Cathay’s loss is a sign of the times

Courtesy Cathay Pacific

WHEN an airline like Cathay Pacific reports a loss, you may assume it is a sign of the times. The Hong Kong-based airline made an annual net loss of HK$575m (US$74m) in 2016, its first since the global financial crisis and the third in its history. Last year, it made a profit of HK$6bn.

The culprit is the competition it faces, primarily from mainland Chinese carriers and Middle East airlines.

Cathay’s positioning at Hong Kong as the gateway for many Chinese travellers has been affected by increased direct services offered by carriers such as Air China and China Eastern Airlines. This has not been helped by a continually price-sensitive market.

The aggressive presence in the region of Middle East carriers such as Emirates Airlines, Etihad Airways and Qatar Airways offering competitive fares has also affected not only Cathay but also other airlines such as Singapore Airlines. Indeed, the Gulf carriers have earned that unenviable reputation across the globe, raising the ire of airlines in Europe and the United States. While they have been accused of being unfairly subsidised by state support, there is no denying that their competitive fares are matched by a good product, excellent in-flight service and wide network connections.

Cathay lamented the falling demand for business and first class seats, which has been a mainstay of its profitability. Unfortunately, the uptick for premium travel has been slow in the recovery since the financial crisis, and while the airline has invested heavily on the product, this has taken a toll on the yield. But this is not a problem faced only by Cathay. Some airlines are already auctioning empty seats as a matter of course.

Also, the increased popularity of premium economy is in fact pulling in an opposite direction.

All said, even Middle East carriers known for their lavish premium product are paying more attention on the product offered in the rear of the aircraft as the competition intensifies, and as legacy airlines recognize as well the threat posed by low-cost carriers which are advantaged by the current low fuel prices.

Cathay chairman John Slosar said 2017 would be “challenging” as he announced plans for restructuring which would result in jobs being axed. He said: “Our organisation will become leaner.”

It is interesting how the business seems to be following a cycle of growth and cutbacks, and the cycle is getting to be shorter and shorter. Too often, in good times we conveniently forget there ever was such a thing as bad times.

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About Dingzi
Writer by passion, with professional expertise in aviation, customer service and creative writing. Aviation veteran, author, editor and management consultant. Besides commentary on business issues and life-interest topics, travel stories and book reviews, genres include fiction, poetry and plays. Nature lover who abhors cruelty of any form to animals, and a tireless traveler. Above all, a dreamer.

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