Cathay Pacific. Oh, how I long to sample just a few hours in one of your legendary First Class cabins at 35,000 feet above sea level. Most reviews have Cathay Pacific as one of the most luxurious carriers in the international long-haul segment. I am not speaking from personal experience, although I visited a Cathay Pacific lounge once. That was incredible!
Now that I have all the pleasantries out of the way, here’s the skinny. Hong Kong-based carrier Cathay Pacific reported an 82% drop in profits for the first six months of 2016. Ouch. That’s almost as bad as working hard for six months only to find out you haven’t collected any vacation days, all the files you saved deleted by an intern who quit yesterday, and you were double-dinged on FICA. You will rue the day FICA!
Cathay Pacific 2016 Interim Results
In an official press release you can find here, Cathay Pacific profits are summed up in this statement:
The operating environment in the first half of 2016 was affected by economic fragility and intense competition. There was sustained pressure on revenues, reflecting suspension of fuel surcharges, weak currencies in some markets, weak premium class demand, particularly on long-haul routes, and a higher proportion of passengers transiting through Hong Kong. All these factors impacted the Group’s operating performance. The contribution from subsidiary and associated companies increased.John Slosar, Cathay Pacific Chairman
Cathay Pacific profits dropped to 353m Hong Kong dollars ($45.5m), down 82.1% from the same period last year.
|Profit attributable to the shareholders of Cathay Pacific||HK$ million||353||1,972||-82.1%|
|Earnings Per Share||HK cents||9.0||50.1||-82.0%|
|Dividend Per Share||HK$||0.05||0.26||-80.8%|
Cathay Pacific Chairman John Slosar stated, “we expect the operating environment in the second half of the year to continue to be impacted by the same adverse factors as in the first half. The overall business outlook, therefore, remains challenging. We expect passenger yield to remain under pressure. Overcapacity and economic fragility will dampen cargo demand. Fuel prices have increased this year, but are still lower than in previous periods. The benefits from lower fuel prices will continue to be partially offset by losses on our fuel hedging contracts. The fuel surcharge remains suspended. In this difficult environment, we will manage capacity and strive to make further improvements in operational efficiency. We will also continue to be vigilant on costs.”
Wait, what did he say? Okay, for all of us that don’t have an MBA in Business Speak, it breaks dow to this, 2016 is going to be a rough year.
Yes, someone in accounting and assets management thought it would be a magnificent idea to hedge high oil prices. Oops! Then there is the fact they ignored Air China nad China Eastern. You know, the low-cost competition. On the higher end, Emirates, Qatar Airways, and Etihad are kicking butt and taking names.
This is why I can’t be a CEO.
A Way Forward
Call me a dreamer, but I think they can pull out of this nosedive in profitability. For example, the “significant reduction in premium corporate travel, particularly on long-haul routes.” Cathay Pacific, and no other airline should use corporate travel tickets as a prime source of revenue. Just like the rest of the world, they should have a three-stage pricing plan in place to backfill any empty seats.
I imagine it would not take long to aggregate data on customers who are likely to fly in a premium class on a long-haul route. Airlines should always be ready to offer those empty seats at a discounted rate. In fact, they could keep it simple and reward their frequent flyers with targeted rates to get them into those seats more often when business is sluggish.
Up next, fuel. There’s no way around it; planes need jet fuel. That will continue to be an item of expenditure until we learn the secrets written on thousands of pages of sci-fi books. So let’s take a look on the ground. I am not the expert at ground operations, but why haven’t more airports and airlines offloaded some of the fuel burdens by converting to electric vehicles? I know, if the power goes out I will have to eat my words. I’m not talking a 100% conversion, but I am pretty sure there are a lot of trucks rolling around eating gas idling on the tarmac due to delays, weather or some other unplanned scenario. I wonder if anyone has looked into Tesla Powerwall’s or refueling stations on a corporate level. What about solar? Ideas people, we need ideas.
Regardless of the changes, airlines need to think the long game.
I wish Cathay Pacific success and a swift turnaround.
Get more stuff like this
Subscribe to our mailing list and get interesting stuff and updates to your email inbox.
Thank you for subscribing.
Something went wrong.