Cathay Pacific vs Singapore Airlines: A tale of two carriers

Courtesy AFP

Courtesy AFP

THIS has to be the year of Cathay Pacific, which has been voted the best airline by Skytrax respondents, if its first half performance is any indication. Cathay posted a net profit of HK$347m (US$45m) for the six months until June, a big leap from HK$24m last year.

The Hong Kong carrier’s performance is made all the more impressive when close rival Singapore Airlines (SIA) had just reported a dismal first quarter ended June 30 with no positive signs of the trend reversing. A comparison of the two carriers’ performances is inevitable, considering their competitive standing and similarity of operations and market segments. The SIA group posted a Q1 operating profit of S$39m (US$31.2m) which is a decline of more than 50% compared with last year’s results. (Is Singapore Airlines better off without its subsidiaries, 6 Aug 2014)

However, Cathay chairman John Slosar warned that the environment remained challenging. He said: “We face significant competition in our passenger business. This makes it difficult to maintain yields.”

Courtesy Reuters

Courtesy Reuters

SIA too expressed concern about the pressure on yield, attributing it to the fierce competition that has led to heavy discounting. Fortunately for Cathay, this was compensated by the strong travel demand from Hong Kong generated by the various discount campaigns that it introduced. Cathay benefitted from Hong Kong’s large Chinese hinterland. Not as blessed is SIA which competes for home and onward traffic with several airlines thriving on Changi Airport’s liberal aviation policies and hub status. Within Southeast Asia, there has been a proliferation of regional and budget carriers added to the heightened competition by Middle East carriers.

In fact, for Cathay, passenger traffic for the Southeast Asian region dropped by 0.3%, largely affected by political unrest in Bangkok resulting in reduced flights to the destination. SIA was similarly affected.

There seems to be a shift in geographical advantages with the growing importance of Hong Kong as a gateway airport in light of the flourishing China market. India and the rest of Southeast Asia is but a hop away. But Singapore is still an important business destination and a popular transit or connection stop, particularly from or onward to India. SIA’s partnership with TATA in setting up a budget carrier based in India may stand it in good stead to strengthen, if not maintain, its popularity.

SIA’s strength used to be Europe and North America which continue to be key markets, but it is shifting its focus closer home to the growing North Asian market. Cathay`s most improved sector for the first six months was its North America market whose traffic increased by 17%, stealing a march on SIA with new flights to Newark and increased frequencies to Los Angeles and Chicago following the introduction of a direct service between Hong Kong and New York at a time when SIA took off its direct service between Singapore and New York.

Geography aside, a lot too has to do with strategy. Through good and bad times, Cathay has maintained a high profile in product hype; SIA appears almost faceless in a region dominated by the John Slosars and Alan Joyces. Once respected as the world’s most innovative airline, it has become more cautious in its approach to trending the market, preferring to react rather than lead. Since its bold initiative to fly an all-business class flight non-stop between Singapore and the American gateways of Los Angeles and New York, it has made way for other airlines to thunder their triumphs. Cathay announced in 2011 the introduction of a new premium class economy which only very recently SIA decided it was time to embrace.

SIA as the undisputed customer’s favourite airline for premium travel in better days has waited too long for the good times to roll back. A former senior executive of the airline laments that the carrier has focussed so passionately on costs in recent bad times as would be the sensible and necessary course for most if not all operators to take, that it has shifted the focus away from revenue generation which demands aggressive forward thinking, re-strategising and innovation, going where others fear to tread.

Of course, Cathay too is “focused on controlling costs” as stated in its half-year report particularly in light of fuel costs increasing by 5% which it said it would counter by continuing “to increase fuel efficiency by modernising our fleet.” SIA is confronted by the same demon. Starving the demon is necessary, but a good fight needs sustenance too. The right balance can work wonders. Cathay’s profit of HK$347m was almost 15 times that of last year on revenue of HK$50.84b which rose by 4.6%. The SIA Group`s Q1 operating profit of S$39m deteriorated by almost 50% on revenue of S$3.682b, which was a deterioration of 4.1% YOY.

SIA appears to be more interested in seeking commercial arrangements with other airlines moving forward. They usually entail code shares, particularly on routes where one party does not operate or when it does not make sense to bump up unwanted capacity, and shared airport facilities. Most recently, it has entered into an alliance with Air New Zealand that together they will increase the frequency between Singapore and New Zealand and provide better connections through their code shares. Some of the more recently executed agreements include arrangements with Asiana Airlines, JetBlue Airways, Turkish Airlines, Virgin America, Virgin Australia and Aegean Airlines, but none nearly as pivotal as, say, the mega-alliance between Qantas and Emirates Airlines. It is good to have friends, but SIA can certainly do more and not be just one of them.

This post was first published in Aspire Aviation.


About David Leo
David Leo has more than 30 years of aviation experience, having served in senior management in one of the world's best airlines and airports. He continues to maintain a keen interest in the business, writes freelance and provides consultancy services in the field.

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