Taiwan’s EVA Airways, sufficiently nimble to record periods of profit during the global COVID-19 pandemic, now must overcome another monumental challenge – maintaining profitability in a region that has been the slowest to re-open as global restrictions against COVID ease. Read More »
“Like many other Asia-based airlines, we had no choice but to focus on cargo to survive the pandemic. Now, post-pandemic, most countries where we operate have ended border restrictions and have allowed normal life to resume. A few, such as Taiwan, are exceptions,” EVA Airways president, Clay Sun, told Orient Aviation last month.
“The next challenge we face are the hurdles we will have to overcome to catch up with the global recovery in passenger demand.
“But the good news for the airline, as we speak in May 2022, is Taiwan has abandoned its zero-COVID policy, setting in motion the gradual opening of the EVA schedule.
“Taiwan recently adopted a strategy of coexisting with COVID-19. We expect Taiwan to lift border restrictions in the second half of 2022. In anticipation, we are adjusting our passenger and cargo ratios.
“We have a recovery strategy to serve projected passenger demand and are on track to optimize improving market trends.”
The task ahead is the latest in a series of challenges for Sun, a company veteran promoted to president in early 2018. This time it is keeping the airline group in profit beyond the pandemic.
“My first pandemic challenge was the steep slide in passenger demand. The obvious countermeasure was to ramp up EVA Cargo’s business,” Sun said. “Prioritizing cargo had immediate consequences.
“My second challenge was our limited number of freighters and capacity. We offset these challenges by creating “preighter” or cargo-only passenger flights and, at the height of the pandemic, re-configuring as many as 33 of these aircraft.
“In addition to optimizing belly hold space, we carried air freight on cabin floors and, when needed, removed seats to increase capacity.”
The preighters used for transporting cargo “were not the only option available to EVA” when cargo capacity was in high demand, Sun told Orient Aviation.
“In August 2020, we successfully adjusted an agreement with Boeing and replaced an order for seven 787-10s with four 787-9s and three 777Fs. The three new 777F freighters were delivered in 2021, giving us eight B777Fs, boosting our cargo capacity and making us even more competitive in today’s strong cargo market.”
But the strong focus on cargo did not mean EVA Air abandoned passenger operations, Sun said. “We have supplemented freighter operations with passenger flights that have carried cargo only, maximizing both our airfreight network and capacity,” Sun said.
“At the beginning of the pandemic, when COVID-19 was still an unknown feared disease and the vaccine was not yet available, EVA Air adopted safety measures that are in place until this day.
“Early on, we employed COVID-19 prevention best practices, including a single tray meal service and disposable inflight amenities in all cabin classes, minimizing physical contacts. Inflight, all our cabin crew members wear face masks and protective gear, reinforcing passenger confidence in air travel with EVA.”
As the pandemic persisted and then variants of COVID-19 spread worldwide, EVA’s management negotiated lower fees and charges with the gateway airports it served in its international network.
It also pared contract prices and preferential payment terms with suppliers. “We have suspended non-essential system development, equipment procurement and repair projects,” Sun said.
“We also have paused non-essential commercial campaign promotions and sponsorship activities. At the same time, the company generated new, sometimes unorthodox sources of income.
|"EVA does not believe it will escape the challenges of recovery. The Russia-Ukraine war and skyrocketing jet fuel prices are impeding profits. Prolonged pandemic impacts have eroded consumer confidence in air travel and restoring it is a challenge. Labor shortages may cause efforts to rebuild networks and resume operations to stall. In the meantime, we anticipate Taiwan will lift border restrictions and loosen quarantine mandates for air crew so we can return to offering passengers excellent travel experiences from check-in to baggage claim"
EVA Airways president
“We boosted passenger revenue by creating ‘Flights to Nowhere’ and initiating ‘Corporate Business’ and ‘Repatriation’ charters, meeting pent-up demand and travel needs. Accommodations on these flights included offering options to block extra seats, zones or cabins.
“Also, as a special treat for air travel fans, we scheduled behind the scenes tours of the EVA Training Center, not only giving our passengers a glimpse of the hard work that goes into the exceptional inflight services they enjoy, but also promoting flight safety and brand awareness.”
In 2020, EVA Airways annual revenue was TW$79.6 billion (US$270.07 million) with passenger revenue of TW$24.5 billion, an annual drop of 76%. But cargo revenue hit a record high of TW$50 billion, an annual increase of 97%.
The 2020 cargo revenue result was insufficient to compensate for the carrier’s drastic drop in passenger revenue. The imbalance translated into an overall net loss of TW$3.36 billion.
EVA’s results were a relatively narrow number when compared with the huge losses recorded by carriers worldwide, validating its pivot to prioritizing cargo in the depths of the pandemic.
In 2021, the company increased year-on-year cargo revenue by 70.3%, to TW$85.2 billion. Overall, EVA Air’s revenue increased 20% in 2021, to TW$95.3 billion. The company declared a net income of NT$6.6 billion (US$232 million) for the year.
At press time, the beginning of the 2022 peak summer travel season and when many parts of the world are lifting pandemic restrictions, EVA Air remains constrained by some pandemic regulations still in place in Taiwan.
Sun said: “My third challenge is balancing pilot and crew rotations with Taiwan Center for Disease Control (CDC) quarantine regulations. Pilot and crew limitations affect flight operations and restrict utilization of available cargo space. Additionally, as with much of the industry, EVA Air must manage rising costs.
“My latest challenge is skyrocketing jet fuel prices, now devouring a sizeable chunk of profits,” Sun said. “Finally, being located in Asia places EVA Air at a major disadvantage compared with our American and European airline peers. Asia is slower to re-open to international air travel.”
In May, the International Air Transport Association (IATA) urged Asia-Pacific nations to ease border measures to accelerate recovery from COVID-19. The region’s international passenger demand for March was 17% of pre-COVID levels, after hovering below 10% for most of the last two years.
“This is far below the global trend where markets have recovered to 60% of pre-crisis levels. The lag is caused by government restrictions. The sooner they are lifted, the sooner we will see a recovery in the region’s travel and tourism sector and all the economic benefits that will bring,” said the International Air Transport Association director general, Willie Walsh, at the Changi Aviation Summit in May.
Sun wholeheartedly agrees. “More countries are gradually lifting entry restrictions and most mainstream airlines in the Asia-Pacific are gradually restoring passenger flight capacities.
“But Taiwan’s entry quarantine requirements and transfer service prohibitions continue to affect EVA’s operations and significantly. Before the pandemic, we built a dense trans-Pacific network with 142 weekly flights across Southeast Asia and to eight gateways in North America,” Sun said.
“In the meantime, we are using this period to fine tune our product, airport operations and inflight services.”
There are good reasons to take EVA Air seriously when it declares it is improving its product. For many years, it has been recognized for its service. It has received countless awards from rating organizations and travelers for offering one of the best air travel experiences in the world.
Its high standards of safety and comfort made it relatively easy for the airline to adjust its product to pandemic times.
“EVA has been committed to safety and excellence with all our products and services from the day we made our maiden flight. We have never lost sight of this deeply ingrained commitment. We continually upgrade hardware, software and services so that from the time passengers book flights until they arrive at their destinations and claim their luggage, we deliver passenger experiences that remain among the best in the world,” Sun said.
“While the pandemic has dramatically changed how people travel, we hold fast to our promise to provide passengers with safe, comfortable flight experiences and more, even when we employ COVID-19 preventive measures,” Sun said.
When flying with EVA Air compared with pre-pandemic times passengers will have a more digitally streamlined experience. “We accelerated the development of digital service applications, automated other services and streamlined airport operating procedures to reduce person-to-person contacts and give both our passengers and staff safer, more convenient interactions,” Sun said.
“It boosted confidence in air travel and has prepared for the resurgence of business and leisure travel post-pandemic at the same time,” Sun said. “Another important direction in EVA’s product development is that air travel becomes sustainable.
“We have adopted the latest eco-friendly alternatives and replaced many single-use plastic inflight service items. We have introduced digitized inflight reading materials, including our wine lists and menus, eliminating tons of paper waste.”
Many travelers will be happy to learn Sun’s insistence that the gap in flying during the pandemic will not erode their status with EVA Air’s loyalty program:
“We are sustaining passenger loyalty and preferences by extending validity periods for membership status, mileage balances and reward tickets. We have upgraded our membership ecosystem for loyalty program members,” Sun said.
“For our Infinity MileageLands members, we have introduced an exclusive shopping platform and diversified access channels.”
Restoring EVA Air’s passenger services from its present skeleton network to pre-COVID full-scale operations will follow a carefully plotted path.
“During stifling pandemic impacts, EVA maintained the structural core of our network and continued to meet the restricted needs of travellers,” Sun said.
“Operating from our Taoyuan International Airport hub, trans-Pacific service recovery is a priority, recognizing our unrivaled transit connections are critical to success.
“We also expect to be cooperating even more closely with our Star Alliance members to optimize the economic efficiencies of extending services across the networks of other [alliance] members.
‘As global commerce rebounds and business sectors gain momentum, we will develop passenger potential and cargo destinations in Europe, focusing on routes such as Milan and Munich. The addition of these routes will strengthen the competitiveness of our global network.”
EVA’s strategists have the benefit of the carrier’s young fleet. “At April 2022, EVA operated 90 aircraft: 82 passenger jets and eight freighters. We fly single and twin-aisle aircraft from Airbus and Boeing. The addition of new generation models has lowered the average age of our fleet,” Sun said.
One of the aircraft at EVA Air’s disposal is the 787. “From 2018, EVA began to take delivery of 787 Dreamliners. We operate 10 787s: four B787-9s and six B787-10s. By 2024, we will have 21 787s in our fleet,” Sun said. EVA Air is Taiwan’s only operator of the 787 and the airline group is closely watching the latest developments in the 787 program, he told Orient Aviation.
“We ordered 11 more 787s that are delayed. We expect Boeing to deliver them by 2024. From 2020, airlines worldwide canceled or deferred aircraft orders. At the same time, travel demand to and from Taiwan plummeted and has not begun to recover [until now] so the 787 delivery delays have not significantly affected our fleet deployment,” he said.
“We are optimistic Boeing can ramp its 787 production schedule to deliver the aircraft we have ordered so we can meet air passenger traffic as it builds towards projected full recovery in 2024.”
EVA Air is evaluating its fleet decisions. “The first of the leases we have for our narrow-bodies will begin to expire in late 2022. We are evaluating replacement of the 24 A321-200s we are operating with next generation narrow-bodies that will be at least 15% more fuel efficient,” Sun said. “In a few years, EVA also will welcome a new generation of wide-body jets to its fleet.
“We serve our major long-haul North American routes with 777-300ERs. We plan to begin to replace them in the second half of 2025. Possible successors are the 777X or A350.”
Equally important are plans for EVA’s freighter fleet. “With demand for air cargo forecast to continue to be strong and to expand, we ordered one more 777F, for delivery by year-end 2023,” Sun said.
“We also have contracted Israel Aerospace Industries (IAI) to convert three 777-300ER passenger aircraft to freighters, starting in mid-2025.”
The freighter fleet expansion suggests EVA sees more potential for air cargo. “Both cargo and passenger services are vital for EVA, but implementation and deployment must be carefully balanced. The two distinct services are complementary in seasonality,” he said.
“Balance reduces risks during global events. In addition to our freighters, our wide-body passenger aircraft, including 777s, 787s and A330s, gives us supplemental space in the belly hold of passenger flight routes.
“Operations are being buffeted by geopolitical conflicts and global supply chain disruptions, but air cargo retains a strong market outlook and will be an important and proportionally larger EVA revenue source into the future.”
During the pandemic, cargo has been confronted with interesting competitive developments. “This year, shipping groups such as Maersk are setting up their own airlines or investing in existing airlines. An example is CMA CGM investing in Air France-KLM,” Sun said.
According to statements of the parties involved, reported in the media, combining different modes of transport will allow the shipping companies and partner airlines to offer end-to-end solutions that might attract Beneficial Cargo Owners (BCOs).
EVA Air is an affiliate of one of the world’s most important shipping companies, Evergreen Marine, so some market observers wonder if EVA will follow this trend, offering end-to-end solutions.
Sun told Orient Aviation: “Different business models do not all have the same costs. Each business model, no matter how new or innovative, must be evaluated on its own merits. EVA is not considering the implementation of an end-to-end cargo transport solution now.”
Sun sees opportunities for the airline he is leading. “Climbing vaccination rates have encouraged countries around the world to end border restrictions at an accelerated pace, unlocking pent-up passenger demand for air travel,” he said.
“We look forward to keeping up with the pace of this demand for international flights as we prepare for the market to recover and resume EVA’s growth.”
Unlike some pundits forecasting business travel will be stuck in decline post pandemic, Sun is generally positive about the return of this sector of the cabin.
“The pandemic and geopolitical conflict have altered the global landscape, leading to reorganization of the supply chain, creating new business models for partnerships and opening doors to fresh opportunities,” he said.
“While technology can minimize geographical barriers and great distances, solid relationships continue to be critical to mutual understanding and building the trust that encourages good business relationships.
“Face-to-face meetings and interactions are an eventual necessity. We expect business travel to rebound in the post-pandemic era though some are likely to be traveling less frequently.”