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EVA Airways

Eyeing Prospects for the Long Haul

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Eyeing Prospects for the Long Haul

Source:Min Yang

EVA Airways has set a new record for revenue by concentrating on North American routes, not only weathering the economic climate but proceeding according to its own flight plan.

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Eyeing Prospects for the Long Haul

By Lucy Chao
From CommonWealth Magazine (vol. 622 )

2016 was a turbulent year for EVA Airways.

Facing external threats like a sluggish economic recovery, intense airline industry competition, frigid cross-strait relations, the rising risks of local politics, and higher oil prices, EVA Air was forced to contend with the death of founder Y.F. Chang and the ensuing power struggle for the chairmanship.

Even though it was under siege inside and out, EVA Air still managed to quietly change the face of Taiwan’s airline market.

Last year, despite a precipitous 46 percent drop in net profits, leaving just NT$3.47 billion, EVA Airways set a new record for consolidated revenue of NT$144.68 billion, giving it a golden cross for revenue with China Airlines for the first time. Revenue and profits both surpassed that of the old national carrier, but can EVA Air ride this momentum to further growth and firmly claim the top position among local airlines?


Key #1: Offsetting Price with Volume

Upon entering EVA Air’s 16th-floor office in Taoyuan, it is hard not to notice a giant screen with little dots moving all over it. Each little dot is an airplane in real time, shown taking off and landing at points all around the world.

The man at the helm is Steve Lin, chairman of EVA Airways.

Following a previous stint as the airline’s chairman from 2005 to 2011, Lin took the helm once again last March amidst a struggle for control.

Speaking of the challenges of his second turn in the pilot’s seat in his first exclusive media interview, Lin calmly said, “I think in essence it’s the same, as there are always challenges. Every move we make is made for growth, or to put it plainly, to make profits.”

Profits were down last year, which in addition to increased carrying capacity and costs, can also be attributed to “competition, and lower ticket and transportation prices, which in turn lowered transport income per unit,” says Lin.

Last year the average EVA Air passenger ticket price dropped by 9-10 percent. Meanwhile, cargo demand was sluggish under the poor economic climate, resulting in diminished revenue, cargo throughput, and income per unit for EVA Air Cargo.

“The market is falling, and it’s impossible for us not to fall with it; the only thing we can do is fall slower,” says Lin, noting that the key for EVA Air to maintain momentum is a high occupancy rate.

According to statistics from the International Air Transport Association and the Civil Aeronautics Administration, the average occupancy rate in 2016 across the international transportation market was 79.6 percent, with the Asia Pacific region at 78.6 percent. While China Airlines’ rate was 78.4 percent, EVA Air managed to reach 80 percent.

EVA Air corporate planning division executive vice president Albert Liao relates that market competition and growth is a dynamic balance. The overall transportation market is growing, with current global passenger volume at four billion trips, and room for growth of up to three billion more individual trips per year within the next 15 years. EVA Air’s strategy is to ensure its position as one of the main participants in the market, “relying on growth to boost volume, and offsetting price with volume,” says Liao.

Key #2: Early Positioning

One unusual reason Taiwan’s civil aviation industry has not been as profitable as it might have been is the reduction of cross-strait flight routes. According to statistics from the Taiwan Tourism Bureau, there was negative growth for the first time among tourists from China in 2016, down 670,000 individual visits, or 16 percent, from 2015.

The impact on EVA Air was comparatively light, as cross-strait passenger traffic accounted for just 10 to 13 percent of the company’s turnover last year, compared to around 15 percent for China Airlines and 35 to 40 percent of business for TransAsia Airways, which was dissolved last year.

“Due to the prevailing environment, the overall economy has not been able to stage an effective recovery. Yet even under the threat of terror attacks and discount airline competition, EVA Air has staged stable growth,” says Dr. Ker-tsung Lee, associate professor at Feng Chia University's Department of Transportation Technology and Management. “There is some impact from cross-strait routes, but long-haul and trans-oceanic routes are stable, which offsets the difference.”

Over the course of his interview, Lin mentioned repeatedly that airline industry operations must “look long-range, and take early action,” a description that encapsulates many aspects of Eva Air’s business territory.

“We identified North America a long time ago as a market we could get into, and now is the time,” including the purchase of airplanes, and preparation of personnel, for which the ground has long been readied. And these steps were taken with even more purpose following EVA Air’s entry into the Star Alliance in 2013.

Star Alliance figures show that more than 45 million trips were made between North America and Asia in 2016. EVA Air is targeting the gigantic North American market with this in mind, aggressively expanding destinations and flights.

Taiwan also enjoys geographical advantages, and EVA Air has concentrated efforts on positioning Taiwan to become a transit market between North America and Southeast Asia, setting up a route network like spokes around a hub (developing multiple destinations around one airport as the hub), continuing to add flights. Currently the airline serves eight destinations in North America, with nearly 90 flights per week. In 2016, transit passengers in Taiwan grew by 27 percent, and EVA Air continues to expand its Northeast Asian and Southeast Asian routes. The strategy has been effective, as Japanese and Korean travelers alone grew by 14 percent over the previous year in 2016.

Proceeding with long-haul route deployment, EVA Air has not only eliminated less efficient airplane models, but has also been precise and timely in its new airplane purchase strategy.

EVA Air’s fleet currently stands at 81 planes. “EVA Air began deploying Boeing 777s fairly early; the 777’s twin engines are more fuel efficient than other models,” relates Tay-lin Hwang, professor of Aviation and Maritime Transportation Management at Chang Jung Christian University. In addition, the company’s airplane procurement plan has long been mapped out through 2020, including plans to incorporate the fuel-efficient Boeing 787 Dreamliner into the fleet.

EVA Air has a stellar ‘fatality-free’ record in its 27 years of operation. Last year, the airline was given a five-star rating by airline service rating authority Skytrax, giving EVA Air the distinction of being the eighth airline ever and Taiwan’s first to earn that distinction.

EVA Air knows very well that service is the key to brand differentiation. By adhering to its market position and segmentation, and not touching discount airlines, EVA Air has managed to skirt the risks of major losses.

Key #3: Bridging Upstream, Downstream Industries

Professor Jin-Ru Yen of the National Taiwan Ocean University Department of Shipping and Transportation Management observes that EVA Air’s stable performance can be attributed to three factors: First is an excellent brand image, with a top flight safety record, and a young fleet averaging just 4.7 years old. Second is corporate culture, with long-term efforts to cultivate talents and reduce turnover. And third is the company’s outstanding reinvestments, so that it is immune to competition from discount airlines.  Evergreen Aviation Technologies Corp. and Evergreen Air Cargo Services Corp. have also led the way to increased profits, so that “EVA Air can be considered the leading brand among Taiwan-based airlines,” concludes Yen.

Under the leadership of former CEO Chang Kuo-wei, EVA Air invested in such subsidiaries as Evergreen Aviation, Evergreen Aviation Precision, and GE Evergreen Engine Services to encompass the entire production scale from manufacturing and maintenance to transportation services.

Evergreen Aviation has achieved double-digit revenue growth over the past three years. Last year, it took on contracts to retrofit 20 Boeing 767-300 passenger jets into cargo planes, greatly benefitting the company’s core undertakings.

C.K. Po, secretary to the Minister of Defense, and former secretary-general of the Taiwan Aerospace Industry Association, is bullish about EVA’s future. “The previous chairman, Chang Kuo-wei, is familiar with the aerospace industry, and takes air transport seriously. The aerospace industry is a long-term investment, and Eva Air got an early start,” he says.

Steve Lin also believes that, in addition to its core enterprise, EVA Air would be best served by consolidating its upstream and downstream holdings to maximize synergy. No matter how the winds change in the greater environment, Lin always seems calm and collected, sure that EVA Air can rely on its system, structure, and teamwork.

As for EVA Air surpassing China Airlines for the first time, Lin is confident that EVA Air has gotten to a point where it can compete and thrive together with other airlines. “Competition will only make the overall industry better and better,” he says.

The skies are vast, and which of Taiwan’s two major airlines will stay on a steady heading towards greater growth will surely be demonstrated over the long haul.

Translated from the Chinese by David Toman
 

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