As the writer points out, Cathay Pacific's future doesn't look favorable unless the carrier does something drastic — and that likely means major investments in the passenger experience that makes it hard to pass up.
Cathay Pacific Airways Ltd., Asia’s biggest international carrier, scrapped its profit outlook and said the airline is doing a “critical review” of its business amid a deteriorating outlook.
Cathay Pacific’s results in the second half of the year “is no longer expected” to be better than that of the first half, the Hong Kong-based carrier said in a stock exchange statement Wednesday. In August, the airline reported an 82 percent slump in net income in the first six months of the year and warned that premium travel was declining.
Chief Executive Officer Ivan Chu has struggled to revive profits at Cathay Pacific amid a slump in passenger yields — a key measure of profitability in the industry. Rival Singapore Airlines Ltd. has also warned of tougher days as competition with Middle East carriers increases. With Chinese airlines offering more direct services to the U.S. and Europe from the mainland, Cathay Pacific’s Hong Kong hub is no longer so critical for travelers to use as a hub.
“The Middle Eastern airlines are taking away Cathay’s breakfast, lunch and dinner,” said Shukor Yusof, founder of independent aviation consulting firm Endau Analytics in Malaysia. “The next 12 to 18 months doesn’t look favorable unless they do something drastic. They need to stop the bleeding.”
Cathay and its unit Dragonair carried 2.7 percent more passengers in the first six months of this year, taking the number to 17.2 million. Yet, yields — the money earned from carrying a passenger for one kilometer — slumped 10 percent amid increased competition.
“We are engaged in a critical review of our business, the goal of which is to improve revenues and to reduce costs,” Cathay Pacific said in the statement. “The review will consider all options for improving efficiency and productivity.”
Cathay Pacific shares rose 0.2 percent to HK$10.76 in Hong Kong trading Wednesday, before the announcement to the stock exchange. That helped trim the stock’s decline this year to 20 percent. The stock is the third-worst in the Hang Seng Index this year.
After announcing the first-half results, which missed analyst estimates, Cathay Pacific Chairman John Slosar said the business outlook “remains challenging.”
“Since the interim report was issued, the outlook for our airlines’ business has deteriorated,” the carrier said in the statement. “Overcapacity and strong competition is putting particular pressure on our passenger business, with continued shortfalls in revenue compared with forecasts and heavy pressure on yield.”
This article was written by Kyunghee Park from Bloomberg and was legally licensed through the NewsCred publisher network.
Photo credit: Middle East and Chinese carriers are eating up Cathay Pacific's market share in Asia. Pictured is a Cathay Pacific flight attendant helping passengers in-flight. Cathay Pacific Airlines / Cathy Pacific