Why Cathay Pacific loses money, according to John Slosar

Dear John, we are going to break something to you, as gently as we can.

What we are going to say may upset you and your colleagues at that most august of airline abode in Hong Kong – Swire Pacific.

Anyway, here it goes: the airline business has changed, Hong Kong has changed and Cathay Pacific Airways has not, from the look of it, embraced change. Swire Pacific, the airline’s parent company, appears averse to change.

The chairman of Hong Kong’s flag carrier, John Slosar, on March 14 attributed Cathay Pacific’s consecutive annual losses – its first since the airline was formed in 1946 – on over-capacity and declining yields which, he lamented, made it tough to make money.

When the 2016 losses were announced, he blamed weak demand for the airline’s premium cabin as well as intense competition from mainland China.

Tell us something we don’t know, John…

Blaming over-capacity and falling yields is a lame excuse. Period.

How about taking to task whoever it is in the airline that does its fuel hedging? In the 2017 financial results Cathay said losses from wrong-way fuel bets came up to HKD6.4 billion (USD816 million).

Sure, that figure is an improvement on 2016’s hedging losses (HKD8.46 billion) but Cathay seems to have perfected the art of losing heavily in the jet fuel hedging game. Hedging losses in 2015 amounted to HKD8.47 billion.

So, in three years the carrier lost over USD2 billion! Cathay clearly sucks at playing the fuel hedging roulette, but it keeps playing it. Why?

Cathay crisis

Cathay’s CEO Rupert Hogg said he was confident about market demand in Hong Kong, including those in the premium segment. Hogg said the target was to grow 4% annually until Hong Kong gets its third runway.

But the competition is going to get more intense by then. All this talk that fewer people want to come to Hong Kong to connect on to another flight as one of the key factors hurting Cathay sounds like a broken record.

Indeed, if one is traveling between Europe and Australia, it makes sense to stop over in the UAE, Qatar or Singapore, instead of in Hong Kong.

It is true the mainland Chinese carriers are impacting on Asia’s major legacy airlines –Cathay Pacific and Singapore Airlines. It is true, too, current climate of low jet fuel prices will pressure competition and we continue to witness price dumping in 2018. It is also true the premium segment remains in decline.

Everyone seems to know the reasons for the decline but how to make full service carriers like Cathay and SIA competitive again?

Could it be that Cathay is not doing enough to control its costs? Or that it doesn’t quite know what its mid- to long-term strategy ought to be?

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