Globally, the aviation industry is facing operational difficulties due to the pandemic. China Airlines, a publicly owned Taiwanese company, has however been able to buck the trend and become one of the few profitable players in the industry. The key to its success has been its leader. At this critical moment, Hsieh Shih-chien, a senior executive who has been at China Airlines for 43 years, is using new thinking to fight the headwinds of the pandemic.
Started on the front line
In its early days, China Airlines acquired second-hand propeller planes and two Boeing 707s from the US. After 62 years of operation, it has reached nearly 100 planes, and it operates in 200 cities around the world. Its employees number in the tens of thousands, and its subsidiaries cover sectors such as hotels, catering, low-cost airlines, and cargo warehousing. Its businesses are complex and highly international.
Hsieh himself started from basic accounting work and then moved to sales and marketing before the government appointed him as chair. He has also served as chair of related companies such as Sabre TW and Taiwan Air Cargo Terminal (TACT), and has also been stationed in branches in Indonesia, Australia and elsewhere. He is quite familiar with China Airlines’ passenger and cargo business, domestic and foreign operations, and financial structure.
Hsieh once handled a labor strike, and held open consultations with the union. He humbly remarked at the time that the incident ended successfully thanks to the assistance of the Ministry of Transport and Communications, local government labor bureaus, and the Taoyuan City Government. Nevertheless, it has not all been smooth sailing. As the industry faces its worst time due to the COVID-19 pandemic, challenges have appeared in quick succession.
Recall that when the pandemic broke out in early 2020, global tourism ground to a halt. At the time, many thought that the fallout would not be too serious, and business might recover soon. However, based on information sent from employees around the world, Hsieh soon determined that the situation would change the course of the industry, and an immediate response was required. With his financial background, Hsieh immediately started working to raise cash reserves, and also sent out an SOS signal to let the outside world know that the industry needed a policy bailout to survive.
However, Hsieh also says that before the global aviation industry recovers, it must try to save itself, “securing supplies while also reducing expenditures, advancing on both tracks.” He turned to air freight to protect Taiwan’s electronics and other supply chains, while also maintaining the foundation in passenger service for when tourism and business travel recover. With the support of the government and assistance of staff, thanks to Taiwan’s superior geographical location and his own accurate judgment, he eventually came to some strategic decisions.
Flexible schedules to ensure on-time delivery
The key to pandemic response has been speed. In the past, there had never been a situation of an almost zero passenger load factor, and there was no past experience that could be easily replicated. The biggest challenge for the industry became survival. Hsieh deeply considered where the aviation industry would go, and the advantages of China Airlines in the new environment, and how to and use them to produce the greatest marginal effect. He felt overwhelming pressure during the decision-making process, but has persisted in long-term thinking for the good of China Airlines, as well as Taiwan’s economy.
The external environment has been particularly difficult over the past two years or so. Facing blows including supply chain disruption, geopolitical tensions, and high fuel prices, Hsieh recalled the responsibility and mission of China Airlines as a public company, and implemented flexible flight schedules. It provided complete solutions whenever the government needed to charter flights from overseas back to Taiwan for semiconductor equipment, machines, automobiles, 3C products, agriculture, fishery and fresh food. International friends also successfully obtained Taiwan’s excellent pandemic prevention materials as an alternative form of diplomacy, and domestically, imports and exports were also delivered on time.
Hsieh said that during the height of the pandemic, global drug supply was a matter of life and death. China Airlines had the duty to use its dense cargo air network and logistics expertise to manage cold supply chains. After delivering self-purchased COVID vaccines to Taiwan, it has also successfully sought re-export business opportunities to deliver vaccines to other countries. So far, it has shipped more than 100 million doses around the world, and assisted in transport of anti-pandemic materials such as rapid screening reagents to the Asia-Pacific, creating revenue, doubling its cold chain transport business, and perceptively grasping the trends of the global freight market.
Strengthened focus on transshipment hub operations and shifted focus to freight
At that time, delays in sea traffic were serious, and many important supplies had to be exported from Taiwan within a short period. Hsieh said that this was also an important moment for China Airlines to help Taiwan’s economic development. The use of air freight will continue to strengthen Taiwan's status as a transshipment hub, and will help companies in 5G, micro high-tech, automotive electronics, semiconductors and other industries make full use of their capacity. China Airlines has arranged irregular overtime and charter flights in line with market trends and urgent cargo needs to maximize its overall capacity.
The reason why Hsieh acted so quickly and decisively was that he asked the accounting department to report to him every three days, so that he could constantly keep abreast of market changes. After the focus of operations shifted to freight, starting in March 2020, passenger flights were dispatched to cargo delivery – not only increasing freight revenue, but also reducing loss margins, helping overcome pressure on cash reserves during the early stage of the pandemic.
China Airlines also flexibly adjusted scheduling of passenger cabin cargo during the pandemic. With approval of civil aviation authorities, cabin seating areas of passenger aircraft can carry specific cargo types to further increase the capacity. China Airlines mainly uses cabin cargo for the highest-demand Los Angeles route.
Long-haul routes including San Francisco, Los Angeles, Amsterdam, Frankfurt, and Sydney, all added cargo on passenger flights. Asian regional and cross-strait routes all strove for belly-hold cargo opportunities, flexibly dispatched passenger aircraft to support freight demand, and assisted cargo aircraft to expand business in response to the strong demand in the global freight market for items related to the stay-at-home economy. At one point, China Airlines used belly-hold cargo to fly as many as six or seven flights a day to Los Angeles, compared to the previous two flights a day.
Zero layoffs
Hsieh said that airlines were one of the first industries to be hit in the early days of the pandemic. The most difficult problem for China Airlines was how to retain outstanding staff. At that time, his goal in negotiating with domestic trade unions was to reduce short-term costs, reducing salaries and shifts in order to prevent lay-offs. The company fully demonstrated its commitment to employees’ rights. In the end, no employee was laid off; rather, hiring increased. As for air cargo, Hsieh was grateful that crew members shouldered the heavy responsibility of vaccine and material delivery through cycles of isolation and service during the height of the pandemic, maintaining an important lifeline.
Hsieh believes in the importance of a good relationship with workers. In the past, publicly owned companies often suffered from labor disputes due to their heavy burdens. Hsieh felt that this would harm China Airways’ normal operations and customer service. Therefore, after taking up the post of Chair, he instructed the management team to negotiate with the trade union to resolve labor disputes as soon as possible, ensure the management principles of group consultation, labor and management equality, mutual respect and trust, safeguard the rights and interests of passengers, and make good use of China Airlines’ advantages in operating scale and human resources to establish connections with employees on the basis of mutual trust.
Hsieh thanked the employees for cooperating and persisting through the dark times. China Airlines made a profit of about TW$ 9.38 billion in 2021; its earnings per share (EPS) was NT$ 1.67, growth of 54 times compared with NT$ 0.03 in 2020. Its EPS in the first half of the year reached NT$ 0.58. The passenger business has begun to gradually recover. According to data from the International Air Transport Association (IATA), with various countries reopening their borders, by 1Q 2022, global transport capacity and volume gradually recovered to 50% of the levels prior to the pandemic. Airlines’ financial performance will continue to improve in 2022. North America is the strongest performing region, and China Airlines will gradually adjust its routes and their frequency.
Purchased new aircraft and optimized regional routes
Looking forward to 2H 2022, Taiwan has gradually opened its borders from June 15, shortened the length of quarantine, eased restrictions on total weekly entries, and allowed transfers at Taoyuan Airport. In response to market demand after the relaxation of these controls, China Airlines planned passenger routes ahead of schedule. In addition to maintaining a stable schedule of key passenger routes, evaluating plans to restore destinations, increasing numbers of flights, and adding new destinations, it is now promoting six new round-trip fares to increase passenger revenue, including North America and Europe to Southeast Asia, Europe to Oceania, and Oceania to Northeast Asia.
Although fuel prices are soaring and the global tourism industry has not yet fully recovered, Hsieh had previously purchased new aircraft at market lows in order to prepare China Airlines for post-pandemic tourism business opportunities, and has now also introduced the environmentally-friendly passenger aircraft A321neo. The new fleet emphasizes zero-contact service and high specifications for pandemic prevention. In addition, the cabin service of the 737-800 fleet has been improved. Passengers can directly use their personal smart devices to enjoy multimedia audio and video streaming services at high altitude, reducing contact. “Zero-contact service” service has been expanded to the entire fleet, and to protect flight safety China Airlines provides in-flight protective bags, including masks, alcohol disinfection wipes and other anti-pandemic items. It also provides a variety of digital services. The website has added an “Anti-epidemic Safe GO Zone” for one-stop searches such as hotel and car booking and hospital testing, and promotes online self-service check-in, luggage check-in, and electronic health declarations. Facial recognition self-service boarding has gradually been enabled in some airports in preparation for the restart of passenger transportation.
Hsieh said that newly purchased A321neo aircraft are now being put into operation, optimizing regional routes and greatly improving product competitiveness. Eventually, the A321neo will become the main aircraft for regional routes. China Airlines is also cooperating with The Pokémon Company in Japan to launch “Pikachu Painter CI,” which will officially leave the factory in the fall. By competing for tourism and business tourists in Northeast and Southeast Asia to meet the gradually recovering travel demand, China Airlines is aiming to maintain its pre-pandemic operating scale and profitability.