Flying High

Lance Gokongwei has finally taken the reigns of the family business and takes one of its flagship companies to record highs

By Maureen Macaraig-Martinez

We may be young among business peers, but Lance Gokongwei is far from inexperienced. He has made the family business his training ground since he was 21. Now 37, Lance seems to have adjusted well in leading the company after his father, John Gokongwei, retired in December 2001. He is currently President and Chief Operating Officer of JG Summit Holdings, Inc. and the Robinsons Retail Group.

Gokongwei businesses have actively diversified in recent years. The Gokongwei mark can now be seen in a wide range of industries – from food to telecommunications, petrochemicals, oil, aviation, banking, and property development. And while Lance was said to have earlier frowned upon the family business expansion – he is known to be more risk-averse than his father – he has managed the companies quite well and has come up with fresh ideas of his own to improve business operations.

Lance is relatively new to the position – he assumed his post only in 2002. But he has been managing Cebu Pacific, an airline company, as President and Chief Executive Officer for eight years now. And even as Cebu Pacific had its share of tragedy, it has, under Lance’s leadership, achieved good competitive standing in the local aviation scene.

How does Cebu Pacific fare with local competitors, specifically Philippine Airlines?

We celebrated our eighth year anniversary on 8 March, and I think we were the first local airfare airline in Asia when we started out. It is clear that the business model we’ve established has been very successful in the Philippine context. Domestically, we did two million passengers last year. We’ve flown over ten million passengers since the time we’ve started. And we ended the year 2003 with the highest market share ever at about 37 to 38 percent of the routes we operate. So, I think it’s gratifying that the public has really accepted our formula of low fares, excellent service, reliability and on-time performance, and commitment to safety.

We’re a low-cost airline. People have tried to copy our fare. We try to be the lowest, but low fare is just a matter of people matching your price; it’s not socially controlled. But for us, what is essential is that we continue to operate in a profitable manner, thus enabling us to generate the returns necessary to reinvest in our airline services.

How has Cebu Pacific performed in the international arena?

We currently fly to Hong Kong twice a day. And we operate six flights a week to Korea. Now we are beginning to “sell” charter opportunities out of China. I have to admit we haven’t done as well in international as we have in domestic. And I would attribute this to a couple of reasons.

First, I think the competition is more fierce. Second, the manner in which tickets are sold is really different. Primarily, people flying to Hong Kong are more interested in packages rather than just buying airline tickets. And I think the distribution channels for these airline tickets are different. The international tend to go through IATA-registered agents whereas in domestic, we manage to create our own pool of agents. So at that point, we have more control of the pricing and our customers have a much clearer idea what the price differences will be. I think we have created a stronger ground domestically, I think that’s really our focus for next year – to extend the Cebu Pacific ground and experience for our international operations as well.

What other entitlements are you working on now?

What we’d like right now is to have more flight frequencies to Korea. Korea is the fastest growing tourist group that is frequenting the Philippines. There’s quite a shortage in frequencies into the Philippines from Korea. We are also exploring other routes at the moment, but I’m not at liberty to say.

Singapore flights are currently under review. I think, clearly, we have to really have to get the business model right for international operations.

What are the innovations Cebu Pacific capitalized on?

It’s an evolution. When we started, first we’re 40% lower than the competition. But now it’s a function of the prices going down. So it’s obvious that the traveling public has benefited. And we’ve seen that wherever we start operations, the price has gone down and the traffic has dramatically increased. Now, we get a lot of letters and requests from various cities for us to begin flying to those cities.

I think the innovations we put in are not really innovations. Rather, it is a system that enables us to deliver a 95% on-time performance. At the start, we had the games on board, which equated to warm service. Then we were the first to have a really transparent pricing – everybody gets the same price of ticket if they buy it on the same day. We were the first to put in some innovations in pricing such as advanced purchase fares and commuter passes which enabled our customers to book or schedule their own tickets in advance. We’re the first to do internet booking - e-ticketing.

How did competitors respond to your innovations?

I think we’ve changed the business model. Now the competition is forced to follow our formula. They’ve reduced their fares; I think they’ve standardized their pricing to a great extent. They had to distribute their tickets in many more outlets, while previously you had to go to a company-owned distribution outlet to get your tickets. We’re the first one to really offer a true shuttle service. To Cebu, we now have eight to nine frequencies a day; Davao we have, depending on the season, four to five frequencies. Before, we never had that kind of choice.

How did Cebu Pacific perform in 2003?

It’s been very difficult because the oil prices alone cost us, I think, P600 million more – a combination of oil prices and exchange rate. The airline business is primarily cost in dollars. The great majority of the cost – fuel, maintenance, leases, that’s all in dollars. And of course, everybody knows fuel prices are at their highest so I think it’s a credit to the organization that we managed to achieve a new record despite what could have been characterized otherwise as a perfect storm – we had SARS, the record fuel prices, and other circumstances.

I think what helped, though, is the domestic tourism campaign of the Department of Tourism. It has increased awareness of the pleasures of traveling locally. There’s now greater awareness that there’s a lot to see in the Philippines.

What do you think 2004 going to be like for the airline?

You know, despite all the price hikes last year, we kept our fares essentially the same in 2003. In 2004, it seems the growth is continuing. We’re still showing very strong unit growth in the first month – January. Both our load factors and our passenger counts are up. I think basically, the business model works. We’re giving the customers what they’re looking for in an airline.

What is your stand on aviation liberalization?

Generally, I’m for progressive liberalization. Without Executive Order 32*, there will be no Cebu Pacific, there will be no Asian Spirit, there will be no Air Philippines. And generally, I think liberalization is something that benefits the Filipino people, the Filipino consumer. We’ve seen the results of liberalization in the airline industry, and the telecom industry. It’s very clear that it has benefited the consumer.

I think there’s a lot of confusion about what open skies means. Our basic position is that we are for liberalization. What’s important in the Philippine perspective is that for everything that the country gives in terms of air rights, we should receive reciprocity from the counter party. At the end, these are all bilateral air negotiations. I think with regards to the United States, the air talks, we’re quite happy that the quantitative restrictions on flights have been removed. Ultimately it will boil down to the consumers’ benefit.

What’s your view on the government’s ability to ensure a level playing field in the airline industry?

Traditionally, Philippine Airlines has been the only carrier in the Philippines. And I think what’s important to note is that what’s good for Philippine Airlines is not necessarily what’s good for the entire Philippine airline industry, or the entire Philippine tourism industry. Clearly, what’s at stake should be the national interest. I think the government, in deciding an aviation policy, should really consider basically the dynamics, the benefits of tourism versus the benefits of protecting a single airline, the benefits for our kababayans who are OCWs, as we want to reduce the cost for them as well. In many cases, more supply generally creates better choices for the people. In every negotiation, especially the bilateral talks, however, we should always ask for reciprocity in terms of rights.

Cebu Pacific’s Flight 387 to Cagayan de Oro in February 1998 spared no lives. What has been the organization’s most significant realization in this tragedy?

I think the most important thing about Flight 387 is that it’s an incident that we regret and we have taken all efforts to avoid another situation like that happening. I think first of all, we have very strict compliance to ATO and ICAO regulations in airline safety. I mean, the airline industry is one of the most regulated industries in the world and there are a lot of checks and balances in this industry. We had even gone beyond that. We basically got an outside auditor to review our processes. That’s why now we’re ISO 9000 certified, AQS certified. I think the board has dictated that to ensure that there’s really a safety culture within the airline.

I guess the other benefit of this is really at that time, it brought the airline together, really renewed people’s commitment to our mission which is making air travel affordable, safe, and reliable to Philippine consumers. We have to recognize that we’re almost a public utility already. Day in and day out, you’ve got to be there, you’ve got to perform.

Is the stigma of the Flight 387 gone?

I think the stigma has probably diminished quite a bit. But what’s important is that it remains fresh within our organization’s minds. I think our commitment to safety has to be our number one concern. Whether externally the stigma is around or not, internally, it always has to be there.

You were born into a family of businessmen. How similar or different are you from your father in terms of running the business?

There are some similarities, there are some differences. A lot of the differences arise from the circumstances under which we grew up. My dad grew up during World War II. His father died when he was 13. So he started basically with nothing. And the organization was very small at that time. So he was very entrepreneurial; he was a visionary.

I was born with all the opportunities in the world. I was given a chance at a young age to be educated abroad, to travel. I joined the company when the company was larger, so I’d say I’m more of a manager. I’d like to hope I’m still entrepreneurial, but I would say I’m more risk-averse than he would be.
We have differences in management style, but I think there are a lot of similarities in the culture of the group. We are more or less a very down-to-earth group. People don’t mind getting their hands dirty. We work hard and long hours. We value our reputation, honesty, and frugality. At the same time, we all recognize that we have to be very open to change because the world is changing very quickly and organizations that are not open to accept change are not prepared to accept reality.

Those are big shoes to fill. I’ll never be able to fill my father’s shoes. I’ll just have to find my own role in the organization.

*Amending EO219 dated 3 January 1995 entitled “Establishing the Domestic and International Civil Aviation Liberalization Policy,” signed by President Arroyo on 22 August 2001