capital “This is his baby. He created it from scratch.I think he beats cities in the region, but also secondary cities to capital cities us up more than any of his other businesses because it is and secondary cities to secondary cities,” she said. important for him to see AirAsia do well. “That has always been the aim. With our other affiliates “He is very driven in his vision of where AirAsia should growing and with AirAsia X expanding we will reach into be in the next 20 years or so. Not just what to do today markets we have been unable to reach. We are feeding each or this year or next year, but what we need to do now to continue to be the world’s best low-cost carrier. Its how other within the group. That has stimulated a lot of the we should embrace technology in the business and which population in Asia to travel more. It has triggered demand markets we should be focusing on as a group,” she said. even from the second tier cities which people had never thought of doing.” Delivery deferrals or not, the network keeps expanding network. It allows us to go further. From North Asia you can with a growing number of hubs across the region. They go as far as Russia. include Kuala Lumpur, Penang, Kota Kinabalu, Johor and “Who knows? Maybe there is potential for A330s to go Kuching in Malaysia; Jakarta, Medan, Bandung, Surabaya further, to the U.S.,” she said. and Bali in Indonesia; Bangkok, Phuket, Krabi and Chiang “It’s a big market that we can capture. There are many Mai in Thailand; Manila and Cebu in the Philippines and possibilities you can play with there by deciding to utilize Delhi and Bengaluru in India. A320s or A330s in the region. But even with the A320 we The opportunities are endless, Omar said. “We are very can reach points in Korea, China, Russia and the Philippines excited that we can go to more places that are uncharted. from Japan. There is demand for international air travel. Even in this “Within the four hour radius you can fly to Malaysia, region, there are destinations where there is demand for Thailand, Indonesia and the Philippines and their international connectivity, but no airline is able to meet that established networks, so for AirAsia Japan it is easy to demand because of cost,” she said. connect the dots. Everything else is already set up. Because “We will be able to do it because we have created that we work as a group each destination is shared within the demand. It’s a matter of linking up the points. We have group and the cost also is shared within the group. The created so many destinations and hubs that we can do it.” unique cost of operating into a certain destination is further She is particularly optimistic about AirAsia Japan. reduced because it is shared.” “We are very enthusiastic about the value it will add to our Like all airlines, AirAsia places great emphasis on expansion in China, where it already operates more flights that any other non-Chinese carrier, either in the budget or China is very, very important. full-service categories. We have a commercial team of about “Everybody wants a piece of Chinese tourism growth,” said Omar. “We have more than 20 destinations in China. 100 people across the country. This year we are introducing more routes in the Mainland. We don’t only fly to the primary cities We are linking our destinations directly with the hubs we like Beijing or Shanghai or Guangzhou. have created in Malaysia, Thailand and Indonesia. “China is very, very important. We have a commercial We fly to secondary cities such as team of about 100 people across the country. We don’t only Chengdu, Xiamen and Wuhan fly to primary cities like Beijing or Shanghai or Guangzhou. and we will continue to grow. We fly to secondary cities such as Chengdu, Xiamen and Wuhan and we will continue to grow. Within a four hour Within a four hour radius there are radius there are so many cities in China you can try to so many cities in China you can try to capture, whether from Kuala Lumpur, Penang, Johor and capture, whether from Kuala Lumpur, Kota Kinabalu or any of our other hubs.” Omar does not see the emergence of a growing local Penang, Johor and Kota Kinabalu Chinese LCC sector as a threat. “We will be competing or any of our other hubs with them, but we have a very strong base and they are just starting. It will probably stimulate more travel because Aireen Omar they will be strongly based in China and we are strong in CEO AirAsia ASEAN. Their passengers may end up feeding our networks

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and vice versa. It’s another growth opportunity,” she said. Financially, AirAsia’s Malaysian arm is improving after a From flowers to flying rocky 2014, when it recorded its first quarterly net loss since Aireen Omar, 42, the CEO of AirAsia since mid 2012, 2008. It reported a $105.5 million loss for the three months said her family played a big role in her choices of study to December 31. In its first quarter this year, ending March and career. 31, it was in the black with a net profit of $40.8 million. “My father was a businessman and my mother owned Omar said the airline hedges about 50% of its fuel a flower shop,’ she told Malay media when she was and the lower fuel price has been a big help in improving announced as the new AirAsia boss. “Being exposed to profitability. Fuel accounts for 40% of the airline’s costs. She business at a young age made me want to learn more about expected the continuing lower fuel price will bring greater the aspects of trade. The best way to do that was to study benefits this year, although she is concerned about the economics,” she said. Malaysian currency, the ringgit, which has been depreciating The young Omar moved to London, where she grad- since last year. Thai affiliate, Thai AirAsia recently uated from the London School of Economics and Political Science. She went onto New York where she earned a announced a 26% surge in revenue to June 30, and a net Masters in Economics at New York University. Her first profit of $36.6 million. jobs were as an associate at Deutsche Bank Securities in It is a different story at Indonesia AirAsia, which lost their New York and London offices, from 1997 to 2000. $69.9 million last year and is facing another dip this year, She moved up the ranks at the bank’s trading division, following the December crash into the Java Sea of its Flight where she was involved in international equities, equity QZ8501. In the wake of the accident, Indonesia AirAsia derivatives and equity linked products before she returned experienced 26% fall-off in passengers and a 19% decline in to Malaysia in 2001 to work for Maybank. capacity, although Omar said the carrier has recovered quite Omar joined AirAsia in 2006 as the director of quickly. corporate finance where her remit was extended to “Because of the way we handled it, a lot of loyal treasury, fuel procurement and investor relations by 2009. Her star shone brighter at the airline after she negotiated an customers supported and encouraged us to come out of Islamic financing deal that provided the airline group with it and be even better. We are committed to becoming a half a billion ringgit. The innovative financing was a great much better airline and grow even better.” AirAsia India leap forward for AirAsia, at lost $3.5 million in the first quarter of this year. The a time when financing Philippines brand is also was hard to come by after the Global Financial Crisis fractured the world’s economy. Today she runs an airline group that employs 7,000 staff. AirAsia operates 16 hubs across Malaysia, unprofitable although AirAsia forecasts it will be making Thailand, Indonesia, money by year end. the Philippines and India, with a fleet 78 A320s serving The biggest headache for Omar is AirAsia X, whose 62 destinations. net loss has widened to $135 million dollars compared Omar is not afraid of a fight, even if it is with the with a $23 million loss a year earlier. It reported a second Malaysian government. Last year, the AirAsia Group was quarter loss, to June 30, of $32.4 million. Analysts forecast publicly critical of Malaysia Airports Holdings’ manage- it will have net losses of $96.3 million and $28.2 million, ment and construction and systems standards at the new Kuala Lumpur International Airport terminal (KLIA2). She respectively, this year and in 2016. It will, however, continue published an open letter in which she made it clear AirAsia to seek out new routes, including Hawaii. had “many concerns [about the new terminal] especially Omar has no doubt that despite the issues the group has its functionality, safety and security systems”. She is still had to overcome in the last year, its future is bright. “I am fighting that battle. confident we will do well this year. Oil prices have come off Omar is an executive director of the AirAsia group and quite considerably, although the ringgit has depreciated. The also a director of Tourism Malaysia. benefits of the lower oil price will be dulled for us and not totally be enjoyed,” she said. “We have created new routes this year without having be very exciting. Maldives is one of them, as well as many additional aircraft. The team was able to achieve this by parts of China. On the Mainland, we are launching flights being more efficient in scheduling, aircraft utilisation and in not just from Kuala Lumpur, but from Johor, Kota Kinabalu improving operations. and Penang. And we will introduce a new hub at Langkawi. “We have linked up to new markets and strengthened That is where we are going to create more international all our hubs. The routes we will introduce later this year will connections, directly into Langkawi.” ■

26 / ORIENT AVIATION / SEPTEMBER 2015 NEWS BACKGROUNDER

ANA tempted by Skymark’s valuable Haneda slots?

By Geoffrey Tudor in Tokyo

ill Skymark rescued airlines. slots will increase ANA’s potential competition in the aviation be able to ANA’s shares in the ‘rescued’ domestic slot share to 60%. industry. Firstly, they supported maintain its domestic airlines are Air Do Skymark’s new top the first wave of start-ups in independence 13.6%, Solaseed 8.56% and Star management takes over this the 1990s. More recently they now that Flyer 17.96%. Through code- month. Nobuo Sayama, Integral’s were enthusiastic backers of WJapan’s biggest air transport sharing, using the smaller carriers’ representative director on the the establishment of low-cost group, ANA Holdings, is a Haneda slots, the ANA Group has Skymark board and the airline’s carriers in Japan, which have been shareholder? boosted its domestic slot share at chairman from September 3, last operating since 2012. That is the question interested the airport from 37% to 52%. JAL month pledged that the carrier Many MLIT officials were parties in Japan are asking since has a 40% share. would maintain its policy of wary of ANA’s involvement in the deal to rehabilitate Skymark Under the terms of the rescue setting fares lower than market Skymark’s rehabilitation. They was approved last month. package, ANA Holdings has leaders ANA and JAL. feared it would erode competition Before its recent bankruptcy, acquired 16.5% of Skymark. The “We will never allow ANA’s and initially favored a five-year Skymark was regarded as Japan’s other providers of fresh capital intervention in Skymark’s limit on ANA’s participation in the truly independent airline. It was are: Japanese equity company management”, he told the Nihon recovery programme. domestic aviation’s “Third Pillar”, Reassured by pledges of operating in the market between Tokyo Haneda airport: maintaining competitiveness, the the oligopoly of All Nippon Skymark’s slots at the government softened its position, Airways (ANA) and Japan Airlines downtown airport but warned it would keep a close could be used ANA (JAL) and the emerging force of eye on the aviation market. Japan low-cost carriers (LCCs). To improve its market appeal, The first of the independent Skymark is negotiating with airlines to be established in Japan, in-flight entertainment and IT in 1998, Skymark offered cheaper companies to provide better fares than ANA and JAL and more quality and expanded Wi-Fi service than the newer low-cost onboard. It may also introduce a carriers. mileage programme. To many in Japan, Skymark The airline returned to the had demonstrated liberalization black in the northern summer and of aviation in Japan was possible. Integral (50.1%), and a joint fund Keizai Shimbun, Japan’s top bookings for September exceed Since the 1990s, there have owned by the Development Bank business newspaper. forecasts. The carrier should been several airline start-ups in of Japan and Sumitomo Mitsui Sayama’s comment that report a profit for the current Japan, all them encouraged to fly Banking (33.4%). ANA would stay away from year to March 31, 2016. Taking by the country’s Ministry of Land, Another revival plan, which the airline was echoed by ANA a bullish stand, Sayama said the Infrastructure, Transport and involved Delta Air Lines and lessor, director, Toyoyuki Nagamine. At rehabilitated airline could relist in Tourism (MLIT). Intrepid, was rejected. At the last an August press conference, he three years. After running into trouble, minute, ANA persuaded major said: “Skymark’s independence is He sees his mission as a three of the newcomers were creditor, Airbus, to support its ensured through contracts with protector of Skymark’s position rescued by ANA via cash plan and not the Delta proposal. shareholders. ANA won’t become as the “Third Pillar” in Japan’s investments, code share services, Apparently, Japan’s biggest involved in Skymark’s setting of domestic aviation market. That use of the distressed carriers’ airline didn’t want Skymark’s air fares and routes.” said, some industry analysts slots at the much prized down Haneda slots going to another This was welcome news wondered if his pledge to remain town Tokyo Haneda airport and carrier, hence the last minute deal for the bureaucrats at the MLIT. independent under the ANA the appointment of ANA staff to with Airbus. For most of the last 20 years umbrella, which has sheltered so top management positions at the Access to Skymark’s Haneda they have been encouraging many other carriers, is feasible. ■

SEPTEMBER 2015 / ORIENT AVIATION / 27 EXECUTIVE INTERVIEW

VIRGIN ATLANTIC SEEKS STRONGER ASIA-PACIFIC PARTNERSHIPS

Virgin Atlantic’s Asia-Pacific network has been shrinking as competition and rising costs forced the closure of several routes. It believes stronger alliances with its partners will keep Virgin Atlantic flying – and profitable – in the region.

Dominic Lalk reports

hen Stephen King, 35, took charge of partner for flights from Shanghai/Pudong to the Pacific. He Virgin Atlantic Airways’ Asia-Pacific also wants to strengthen ties with Virgin Australia in which operations in October 2014, the both Virgin and Air NZ have equity. iconic UK carrier was in the midst of Shanghai serves as Virgin’s gateway to the Mainland. downsizing, and it hasn’t stopped since. From Pudong, the carrier relies on partner, Air China, for WThirty-one-year-old Virgin Atlantic Airways hopes to return onward journeys into China. King said “logistical challenges” to profitability this year, with a projected £50 million ($78.5 at Pudong, including a three-hour minimum connecting time million) to feed its bottom line, King told Orient Aviation in between flights, deterred some passengers, as well as China’s Hong Kong. strict visa regulations. Beijing was on Virgin Atlantic’s radar, King is a Virgin Atlantic loyalist. Before he took up his he said, but access and over capacity were issues as Air China Hong Kong-based position with the carrier, he held several flies double daily between London and Beijing and British senior management positions at the airline, where he started Airways has a daily Heathrow London-Beijing service. as an analyst at its London headquarters. Before his move to As it stands, Virgin has no plans to branch out further Hong Kong he was country head for India, based in the Asia-Pacific. “We’ve got to focus on what works for in Delhi. In his new job, he oversees Virgin us, and give up what doesn’t,” said King. Numbers Atlantic’s regional operations and revenue, from Tokyo just “didn’t add up anymore toward which some might say is an easy task, given the end” and so the Narita link, in service since Virgin has pruned its Asia network to one 1989, was axed last year. daily service each to Delhi, Dubai, Hong Hong Kong, however, is profitable with Kong and Shanghai out of Heathrow the numbers during the peak summer season London. looking better than 2014. King is working Sydney and Tokyo had to go last to change the departure of Virgin Atlantic year as costs were cut, following five years flights to Hong Kong so they arrive in Asia of episodic performance that resulted in mid-afternoon, which would allow passengers accumulated losses of £249 million ($391 to transit to more Mainland-bound flights. million). Virgin Atlantic is carrying out a complete King said his new turf was “a tough overhaul of its long haul fleet. It is replacing its market” and the only way to expand market eleven A340-600s with Dreamliners. The first share was to forge stronger partnerships with B787-9 arrived at the airline last October and local carriers. King wants to deepen Virgin there are now six of the aircraft in the Atlantic’s partnership with Air New Virgin Atlantic rebuilding Zealand (Air NZ), which is in the region via airline its primary codeshare partners

28 / ORIENT AVIATION / SEPTEMBER 2015 EXECUTIVE INTERVIEW

fleet. Another eleven are on order with five options. The a hint about Virgin’s A380 inclination, given the super large options are likely to convert into firm orders, said King. aircraft is marketed as most suited to airlines with extensive “I’ve received a lot of emails congratulating us on the hub systems such as Dubai’s Emirates Airline. 787 since we introduced it to Hong Kong in early July,” He was reluctant to comment on the Gulf versus U.S. King said. Virgin’s B787s have 234 seats: 31 in Upper Class, carriers Open Skies dispute. However, he conceded Mumbai 35 in Premium Economy and 198 in Economy. Virgin was loads and yields were no longer sustainable after Middle the world’s first airline to offer a “wander wall” in Premium East airlines increased capacity into India. As a result, Virgin Economy. Developed to reflect the design of the Upper Class Atlantic followed Delta’s lead and exited from Mumbai in bar, the social space offers a mini fridge, a water fountain 2014. and a self-serve area where passengers can help themselves to That said, Delta Airlines remains Virgin’s most significant snacks and refreshments. “It gives passengers a destination, partner. Delta bought 49% of the British carrier after someplace they can go that’s not the bathroom,” said King. Singapore Airlines, who had been looking for a buyer for four With more B787s coming into the fleet, Virgin will phase years, sold its 49% Virgin Atlantic holding in 2012. out its B747 operations at Heathrow by 2018. If any B747s The Virgin Atlantic-Delta Airlines transatlantic joint remained by then, King said, they would be transferred to the venture, which has been in service since January 1, 2014, airline’s Gatwick hub. contributes more than four million passengers a year to Interestingly, 2018 is the year the carrier is scheduled to Virgin’s manifests. It is a significant number given that Virgin receive six-on-order A380s, already deferred once from 2017. Atlantic carried of 6.1 million travellers last year. King was cryptic when asked if the order would be fulfilled. No wonder Virgin Atlantic founder, Sir Richard Branson, He said a final decision would be made by the end of this year. said last June that his carrier would “be in real trouble without “It’s hard, but not impossible, to see a world where we the strategic support from Delta”. want to take the aircraft,” Virgin’s chief executive, Craig As Delta expands its sphere of influence in the Asia-Pacific Kreeger, said in 2014. region, especially through its growing links with Shanghai’s King stressed to Orient Aviation that Virgin Atlantic China Eastern Airlines, Britain’s second international carrier operated a point-to-point business model. Perhaps that was would benefit from the U.S. airline’s expansion. ■

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SEPTEMBER 2015 / ORIENT AVIATION / 29 NEWS BACKGROUNDER

Boeing fights to re-instate “crucial” U.S. Ex-Im bank The U.S. airline industry has reacted fiercely to the failure of the U.S. congress to renew the charter of the U.S. Export-Import Bank and is lobbying hard for the bank’s re-instatement. Boeing’s rivals still have access to their own Ex-Im funds that put U.S. aerospace manufacturers at a disadvantage, said Boeing.

By Tom Ballantyne

hen Ray that Boeing’s customers would honest in terms of the various was created for our competitors Conner, Boeing no longer have access to trade options. It is part of the mix”, from countries such as China, vice-chairman credits,” Boeing said. said Herdman. He, too, hoped Germany and Japan,” Andrews and president Last year, U.S.Ex-Im the bank’s charter would said. and CEO of financing supported 11% of be renewed by Congress. U.S.Ex-Im chairman, WBoeing Commercial Airplanes, Boeing commercial aircraft “Congress may rethink and the Fred Hochberg, told Reuters recently handed Vietnam deliveries. European Ex-Im bank could be reinstated. If not, news agency the bank’s Airlines the keys to its first B787 financing funded 8% of Airbus airlines will have to shop around staff was proceeding with an Dreamliner in Seattle, he had sales. A 2014 report from the for the best financing they can orderly liquidation plan and more than the delivery of a new U.S.bank said it was an essential get,” he said. was completing approved aircraft to Asia on his mind. resource for American exporters Is it really the end of the transactions. The bank will stay The hot topic of the day and workers in an increasingly bank? Conner hoped Congress, open to service its $112 billion in was the U.S. Congress’ refusal competitive global environment. in summer recess at press time, existing obligations. Its operating to renew the charter of the U.S. “The past year has seen would reinstate the bank’s budget has been approved until Export-Import Bank, effectively Ex-Im continue to support U.S. charter. But he conceded that the end of this month. ■ putting it out of business. job growth, which allowed the fact it was allowed to lapse Ex-Im financing has been American businesses to create created doubt about its future. a crucial industry trade tool for or maintain 164,000 jobs, Democrats and moderate decades, helping airlines around generating a $675 million surplus Republicans plan to restore the world buy new aircraft at for taxpayers,” the report said. the bank to full operations by reasonable interest rates. For Director general of the attaching its charter renewal Boeing in particular, the news Association of Asia Pacific legislation to a “must-pass” was bad. Airlines, Andrew Herdman, highway and rail transit The U.S. bank is in limbo, but said: “Ex-Im financing is used funding bill. U.S. Deputy its counterparts in Europe and by many of the region’s carriers, Secretary of Commerce, Bruce elsewhere continue to operate including big airlines. “It’s a Andrews, said the Obama their own Ex-Im banks. And that, significant source of funding. I administration is concerned said Conner, put Boeing “at a can understand why Boeing is about the lapse of the bank’s huge competitive disadvantage”. concerned because Airbus has charter and hoped it could be Its rivals - he did not name names similar arrangements. restarted soon. but he meant Airbus in particular “So do all the other “By unilaterally disarming - have access to such financing manufacturers. There’s a lot of and shutting down the Export- support. commercial funding available, Import Bank, an advantage “We absolutely need the but that’s something additional. Ex-Im Bank to compete on a Ex-Im is part of the market place Boeing vice-chairman and level playing field,” Conner and the loss of it is a concern, president and CEO Boeing Commercial Airplanes, said. “Some competitors were especially as it’s a political issue.” Ray Conner: Boeing is at a capitalizing on the situation “It was another source of huge sales disadvantage by highlighting the possibility financing that kept the market without Ex-Im support

30 / ORIENT AVIATION / SEPTEMBER 2015 SPECIAL REPORT INSIDE CHINA’S AIRLINES: AN ORIENT AVIATION UPDATE

carriers are not the only winners in 2015. Hainan Airlines’ profit Only way is up has quadrupled in 2015. Juneyao Airlines’ first half income climbed 170% and the country’s first low-cost carrier, Spring Airlines, for China’s airlines launched in 2005, said its interim profit will increase by between 130% and 150%. As investors worldwide nervously monitor the impact There are solid reasons for this remarkable performance. of China’s slowing economy on world markets, the Despite the economic slowdown, airline industry is bucking the downward trend. domestic market demand has remained robust. At the big carriers, international expansion is gathering pace. Most Tom Ballantyne reports importantly of all, a lower fuel price has underpinned improved haken by a housing 31, reported 12.9% year-on-year forecast to announce net income profitability by dramatically slowdown, uncertain overall passenger growth for of between $544 million and reducing operating costs. foreign and domestic China’s carriers, with domestic $587 million for the first half of As oil dropped towards demand and, most travel accounting for 10.1% of this year, reversing a $164 million $40 a barrel, Chinese carriers recently, a sudden stock the increase and international loss in the same period twelve became winners in the industry, Smarket slump and a currency passengers contributing a months ago. almost by default. After suffering devaluation, China is having a stunning 47%. Shanghai’s China Eastern substantial losses during the difficult year. With growth at 7% Even cargo traffic, which has Airlines (CEA) announced a profit 2008 Global Financial Crisis, in the first six months of 2015, been in the doldrums for several of $556 million for the same China’s airlines stopped hedging a figure that could change in years, is on the up, with 5.2% period, up from a meagre $2.3 fuel as it climbed above US$100 coming months, 2015 is shaping year-on-year growth, comprising million profit in the same six a barrel. up as the nation’s worst 12 a 2.1% expansion in the domestic months of 2014. In Beijing, Air And then there was the months in economic performance sector and 13.4% growth on China is looking at a half year August 2% devaluation of the in a quarter of a century. international routes. profit of $787.5 million, an 82% yuan. Most analysts and industry China’s central bank, the Guangzhou-based China increase over the 2014 half. observers believed the impact of People’s Bank of China (PBOC) Southern Airlines (CSA) is The country’s “Big Three” the recent devaluation of China’s said in its second-quarter monetary policy report in August that China’s economy may face headwinds in coming months due to its reform efforts, with monetary policy blunted by a lack of growth drivers and a lukewarm appetite for new investment. For airlines, whose growth and fortunes are traditionally tied to national economic performance, the report should be bad news. But not so. Carriers have reported healthy profits to date for the year. In August, the Civil Aviation Administration of China (CAAC) said income for its airlines reached a historic high in the first half of 2015 and already had surpassed the full year results of 2014. CAAC’s latest figures, to May

SEPTEMBER 2015 / ORIENT AVIATION / 31 SPECIAL REPORT INSIDE CHINA’S AIRLINES: AN ORIENT AVIATION UPDATE

currency had been overstated by with the world. China Eastern the carrier was considering a Wi-Fi connectivity, as well as fleet the media. Director general of the recently launched a Chengdu- wide-body order to add to its expansion. Association of Asia Pacific Airlines Nanjing-Los Angeles service. Air growing fleet of 20-on-order It intends to buy an (AAPA), Andrew Herdman China started Chengdu-Colombo B777-300ERs. “We are looking additional 21 A320s. SkyTeam pointed out the US$ has been in February, Hangzhou-Osaka in closely at options and studying alliance member, Xiamen Airlines, strengthening for 18 months, and March, Tianjin-Dalian-Sapporo their compatibility with our has ordered four additional particularly in the past six months in April, Beijing-Minsk-Budapest networks. We may have a B787s, with talks continuing when many Asian currencies in May,Beijing-Melbourne in decision to announce by the end about the acquisition of another devalued. June and Beijing-Hakodate of this year or early next year,” ten. It has taken delivery of five “The Chinese currency in July. Addis Ababba will be he said. of the six Dreamliners it originally has been strengthening for a added in October, as will Beijing- In the meantime, China ordered and is operating them decade, said Herdman. “It is Johannesburg, making Air China Eastern announced last month it to Amsterdam, where the worth commenting that we don’t the first Chinese carrier to fly will acquire 15 A330s for about service connects with partner Air obsess about such movements directly between Mainland China $3.6 billion to meet booming France-KLM. Xiamen has plans to in other currencies whether it’s and South Africa. China Southern demand. launch services to Australia in the the US$, the Euro, British Sterling will launch Shanghai-Pudong The Shanghai headquartered near future. or the Yen. We are used to their -Chicago in October. airline, which operates a fleet An insight into Chinese airline changes. Next week it will be a Head of the CAAC, Li of more than 400 aircraft that thinking about international different story.” Jiaxiang, said due to growth and flies close to 2,000 flights a day, expansion was provided in a Domestically, the market reduced operating costs, Chinese signed a purchase agreement recent Chinese interview with is expanding as more budget Hainan Airlines chairman, Xin Di. carriers are set up, with the He said the carrier expected its encouragement of China’s central In another development that international business to account government, which is keen for a underscored the growing importance of for 40% of its total revenue by genuine low-cost carrier industry year end. to be established. China’s airline market, Delta Air Lines In 2014, offshore flying Internationally, China’s in the U.S. announced in July it had agreed to accounted for 13% of Hainan’s airlines are entering a new phase. buy 3.55% of China Eastern for $455 million, revenue (now at 16%.) For years, they were regarded compared with Air China, which by the industry as being in which made it the first U.S. carrier to earned 37% of its revenue development because their invest in a Chinese airline. Delta said it internationally. Xin, made management processes were not will have an “observer” seat chairman of Hainan last year, as sophisticated as their western attributed the expansion of the rivals and their service levels were on the China Eastern board country’s carriers into global below par. markets to government policies But not anymore. The big and market demand. Chinese airlines have emerged carriers introduced 158 aircraft in early July with Boeing for an He said the government as major players internationally, into their fleets in the first-half additional 50 B737-800s for its has been encouraging more operating big fleets of new jets of 2015; 24 wide bodies and 134 wholly-owned Nanyuan-based enterprises to go abroad under and constantly expanding their narrow bodies. These included budget carrier, China United “The Belt and Road Initiative”, a medium and long-haul networks 28 aircraft to China Eastern, 22 to Airlines, as well as other development strategy proposed to match rivals elsewhere in Asia, China Southern, 17 to Air China subsidiaries. by President Xi Jinping in Europe and the U.S. and 16 to Hainan Airlines. Deliveries are scheduled 2013. It refers to the Silk Road A key report by consultants, China recently ordered between 2017 and 2019. In June Economic Belt, which will link McKinsey & Company, said more 75 A330s, worth $11 billion, last year, the airline announced China with Europe via Central than 97 million Chinese traveled with Airbus. The French a similar deal with the U.S. and Western Asia, and the 21st overseas in 2013 and spent $129 headquartered company is manufacturer for 80 B737s, made Century Maritime Silk Road, billion while abroad. setting up an A330 completion up of -800s and MAXs, set to which stretches from eastern Last year, the number of and delivery facility in Tianjin arrive at the carrier between 2016 and southern China to Southeast Chinese travelling overseas to take advantage of the and 2020. Asia, South Asia, Africa and jumped to an estimated 112 partnership between Airbus Spring Airlines, based at Europe. Xin said he anticipates million with Chinese official data and the Mainland following the Shanghai’s second airport, a huge surge in international estimating the group spent a successful establishment of an Hongqiao, plans to raise business on the back of this record-breaking $164.8 billion. A320-family final assembly line in $725 million in private share strategy. China Eastern, China 2008, also in Tianjin. placements to fund upgrades Hainan, China’s fourth largest Southern and Air China are China Eastern chairman, to its IT infrastructure, including carrier, has been expanding linking secondary Chinese cities Liu Shaoyang, said last month fitting its 50 current A320s with rapidly this year with new services

32 / ORIENT AVIATION / SEPTEMBER 2015 SPECIAL REPORT INSIDE CHINA’S AIRLINES: AN ORIENT AVIATION UPDATE

from Beijing to San Jose in the U.S., and Rome, as well a more flights from Shanghai to the U.S. is a major problem, This year it intends to add services particularly at the hubs pilots. It said there had been 21 Hainan Airlines B787: to Tel Aviv in Israel and Prague in of Beijing, Shanghai and instances this year in which crew Rising competition from high- the Czech Republic. Guangzhou. did not take enough time off and speed rail in China is prompting carriers like Hainan to find more Xin said rising competition Flight delays have led to an another 65 instances of pilots opportunities internationally from high-speed rail in China is inordinately high level of air rage working overtime. Okay has a prompting carriers like Hainan incidents. Last month the CAAC fleet of 30 aircraft - B737s and barriers” in the coming years. to find more opportunities ordered South China’s Shenzhen Chinese MA60s. Its main hub is “Competition is increasing, internationally. As a result, airport not to add flights and Binhai Airport in Tianjin. It flies putting downward pressure Hainan has been on a shopping routes, or submit charter flight mainly domestic routes although on the price of airline tickets, it spree abroad. Its leasing unit, applications, because the airport it added a few Asian destinations said. With yields per kilometer Bohai Leasing, in July announced was ineffective in handling flight in the last quarter of 2014. of around 9.5 U.S. cents, China’s it will acquire a 20% stake in Irish delays. The suspension, started The McKinsey China domestic fares rival those of the lessor Avolon Holdings for $429 on August 1, will remain in place consultancy said China’s “Big U.S., where travelers have more million, with recent reports it has until year end. Three” carriers and their disposable income. offered to acquire the remainder In May alone, several subsidiaries have been a bright This contrasts with carriers of the Dublin-based lessor. mass disturbances occurred, spot in the airline industry in adjacent markets, notably In May, it purchased a 6.2% including angry passengers globally, averaging until recently Southeast Asia, where new stake in South Africa’s Comair forcing open cabin doors and annual returns of 15% compared budget airlines are selling very and is negotiating acquisition fights erupting between airline with the global industry average low fares. By offering lower fares of ground handling company, staff and incensed passengers. of below 5%. on domestic travel, the Chinese Swissport International. The administration criticized “China is moving ahead incumbents can awaken latent In another development Shenzhen Airlines and China with reforms in state-owned demand, stimulate consumption that underscored the growing United Airlines for their poor enterprises, designed to and reduce exposure to any new importance of China’s airline management after flight delays promote efficiency and entrants, McKinsey said. market, Delta Air Lines in the U.S. and cancellations caused by profitability. Regulations on new Presently, distribution is announced in July it had agreed heavy rain angered passengers. entrant airlines and the speed disproportionately centered to buy 3.55% of China Eastern In July, the CAAC banned of growth of private airlines are around direct sales and for $455 million, which made it privately owned Okay Airways being relaxed. traditional travel agencies, with the first U.S. carrier to invest in a from buying more aircraft and Overall, McKinsey considered little e-commerce. Chinese airline. Delta said it will ordered it to reduce flying hours, China’s major airlines face McKinsey’s research on have an “observer” seat on the accusing it of overworking its “significant but surmountable the Chinese millennial traveler China Eastern board. (20-30 year-olds) revealed a more The buy-in could allow globally minded generation that Delta and China Eastern to seek Overall, McKinsey considered China’s is confident, independent and approval to co-ordinate pricing major airlines face “significant looking forward to traveling. and flight capacity. United but surmountable barriers” in the They are Internet-savvy. Fifty Airlines chief executive, Jeff eight per cent of the respondents Smisek, said he would be “keenly coming years. “Competition is increasing, said they liked to book online. interested” in exploring a Chinese putting downward pressure on the price Like airlines everywhere, joint venture once the United of airline tickets, it said. With yields per China’s carriers will likely be States and China negotiate an confronted with new problems Open Skies agreement that kilometer of around 9.5 U.S. cents, and unexpected crises on the would ease air route restrictions. China’s domestic fares rival those of road to greater growth. But most Profits aside, China’s airlines the U.S., where travelers have analysts agree that Mainland do face challenges. Despite Chinese carriers will soon take huge investment in airport more disposable income their place among the leading infrastructure, congestion airlines of the world. ■

SEPTEMBER 2015 / ORIENT AVIATION / 33 SPECIAL REPORT INSIDE CHINA’S AIRLINES: AN ORIENT AVIATION UPDATE

Going global from Guangzhou hina Southern of the airline’s business. Airlines (CSA) is a Li said his airline had used perfect example of the Australasian market to test its the rise of China’s new strategy. The airline operated airlines on the seven flights a week to Australia Cworld stage. Speaking in Sydney in 2009, but it now operates 43 last month, the carrier’s sales and has plans to increase services division senior vice president, Li into Australia to 60 a week in the Dongliang, said the company next few years. went through a strategic From this base, the carrier transformation in 2009 when it expanded into Europe, creating was facing fierce competition on a new “Silk Route”, which linked primary domestic routes from Australasia through Guangzhou high speed rail. orientated to international million safe flying hours behind it, to the European cities of London, “At the time, the international orientated,” Li said. “Our aim is to the Guanghzou-headquartered Amsterdam, Frankfurt and St. percentage of our flights was go global and to have Guangzhou airline was the first Chinese carrier Petersburg. In the U.S., CSA just 20%. After some deliberate airport as a world class hub.” to operate both the A380 and the has gone from operating a daily thinking, we concluded that if we Now operating a fleet B787. It carried more than 100 flight to Los Angeles to services wanted a brighter future, CSA of more than 600 planes, million passengers last year. In the to New York, San Francisco must change its strategy. In 2009, the transformation has been first half of this year, CSA transfer and Vancouver. The carrier our company began to transform dramatic. CSA has 64 overseas passengers on international commenced flying to Nairobi last itself from being domestic offices around the world. With 14 flights accounted for nearly 40% month. ■

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