In less than a month, Jonathan Bailey, Cathay Pacific's Israel country manager for the past two and a half years, will pack his bags and move on to his next job in the company: digital manager of the airports in which it operates throughout the world. Bailey first landed in Israel in January 2017, and inaugurated Cathay Pacific's first flight to the country within a record two months. Cathay Pacific now operates a daily flight on the Tel Aviv-Hong Kong route.
Before the arrival of one of the world's most highly acclaimed airlines, El Al had a monopoly on the route. Competition has since had its usual effect - the volume of passengers to Hong Kong has risen. In 2016, before Cathay Pacific entered the market, the number of roundtrip passengers on direct flights to Hong Kong was 118,000. At the end of 2017, a mere nine months after Cathay Pacific began operating its route, passenger traffic to Hong Kong had reached 200,000. This grew to 245,000 by the end of 2018, 51% of whom flew on Cathay Pacific. Actually, since the Hong Kong-based airline launched its Tel Aviv route, not only has the number of passengers flying to Hong Kong spurted, but Bailey says that even passengers more use Hong Kong as a hub and fly onwards to other destinations, primarily in Japan.
"The Israeli market is truly unique," Bailey tells "Globes." "I felt like I was founding an aviation startup in the startup nation. Cathay Pacific decided to open a route to Israel in October 2016. The original plan was to launch an initial flight in March 2016, but due to scheduling issues, the launch was pushed back further."
The decision to open the route was by the airline, with no prompting from the Ministry of Tourism, as happened with other airlines. Furthermore, since El Al already had a flight on the route, Cathay Pacific did not receive the grant that the Ministry of Tourism gives to airlines opening routes to new destinations (€250,000 a year for each new route). Cathay Pacific did ask for the grant, and was turned down, but in retrospect, it made no real difference. "The route to Tel Aviv has been one of the most successful of Cathay Pacific's long routes," Bailey says, "at least since I joined the airline eight years ago."
"Globes": According to what criteria is this success measured? By profits?
Bailey: Yes, but not only that. We have an excellent afternoon takeoff slot that is convenient for businesspeople, at a time when Ben Gurion Airport is less crowded. We seek feedback from our passengers about their experience at the airport, and Ben Gurion Airport regularly gets the highest mark."
Are most of your passengers Israeli citizens?
"Over a third of our passengers are Israeli citizens. We also have a lot of Australians traveling to Israel. The majority of the Israeli passengers continue to other destinations, mostly to Japan, followed by Sydney, Singapore, Taipei, and Vietnam."
Your competition in Israel is not only against El Al, but also against Russian airline Aeroflot and Turkish Airlines, which are regularly on the list of the five strongest airlines in Israel. Most of their activity consists of connection flights, mainly to destinations in the Far East.
"We nevertheless regard El Al as our biggest competitor, because it has agreements for connection flights with airlines in East Asia. El Al will launch a direct route to Japan, starting in March 2020. For me, this is good, because El Al is promoting Japan as a destination, and we also profit from this. Our advantage is that we can provide links for passengers flying all over Japan. Cathay Pacific runs 20 flights a day from Hong Kong to eight airports in Japan. This provides flexibility that other airlines can't offer. Our flight to Haneda in Tokyo is also the most convenient for business people versus the more traditional Narita flight. Haneda is much closer to Tokyo's city center and for businesspeople that saved time is significant.
But the price is what matters, not the timetable of another hour of travel time from the airport.
"Business passengers essentially want convenient hours. It's no coincidence that we see increasing business travel on our airline. We began with around a third market share on the route, and now we are in the majority. Our pricing model is not the same as other airlines but our success is down to our flexibility, quality and value for money. For vacationing passengers, the price is of course the main motive and we've become aggressive in pricing in order to compete with the major players on the route. We offered flights for $700 to five destinations for the end of the summer and September."
This is something you have not done before. The competition must be putting pressure on you.
"Competition works. We saw that we could offer such a price."
Israelis demand upgrading
Describe the Israeli passengers. We are sure that they are different from any other country you work in.
"There are significant differences between passenger styles and demands across the world. I have worked in Asia, the Middle East and Europe, and each passenger type has their own unique quality. Israelis of course are unique. They are demanding at times as they appreciate quality and value for money. They may ask for upgrades or for better customer service, but we have found them to be a pleasure on our flights in general. What amazed me in Israel was the number of business passengers that fly so regularly to the Far East. We have more than a few passengers traveling to Hong Kong every week and returning to Israel for the Sabbath. They fly more than our pilots. There are business passengers who traverse the globe in a single journey; we've even set a special rate for it. What is most typical of the Israelis is that although it's said that the low-cost flights have changed booking habits, they still book flights at the last minute. more than a quarter of our tickets can be purchased one month before the flight."
That is not so good for you.
"It is neither good nor bad. It made us nervous at first, but when we saw that this behavior was consistent, we realized that we would sell these seats. We used to try to sell 6-9 months in advance, but we've eased up on the pressure. In a certain sense, the Israelis have educated us as to how to sell to them."
Do those who wait pay less or more?
"There's no rule of thumb, because the price is dynamic. People who reserve in the last month won't pay less than people who reserve six months in advance, but they may pay the same price."
The average price for flights is going down all over the world. Will this trend come to a halt?
"No. Pressure on the price will continue. For Cathay Pacific, the increase in capacity out of mainland China has changed the market completely. They are very competitive in price. other airlines offer a different service proposition to Cathay but they often have inflight entertainment, food and a business class. It's obvious that we have an market that will switch to these airlines, say like Hainan Airlines, which is focusing on Hong Kong (Hainan operates a flight from Israel to a number of destinations, in China, M.R.-C.). Cathay Pacific has to be competitive, but we also prefer to provide more options to passengers on a flight."
Bailey says that the open skies revolution introduced in Israel six years ago, which allowed many airlines, including low-cost airlines, to open routes to Israel, has not yet utilized the potential of rock-bottom prices. "$400 from Tel Aviv to Paris? That's very expensive! If you tell my friends from the UK that they are flying 3.5-4 hours for $400, they'll think you're crazy. There are flights on Ryanair for €15, and with a suitcase, you get to €60 at most. Those are the prices," he exclaims.
"The profit comes from long-range flights"
Cathay Pacific has entered the low-cost flight market with its acquisition of Hong Kong Express, which it is just now completing. Baily adds that Cathay Pacific will institute variable prices according to the type of ticket (similar to what El Al did): a ticket with hand luggage only, a ticket including luggage, and a flexible ticket. As of now, this pricing will not be used on routes to Tel Aviv.
This low-cost brand is in addition to Cathay Dragon (formerly Dragonair), which is used for internal flights in East Asia. "The local flights constitute 50% of the volume of activity, but the profit comes from the long-range flights," Bailey explains.
And there the fuel component enters the picture. How is it possible to be competitive on long-range flights when fuel is getting more expensive?
"The profit comes from business class. In tourist class, we're trying to reach a tie-breaker. We have 46 business class seats, which make up 10-15% of the plane, and they're the big profit. Cathay Pacific is part of the OneWorld aviation alliance (together with British Airways, American Airlines, Qatar Airlines, and others, M.R.-C.), and it is a significant advantage to offer our customers , the enhanced connections and benefits the alliance brings.
"Through the alliance, we are also expanding the options for passengers in airport business lounges. In Israel, we use the Dan lounge, which is alright, but expensive. If you compare it with the business lounge in Hong Kong, which is one of the best in the world, we charge less for it than what we pay here."
The Ministry of Tourism is investing a lot in order to boost tourism from China. Only 105,000 tourists came from China last year. This is a drop in the ocean. How can this number be increased?
"It isn't easy. Chinese tourists are a fairly new market in the world. Before, they went to close-by destinations like South Korea and Hong Kong. Only later did they go to the most famous sites, such as Paris, London, and New York."
You have been living in Tel Aviv for two and a half years. What impression did Israel make on you?
"It's the best country I've lived in, except for the high prices. It's more expensive here than in Qatar and the UK. Israel is an excellent vacation destination, especially because of the weather, but it's so expensive here that it's no wonder that the number of Israelis vacationing abroad is only increasing. Another point in Israel's favor is that you don't really suffer from air pollution. My wife flies a lot to Hanoi, and every time she returns to Israel, she really feels that the air here is different and cleaner."
You are mentioning the subject of the environment, which has been in the headlines recently, including accusations against the aviation industry. In Sweden, the number of passengers has fallen because of the anti-flight movement. Are you feeling it?
"In Hong Kong, people fly a lot. I think that every country is in a different situation in this respect. An Asian businessperson who wants to do business around the world has to travel. It's not right to point a finger at the aviation industry. Airlines are constantly renewing their airliners. We now have the Airbus 350A, which is 25% more efficient in fuel consumption than the 777 that preceded it, and the 777 was also more efficient than its predecessor. More airlines are buying biological fuel, including Cathay Pacific."
Why first class is necessary
Another characteristic from which Cathay Pacific benefits is the way news spreads among Israelis. "We haven't done a massive television campaign, because we didn't have to. When Israeli passengers encounter a good quality product, they tell everyone. Our best campaign was word of mouth. The passengers are our best marketing tool," Bailey says. "Cathay Pacific, by the way, has an Israeli pilot, and another one is in the management team in Hong Kong."
There is a global shortage of pilots, and that gives them a lot of power, resulting in strikes, among other things.
"A pilot's job is very important work, and we're constantly thinking about how to make our pilots happier."
I'll tell you how - pay them more money.
"It's not just money, because when you ask what they really want, the answer they give is to come to their children's end-of-the-school-year party. This is a point that we are striving to improve by giving them a timetable, so that they don't miss too many things by being in the air."
What are Cathay Pacific's plans for continuing its activity in the Israeli market?
"Cathay Pacific will get the new Boeing 777-9 for its air fleet in 2020, with a first-class section that is amazing. My dream is to introduce this plan on the route in Israel."
Airlines like El Al are getting rid of first class. This is a flight with a price tag in the thousands of dollars. Who will pay it?
"Having first class gives an option and quality product that many other airlines cannot offer. There are markets that appreciate and need first class and perhaps Israel is one of them. Let's see what the future holds."
Published by Globes, Israel business news - en.globes.co.il - on July 30, 2019
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