Korean Air upgrades service, image

The corner office of the chairman of Korean Air overlooks the end of the runways at Gimpo International, South Korea's oldest airport.

During the 1990s, Cho Yang-Ho was often summoned there by his father, the late Cho Choong Hoon. Standing before the floor-to-ceiling windows, father and son would eyeball planes taxiing for takeoff. The heavier and better-loaded a plane, the farther it roared down the runway.

"When our aircraft would go all the way to the end of the runway, we were feeling good," says the younger Cho, chuckling at the memory. "When our aircraft would take off before other airlines, I knew our marketing team and I were in trouble."

Now that he occupies the corner office, Cho, 60, no longer uses the informal inspection method of assessing how well Korean Air is doing. The airline has expanded so much that it now flies only domestic and China- and Japan-bound flights from Gimpo. Most of its international passenger and cargo operations fly from Incheon International airport, which opened in 2001.

Under Cho's tutelage, Korean Air has shed its image of being an accident-prone airline from a developing nation to become the largest Asian carrier operating in the USA. It flies from more cities in the USA to cities in Asia than any other airline, the company says. It's the world's largest commercial airline cargo carrier. The company estimates it spent $5.4 billion in the last 10 years to improve safety, upgrade its fleet, install new technology and overhaul its corporate culture. It now has a four-star rating out of a possible five stars from Skytrax, a London aviation consulting firm that rates airlines on quality. That's on par with Lufthansa, Virgin Atlantic and Thai Airways.

The airline's outlook, as reflected in a new ad campaign, is decidedly more global and designed to appeal to high-paying business travelers who want the luxury of top regional competitors Singapore Airlines and Cathay Pacific.

"That's our target," Cho says. "We'd like to think of Korean Air as one of the top airlines that they'd want to fly."

Putting safety first

Korean Air has a colorful history that befits its country's rapid and turbulent economic development. And in it, Cho found his challenge after taking control as chairman in 1999.

The Korean government created Korean Air Lines in 1962. When then-dictator Park Chung-Hee sought to privatize it, he tapped Cho's father, who had created a major transportation company that started with one truck in 1945 and grew by shuttling U.S. military supplies. The company, Hanjin Group, grew to be the largest transportation conglomerate in South Korea, called chaebol here. It controls the country's largest airline and shipping company.

Korean Air launched its first long-haul passenger service — to Los Angeles International — in 1972. Its emergence as an international carrier, as with many other Korean brands that went global, had rough spots. It had one of the highest accident rates until the late 1990s, with seven serious accidents during the decade. Delta and Air France dropped Korean Air as a code-share partner in 1999 shortly after an accident.

An often-told tale, which resurfaced recently in Malcolm Gladwell's book Outliers, assigns blame for a Korean Air crash in Guam in 1997 on the carrier's hierarchical cultural legacy that teaches Koreans to be deferential toward their elders and superiors. The co-pilot failed to speak up when the pilot made a fatal error, Gladwell says.

The accidents were deemed a national embarrassment and prompted the Korean government to push for management and operational changes in 1999, which led to Cho's ascendance to chairman.

In taking control of the airline, Cho, who got his MBA at the University of Southern California, was determined to improve safety above all else.

Korean Air voluntarily chose to comply with some U.S. standards in addition to Korean aviation regulations, including cockpit crew work-and-rest guidelines. It hired Boeing and Airbus for full-flight simulator training. Young pilots are "now trained to speak up when it's time to speak up," Cho says.

Cho visited Delta's headquarters and saw its operational control center, where all Delta aircraft are monitored real-time before and during flights. Cho returned to Seoul and established a similar center. He also changed the mindset that Gladwell says contributed to the crash in Guam, which killed 228 people.

"It exists in all Oriental cultures," Cho says of the hierarchical culture. And he doesn't seek to shed blame for the trouble it caused.

"I've been in airlines for 35 years," he says, "so I'm responsible for both good and bad things. We followed tradition for a long time because we were too busy (expanding) to compete with world airlines."

Korean-American traffic big

Cho says he thinks he's succeeded in changing the culture at Korean Air by installing "a systems approach" aimed at minimizing the personality-driven, top-down culture that is a legacy of Korean business managers who place emphasis on intuition and responding to orders.

He invested heavily in information technology, creating a central clearinghouse for monitoring and investigating safety reports and audit findings. All divisions were ordered to share and coordinate data.

"Now, whoever comes (in) must follow the (established) procedure," he says.

Cho's changes didn't stop at safety.

To keep up with stiff competition, Korean Air has been buying new planes. Fifteen of its fleet of 103 passenger planes are less than 4 years old. The airline plans to spend $200 million more to upgrade its fleet for mid- and long-haul routes, in addition to 38 Boeing 777s, Airbus A380s and Boeing 787s on which it's awaiting delivery.

Since 2005, the airline also has spent $137 million on new seats, cabin interiors, in-flight entertainment systems and new uniforms.

Growth has followed. Korean Air has passenger service in 105 cities in 35 countries. Benefiting from a Korean-American population surge in recent years, the airline has become the largest Asian carrier operating in the USA. It flies from cities that have large Korean-American populations, including Los Angeles, New York, Washington, Seattle, Chicago, Atlanta, Dallas, San Francisco, Honolulu and Las Vegas. It flew 109,000 seats in July on non-stop flights to Asia from the contiguous U.S. states, up 21% from 2004. Its operating revenue has grown 42% in the last five years, to $8.2 billion 2008.

The changes reflect Cho's engineer sensibilities, says Park Oh-Soo, a Seoul National University professor of organizational strategy, and a board member who's known Cho for about 10 years.

"He places great emphasis on principles and rules, making decisions rationally," Park says of Cho. "He pushed for change even before he became chairman. But he wasn't the top decision-maker then. He couldn't make radical (decisions)."

The changes also reflect Cho's appreciation for the U.S. way of doing business.

Max Nikias, provost at the University of Southern California, who counts Cho as a friend, says the airline executive has "great admiration for the American (business) culture. He's tried hard to bring that to Korean Air's culture," Nikias says.

Cho, who is fluent in English, has even brought a relaxed, American-style dress code of not wearing ties in the summer.

Despite Korean Air's success, the current economic crisis and subsequent downturn in travel have exposed a persistent weakness common among national carriers from small countries. With the South Korean won relatively weak against the dollar, the number of non-transfer outbound passengers from Korea — Koreans are the largest base of customers — fell 30% in the first six months of this year compared with a year earlier. Its operating revenue is estimated to drop 13% in 2009 to about $7.1 billion, ending five consecutive years of growth, according to JPMorgan. "We've not been immune from the current crisis," Cho says.

Korean Air's situation would have been worse had it not been for a push to woo passengers who are traveling beyond Seoul. Newer planes, upgraded premium-class seats and the convenience of Incheon International, which was voted the "Best Airport Worldwide" by Airports Council International four years in a row, has worked to its advantage.

Another important selling point is its expansion in China, Cho says. Korean Air now flies to 20 Chinese cities, one of the most expansive networks in the country among non-Chinese carriers.

Korean Air's transfer traffic in Seoul rose 16% in the first half of 2009, even as its overall passenger count declined 5.6%.

"Korean Air's management quality has improved in the past 10 years," says Corrine Png, a JPMorgan analyst. "But cost-cutting remains a challenge, and the aviation sector in Asia is highly competitive."

Png acknowledges Korean Air's aggressive replacement of unreliable, aging planes. But, she says, the airline has a way to go, especially among business travelers who still consider Singapore Airlines and Cathay Pacific as superior in service and quality. Singapore and Cathay Pacific generate more than 40% of their revenue from premium-class traffic, while Korean Air posts about 30%.

"Singapore Airlines' competitive advantage is its young fleet and strong branding. Cathay Pacific has a superior hub location due to its geographical proximity to China."

California dreamin'

Reserved and shy, Cho avoids the grandiose backslapping and large entourage that are common among CEOs of large companies in South Korea.

"He has integrity. He is without lip service. He is not prone to overexposure," Park says of him.

However, like many Korean CEOs, Cho commands great respect from subordinates and from outsiders. And it extends to the USA.

"It's very visible," says Nikias of the University of Southern California, where Cho was influential in finding funding for a new multimedia center and several endowments. "You can sense it. Even in big USC alumni events, I can see that our alums really show great respect for (Cho) and who he is."

Cho and his family, who own about 25% of Korean Air, also have been largely free of personal scandals that engulf some of the top Korean conglomerate CEOs and their family members, Park says. These billionaires are considered celebrities in this wealth-obsessed country, and stories of chaebol family members involved in or rumored to be involved in failed marriages or sibling rivalry frequently grab headlines.

In 1999, Cho was charged with tax evasion stemming from rebate payments made by manufacturers, part of a crackdown by the late President Kim Dae-Jung to curb the power of the large conglomerates. Cho was given a suspended jail sentence of three years. After an appeal, Cho settled with the government with a $12 million payment, the company says. Cho says the charges were the late president's "political revenge" against his family for supporting other candidates.

Cho finds constant media attention at home restraining. And at 6 foot, Cho is easy to spot. He's taller than most Koreans of his generation.

"I'm very limited in my movement in Korea," he says. "I can never drive (my own car) here. If I get into a small accident, it's an instant headline."

Thus, he enjoys spending time at his house in Newport Beach, Calif. There he revels in simple pleasures unthinkable in South Korea: driving his own car, wearing jeans in public.

An avid traveler, Cho says one of his fondest travel memories is a cross-country trek across the USA with classmates from his Korean high school: "Two cars, six people, 6,000 miles in 18 days. We stayed at $20 motels, ate breakfast at McDonald's and ate lunch at KFC."

Contributing: Barbara Hansen