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Editor’s Note: Following our previous CEO interview series in online travel, hospitality, and destinations, as well as our CMO series across verticals, we’ve launched another series, this time focused on the CEOs of leading airlines outside of the United States.
To better understand the challenges facing airlines in an age of fluctuating oil prices, rapid growth, and changing passenger expectations, our Future of Passenger Experience series will allow leaders in the industry to explain their best practices and insights. Read the rest of the series here.
This is the latest interview in the series.
Several years ago, executives at ANA — Japan’s largest airline — realized they had a problem. They wanted to attract more U.S. customers, but a Google search for ANA was nearly as likely to lead potential travelers to the American Nurses Association as to the airline.
Enter Star Wars, the iconic American movie franchise owned by The Walt Disney Co. The two brands announced a five-year deal in 2015, and ANA quickly repainted a Boeing 787-9 in what it called a “R2-D2 livery.” ANA now has four special planes, having christened C-3PO earlier this year. On board, ANA uses special themed headrest covers, and gives passengers Star Wars-branded cups and napkins.
It hasn’t been easy for ANA, but the airline, which started in 1953 yet didn’t fly international routes until 1986, is raising its profile in the United States, through the Star Wars promotion, and others, including its partnership with the celebrity DJ and musician Steve Aoki. He leads a marketing campaign called Welcome to Experience Class.
ANA now serves nine destinations in the United States, including Los Angeles, San Jose, San Francisco, New York, Houston, and Honolulu, and two more — Mexico City and Vancouver, in the broader Americas.
On U.S. flights, ANA has anti-trust immunity with United Airlines, allowing the airlines to coordinate pricing and schedules, while sharing revenues. The relationship means ANA earns money even if a customer flies United from Los Angeles to Tokyo. United also relies on ANA to carry its passengers from Tokyo to destinations throughout Asia.
With its U.S. footprint, ANA is now about as big in the Americas as Japan Airlines, a carrier with better name recognition abroad, in part because it has “Japan” in its name. Technically, ANA’s does as well — its full name is All Nippon Airways — but many foreigners don’t know “Nippon” means Japan. To tie the name back to the country, ANA often uses the tagline “Inspiration of Japan.”
We spoke recently by telephone with ANA CEO Yuji Hirako, who took over in April. Hirako joined ANA in 1981 after graduating from Tokyo University, and has held a series of jobs, including senior vice president for the Americas, and executive vice president for finance, accounting, and investor relations.
Note: This interview has been edited for length and clarity.
Skift: You’re Japan’s largest airline, but you’re not well known in Europe and the United States. Do you hope to change this? How?
Hirako: First of all, we are very proud to be awarded the five-star rating for five consecutive years [from Skytrax] and also to be named as the third-best airline in the world in 2017. I think you’re familiar — five-star carriers are all Asian or Gulf carriers, and there are no U.S. nor European carriers. ANA is a very unique airline for its quality and its size. And yes, we are working very hard to have more customers in the U.S. and Europe know us better.
The vast majority of our marketing communications budget is allocated to the U.S., since it is our most important and biggest market. We try hard to come come up with unique promotions, leveraging our tagline, “Inspiration of Japan.” For example, we have already sponsored one of the major tournaments of the LPGA and have a partnership with Star Wars.
Starting from 2016, we are adding a different approach toward the U.S. audience in trying to raise our awareness. That would be from an innovation, social good, and from an inspiring people angle. The “Experience Class” promotion featuring Steve Aoki is one good example.
Skift: Why is Star Wars a good fit for ANA?
Hirako: It’s been over 30 years since we started serving the U.S., but we are still not satisfied in how much we are known there. Our main focus is to attract the people who live in the U.S. and travel to Japan and Asian countries. We thought we needed more help from other well-known brands from the U.S., like Star Wars. Also, we have come to learn how hard Star Wars is trying to earn new fans, such as women, families, and more of the younger generation. We thought it would be a good fit for the two brands to work together.
Skift: Do you plan to add more U.S. markets?
Hirako: The industry predicts that transpacific traffic will show rapid growth in the next decade. Therefore we are putting our best efforts to expand in the U.S. and create a network that can enable passengers to fly not only to Japan but also connect in Narita and Haneda to various destinations in Southeast Asia and China.
It is not a suitable time to make any specific possible destinations public. But we have considered the U.S. as one of the most important markets. We are always looking for markets.
Skift: Some of your U.S passengers fly to Japan for vacation. But as you mention, many more take a connecting flight to somewhere else. Where are they headed?
Hirako: Our network is designed to have American passengers connect to various destinations in Southeast Asia such as Singapore, Thailand, Indonesia, Malaysia and so on through our dual-hub airports, Narita and Haneda. That creates three banks — morning and midnight at Haneda and late afternoon at Narita, every day. We think that more traffic between the U.S. and these countries will emerge in the coming years and we want to make sure that we capture this demand by providing stress-free connections as well as a great in-flight product.
Skift: A decade ago, many airlines were bullish on the double-decker A380. But now, few airlines want it. When you ordered three in late 2015, you were the first new airline in three years to commit to the plane. Why did to decide to add it? Where will your A380s fly?
Hirako: We are planning to place all three A380s to fly between Tokyo and Honolulu to serve the most popular destination for the Japanese. We plan to start in early 2019. We are planning to put roughly 500 seats on this aircraft, which enables us to carry roughly twice as many as what we are capable of today. We assume that we will be the top airline, capacity-wise, between Tokyo and Hawaii, and we hope to provide better service and a product to our customers.
Skift: Might you add more than three?
Hirako: No. We don’t have any plans to add more A380s to our fleet — only three.
Skift: We’ve seen several new low-cost airlines flying between the U.S. and Europe. It makes legacy airlines nervous. We’ve seen fewer between Asia and the United States, though Air Asia X recently started flying from Osaka to Honolulu. Do you fear low-cost entrants? How might you respond?
Hirako: If we see a new LCC entrant in the transpacific market, we shall analyze the impact very carefully. But since the flights between Japan and the [Mainland] U.S. are more than 10 hours, I think ANA should not compete head-to-head against LCCs to attract price-sensitive customers. We take pride in our network, fleet, and product and Japanese hospitality, and we would like to enhance our strength as a full-service carrier to further attract customers.
Skift: Many U.S. and European airlines are unbundling their products, charging for everything from bags to food to better seats. They often say they must to compete with discounters. But most of your product is included in the base fare. Could that change?
Hirako: Finding the balance between trying to earn the extra revenue and providing generous service is very difficult. We do have some examples that we started in April 2017, such as Keep my Fare, [a platform that allows customers to pay $10 to hold a fare for as long as 72 hours] and paid lounge access. That said, we are extremely careful in introducing them since we need to keep our position as a full-service carrier.
Skift: As a full-service airline, you still place a major emphasis on first class, and most of your U.S. flights have an eight-seat cabin, where flight attendants serve champagne and caviar. Many insiders think first class is obsolete. Is it? If not, who flies it?
Hirako: We believe persistent demand for first class exists in certain long-haul markets, like New York, London and Frankfurt from Tokyo. When we introduce our new A380 into the Tokyo-Honolulu route, we will definitely equip the aircraft with first class as well. That said, with our Dreamliner serving long-haul markets that are not equipped with first class, we are taking a close look at the marketing side to see whether the two-class service is a better choice.
Those who prefer first class tend to be VIPs from governments and large firm executives. We do not disclose our load factors from any specific cabins and routes and therefore would like to kindly refrain from answering questions about load factors and profitability of first class.
Skift: We’ve seen some airlines, including Singapore Airlines, install four-seat first class cabins instead on some planes. Would you do that?
Hirako: In the past studies, we have learned we are not able to justify reducing the number of seats to less than eight, since there are not many other options that have better efficiency compared to keeping eight seats in first class. But we will keep exploring whether our current eight-seat configuration is the best number.
Skift: To passengers, many airlines in Europe, the Americas, and Asia feel similar. Their food and service is almost the same. But ANA is different. It’s more of a Japanese experience. You know you’re flying on a Japanese airline. Is this deliberate?
Hirako: The ANA brand tagline is, “Inspiration of Japan.” This includes the experience of hospitality and the high levels of quality for which Japanese have come to be known. As we work to popularize this, we aim to give our customers a sense of the values that only ANA can provide as a Japanese airline. We try to make our flights a once-in-a-lifetime experience for our customers, instead of just a transportation method. Flying may sometimes be a hassle, but hopefully not on ANA. This is the area other airlines cannot simply copy and this shall be the key to differentiating ourselves from our competitors.
Skift: What about food?
Hirako: I think washoku, or Japanese cuisine, is becoming more popular day by day. Since we are an airline from Japan, we try to make our in-flight Japanese cuisine as authentic as possible by sending Japanese chefs to catering companies outside of Japan as much as possible. Sometimes we even send ingredients from Japan in order to have each dish keep its quality. Especially on long-haul routes, customers are looking forward to enjoying in-flight cuisine and beverages during their flights.
Skift: In your premium cabins, you serve sashimi, but not sushi. Why not?
Hirako: It is very difficult to duplicate the same authentic sushi quality that you may be able to enjoy on the ground in the air, since the pressure is different and the cabin is very dry. As you might be aware, sushi is a very delicate cuisine. [To do it right,] we would need talented sushi chefs on board, and to store ingredients in a very fresh way, et cetera. That is certainly a possibility in the future, and we would like to explore the possibility.
Skift: You were the launch customer for the Boeing 787. Initially, you took some planes with only eight seats across in economy class. But almost every other airline went with nine, and since then, you’ve preferred nine as well. Why?
Hirako: It is true that the very first generation of the our Dreamliners had eight seats across the cabin. As time went by, the seat hardware showed remarkable progress, and [manufacturers] came up with new seats. When they started introducing those new seats, we revisited the number of seats that should be laid out across the cabin, and came to the conclusion that we could add one more seat without sacrificing passenger space. The vast majority of the sacrifice comes from reducing the number of armrests, as well as narrowing the aisle widths.
Skift: You also have been squeezing an extra seat per row in economy class on some Boeing 777-300ERs. Yet you’re increasing legroom on many long-haul planes. What’s the plan?
Hirako: We are adding more legroom for the coach cabin seats. For all long-haul routes — meaning all U.S. routes — we will have 34-inch legroom in regular economy class. Some of our long-haul aircraft still have 31-inch seat pitch, but we will complete making the changes to the 34 inches in the next couple of years.
Skift: Your parent company, ANA Holdings, controls two low-cost airlines — Peach and Vanilla Air. You lead the legacy airline. But why is important for ANA Holdings to have several airlines?
Hirako: I think they are important in creating additional revenue for the ANA Group. What we are seeing in the Japanese marketplace is that the LCCs are successfully stimulating the market and generating additional traffic. We have also learned a good lesson from other parts of the world where carriers are suffering from the invasion of the LCCs into the market. Thus, ANA Holdings successfully made Peach a subsidiary company this spring, along with Vanilla, for the purpose of avoiding cannibalization.
Skift: Have you learned anything from the LCCs you can use at ANA?
Hirako: We learn so much for our subsidiary LCCs, especially in the marketing field. Their primary target was millennials and women, and therefore they have very advanced knowledge and skills in utilizing social networking sites as a marketing tool. It is so eye-opening for us. It was surprising to me when I first heard that they sold German cars on board, as a result of their in-flight shopping menu. They were Volkswagens, sold on the plane.
[Editor’s note: In 2016, Peach Aviation sold five special Volkswagen Beetles (all in pink) as part of an in-flight shopping promotion. An ANA spokesman said they were all went to passengers flying domestic Japanese routes.]