FLUG REVUE February 2003: Korean Airlines looks ahead

KOREAN AIR RISES FROM THE ASHES

By Andreas Spaeth

From the window of David Greenberg's spacious office in the domestic airport of Gimpo in Seoul, one has a direct view of Korean Air's huge maintenance hangar. On this autumn morning the scene resembles a store room in a refugee camp. Soldiers have blocked off the area all around, and inside the cordon helpers are working on hundreds of crates and containers. In front of the large roller shutters, a Boeing 747-400 belonging to Korean Air is parked. On the outside it looks like an ordinary airliner.

“That's the jumbo that will carry President Kim Dae Jung to the APEC summit in Mexico tomorrow,” Greenberg explains to his visitors. “They are taking every conceivable provision plus mineral water from Korea, and it's all being got ready down there.” What he does not say is that without him, David Greenberg, an American aged 60 and former flight operations manager at Delta Air Lines, this scene might well not be taking place.

After all, only three years earlier President Kim Dae Jung had called the airline which, although in private ownership has the status of a national carrier, a “disgrace to Korea” and for the first time had changed over to aircraft operated by its younger arch rival and future Star Alliance member, Asiana. In the Asian culture, this was an unbelievable loss of face and reputation. “Today he uses both airlines in turn, and for each of the airlines we are converting a designated 747-400 to VIP configuration,” explains Greenberg.

The American has been working for Korean Air in Seoul since January 2000 and is the first foreigner to hold the position of Executive Vice President Operations, reporting directly to the two CEOs. Greenberg's mission, which he already seems to have convincingly accomplished, is to restore confidence in Korean Air and, through sweeping changes in the cockpit culture, to firmly draw a line on the unprecedented series of accidents that befell the airline in the 1990s and, above all, to ensure that it could never happen again. Back in the 1980s, two jets belonging to Korean Air Lines, as it was known at the time, lost their bearings over the Soviet Union, and then in September 1983 a Boeing 747 was shot down over Sakhalin Island, with the loss of 269 lives.

Then in the next decade there was a further series of traumatic events: between 1990 and 1999 Korean Air, as the airline renamed itself in 1984 with a new corporate identity, sustained 12 serious accidents, in which 750 people died. The worst accident involved a Boeing 747-400 crashing on landing in Guam in August 1997, with 229 fatalities. During the next 20 months another four aircraft crashed, and within a period of only two months in 1998 no fewer than seven accidents occurred on landing. Even if external conditions were a contributory cause in every one of these accidents, nevertheless in each case serious errors and co-ordination problems had occurred in the cockpit. The last accident occurred during the take-off of a jumbo freight carrier from London Stansted airport in December 1999, during which the crew were killed.

“We realised that we needed to concentrate more on how we fly and less on where we are flying to,” admits Yang Ho Cho. Cho is the son of the founder of the Hanjin Group, one of the huge conglomerates or chaebol that dominate the entire South Korean economy, in this case a comprising a number of companies in the shipping, transport, finance and health industries, to which Korean Air has belonged since privatisation in 1969. “Today we are concentrating in a big way on safety, whereas before we were more concerned about our route structure and growth,” Cho admits.

A first step towards improving the situation was the withdrawal of the family of the owners from active involvement in the airline's operations. Instead, a younger, more pragmatically oriented, second CEO was appointed, Shim Yi Taek, who has more direct contact with the workforce in this extremely hierarchical airline than his patriarchal predecessor.

It is precisely this tradition that has been one of the main problems at Korean Air up to now: in Korea, every aspect of one's life and upbringing is characterised by hierarchy and respect for one's elders and more highly ranking people. Especially among the many pilots who trained in the military and now fly passenger jets, this way of thinking, which is totally at odds with the teamwork approach normally found in cockpits, has been extremely difficult to eradicate.

“The prevailing influence of military pilot training is not the ideal culture for an airline,” David Greenberg admitted in an interview with FLUG REVUE. “Whereas they measure their success in the numbers of the enemy that they shoot down, we measure our success in terms of the number of passengers who are transported safely to their destination.” A Canadian pilot who is also involved in improving safety at Korean Air sums up the situation with the words, “The cockpit culture at Korean Air is comparable to that found in western airlines 35 years ago.”

Changing this culture is also the mission of the 269 foreign pilots from 27 countries who are currently flying with Korean First Officers on all the airline's aircraft types. Most of them come from Australia, Canada and the USA, but there are also a handful of Germans among them. Many of the foreigners are between 55 and 60, as in Korea cockpit crew do not have to relinquish the controls until they reach the age of 60.

“We need them to fill the left-hand seats,” says David Greenberg, “But it is also a good opportunity to introduce standards that are the norm world-wide.” Altogether, Korean Air has a fleet of 123 aircraft, flown by 1,790 pilots, co-pilots and flight engineers. 15% of these are foreigners. “Now for the first time we have stopped hiring foreign pilots,” says David Greenberg.

The American has accomplished a lot, but he knows that all his successes could go up in smoke overnight. “It is no easy matter to change a flat tyre during the flight,” is how he describes his job. “But I have two great worries: that there will be another incident while we are still implementing our reforms, or, alternatively, that nothing will happen for a long time and then everyone will say, 'We needn't worry any more, we can relax our efforts.'” Greenberg himself is nearing the end of his tour in Seoul, and he is modest in his assessment of what he has achieved. “Things are better than two years ago and the acute tyre-change phase is behind us, but we need to look out for the nails which are still lying on the road.”

Korean Air is once again a serious player in the airline world. Judged by the number of passengers carried, it is seventh in the Asia/Pacific region, and world-wide it is number 20. The Koreans have a lot of cargo business, and here they are in third place behind Lufthansa and Singapore Airlines.

But the airline's fall from favour was pretty spectacular, and for a long time it was virtually ostracised internationally: following the crash of an MD-11 freighter in Shanghai in April 1999, Delta Air Lines and Air France suspended their codesharing arrangements with the Koreans and American military personnel and officials in the region were forbidden to fly with Korean Air. Then in 2001, the US Federal Aviation Authority downgraded South Korea's safety rating, with the result that Korean Air and Asiana were not allowed to expand their US services. “The Korean regulatory agency, the KCB, deliberately kept the required safety standard low,” says Greenberg. “We have always done more than was required.” After four months of feverish reforms, Korea got back its top safety rating from the USA, and now everything is all sweetness and light among the partners again.

“Korean Air made enormous efforts to build up excellent flying operations,” says Paul Matsen, responsible at Delta for alliances. In February 2002, Korean Air was accepted back as an equal partner in the SkyTeam alliance. Whether out of conviction or rather out of commercial considerations, Korean Air is more important than ever for SkyTeam.

One of the main reasons for this is the brilliant new airport of Incheon, which is in an extremely favourable strategic position, lying halfway between the capital cities of Japan, the second biggest economic power in the world, and China, the fastest-growing economy among the larger states. Incheon is the most important hub for all traffic between the two countries that is not transported hub-to-hub. Today Korean Air serves twelve cities in Japan with a total of 125 flights per week, while in China it operates 95 flights to 13 cities. The Incheon-Tokyo Narita route is the heaviest international route, accounting for 32% of all international passengers flown by the airline in the first six months of 2002.

“But China is the top priority for us,” says David Greenberg, “Especially as Delta and United Airlines don't have direct access themselves by virtue of bilateral agreements.” In fact, passenger numbers and revenue are even higher on the Japanese and trans-Pacific routes, but the volume of traffic on the routes to China rose by 38% alone in 2001, and the corresponding figure for 2002 is expected to be 20%.

Incheon is becoming increasingly important for SkyTeam, as the alliance is the first to enjoy antitrust immunity both on transatlantic and trans-Pacific routes. Delta itself is not represented in Seoul, but feeds some 18,000 passengers per month into the Korean Air route network via codeshares, while Air France, which operates five flights per week to Incheon, provides another 5,000 passengers.

The favourable circumstances have also had a positive effect on the airline's finances: after losses of $348 million (2000) and $444 million (2001), the Koreans are expecting in 2002 to make a profit for the first time since 1999, even if they are talking in terms of only a modest $93 million. “But the efforts to achieve efficiency and profit are not that pronounced at Korean Air, as the airline is only a small part of the highly profitable Hanjin Group,” says one Western insider.

Korean Air depends much more strongly than other airlines on domestic flights, which account for over 60% of all passengers. Although South Korea is the same size as the German states of Bavaria and Saxony-Anhalt combined, it has a population of almost 47 million. The population is concentrated in a few cities and along the coast. The hinterland around Seoul alone accounts for about 12 million inhabitants, while Busan, the second biggest city, has four million inhabitants. As the country has mountains running through it and there are no high-speed trains as yet, flying is the most important form of transport. Gimpo airport, up to 2001 the only airport serving Seoul, now handles some 22 million passengers per year as a purely domestic airport, with many important destinations served at peak times by Korean Air and Asiana at 20 minute intervals.

Korean Air flies 33 domestic routes connecting 14 cities on 133 daily flights, with the racetracks from Seoul to Busan and Cheju Island accounting for half the traffic. The average domestic route is 307km long, and 84% of all Korean Air passengers fly within the country or else on Japanese routes, where the average distance is only 336km. Up to now the less popular domestic routes have been unprofitable, as they have to be operated at state-imposed low fares, and in 2000 they produced a loss of $100 million. Now that the influence of the government is on the wane, Korean Air was able to raise its fares by nearly 5% at the beginning of 2002, and, despite great protest, gave up six routes. For 2002, domestic operations are expected to make a profit for the first time.

Korean Air is making significant progress on harmonising its fleet, whose average age has already been reduced to 6.9 years. By 2007, the present nine different aircraft types are to be reduced to only four. “In future only the Boeing 747-400, the 777, the 737-800 and -900 and the Airbus A330-200 and -300 will be in service with us,” explained In-Joong Kim, Manager for Corporate Planning, in an interview with FLUG REVUE. Already in the course of 2002 the four MD-82's and MD-83's have been taken out of service and sold, and the ten Fokker 100's are the next type scheduled to be “pensioned off”. According to the fleet planner, “We will shortly have only six still left in service, and by the end of 2004 the others will have been retired as well.” Standardisation of the 747 fleet is viewed as especially important, so the only 747-300, which up to now has been flying on heavily frequented medium-range routes, is currently up for sale. By the end of 2003 another five 747-200 cargo planes are set to leave the fleet, to be followed by 2005 by the remaining 747-200F's and 747-300F's plus the four MD-11 freight carriers. These are to be replaced by two 747-400 cargo planes, whose numbers will then be boosted by the conversion of older passenger aircraft of the same type.

Back in 1974, when the then new Airbus A300 was taking its time to get established, Korean Air became a major customer of Toulouse and took the opportunity to acquire the sought-after landing rights in Paris, which had up to then been denied under Korea's military regime. 16 A300-600's are still flying in South Korea. Six of these are to be retired by the end of 2003, while the rest will remain in service until 2010. As well as 16 A330's already flying, another three are on order, along with eight Boeing 737-900's. Korean Air is unusual in having its own manufacturer of aircraft components, Korean Air Aerospace in Busan, which not only builds fighter aircraft and helicopters under licence, but also makes components for all the major Airbus and Boeing models, so that the airline effectively gets its planes at a discount.

On its long-haul routes, Korean Air is increasingly using the Boeing 777-200ER, which in the present winter flight schedule for the first time replaces the 747-400 on daily flights from Incheon to Frankfurt. The 376-seat 777-300 on the other hand is deployed on much-frequented short- and medium-range routes within Asia, and in the peak season it also flies to Honolulu. “We are also interested in the A380, both the passenger and the cargo versions,” In-Joong Kim revealed to FLUG REVUE. “We would deploy them on long-distance routes, perhaps to Los Angeles, our strongest long-haul route, but that is a long-term project.” On the other hand it is surprising quite how long Korean Air is taking over incorporating a feature that today is taken for granted at all the other major carriers: individual in-flight entertainment systems. In this respect, the 747-400's employed on the Frankfurt route are still in the Stone Age: no individual video screens anywhere, not even in First or Business Class, but instead there are small television screens on the cabin ceiling, with no choice of film and enforced darkness. Again, the installation of reclining seats in First Class has still not been implemented fleet-wide, even though the upgrade programme was begun in 1997.

“Twelve of our 27 Boeing 747-400's already have the new systems and seats, and the rest will be upgraded by the end of 2004,” says the responsible manager Jong-Bong Han. Apparently this is a cause of frequent passenger complaints. The competition with regard to technological advances in the cabin that is standard, especially in south-east Asia, is absent in Korea. “South Korea is like an island,” says David Greenberg, offering an explanation which is meant not just in a geographical sense.

From page 20 of FLUG REVUE 2/2003

Last updated 15 January 2003

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