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Cathay Pacific implements urgent cost control
September 13th 2019
Network reductions, cost cuts and an employment freeze. Read More »
Cathay Pacific Airways is implementing a short-term restructuring within its existing three-year transformation program. The airline is urgently seeking to reduce costs following a decline in passengers at the carrier due to ongoing civil discontent. CEO Augustus Tang said in a staff memo that executives had been asked to focus on cutting costs.
Cathay carried 11% fewer passengers in August, the result of weak travel sentiment and disruption at Hong Kong International Airport (HKIA) that forced flights to be cancelled. Cathay’s ASKs grew 5% in the month, but it operated 4% fewer flights. This was the result of long-haul additions and up-gauges while short-haul flights to mainland China were cancelled or down-gauged. Cathay cut mainland China capacity by 9%, but loading was weaker with RPKs decreasing 28%.
Cathay posted ASK growth in all other regions, but traffic fell in all short-haul markets. Long-haul markets to North America, Europe and the Southwest Pacific recorded passenger growth, partially reflecting Cathay’s carrying of a higher percentage of connecting passengers. But this took a hit on yields, although Cathay did not specify exact revenue figures.
Inbound Hong Kong traffic declined 38% and outbound Hong Kong traffic 12%. Load factor declined by seven points to 80%, a figure that might be satisfactory for some airlines or even Cathay a few years ago. But now Cathay is built on a more efficient platform that needs higher load factors, increased aircraft utilization and a younger fleet age.
“We don’t anticipate September being any less difficult,” Cathay chief customer and commercial officer, Ronald Lam, said in a statement. This seems to reflect HKIA operating close to normal, but travel sentiment weakening, worrisome as the region enters the high-yielding corporate travel season. Lam said premium cabin travel was especially hit.
Cathay’s network adjustments so far seem broader than a 2012 change prompted by high fuel prices, weakening corporate travel sentiment and wanting to expedite the retirement of the 747 in favour of the more fuel efficient 777.
Amongst the changes, the relatively new service to Dublin will become seasonal and Medan will be terminated. Cathay is cancelling plans for a larger flying program to Paris and Frankfurt this winter, instead reverting to a historically normal winter offering. It’s long-standing Vancouver-New York fifth freedom flight will be cancelled and New York non-stops will see additional reductions. Also being withdrawn is an additional Vancouver flight that was introduced when competitor Hong Kong Airlines (HKA) prepared to fly to Vancouver. HKA is reducing its long-haul network.
New staff will not be hired unless approved by a special committee, according to a memo seen by Reuters. Departments will be asked to implement cost control measures. Prior to summer, Cathay was still rebuilding its reputation after previous cost cuts reached too far and impacted the passenger experience. Amongst the urgency and new management, there is concern for Cathay to maintain a broad and long-term vision to balance short-term measures. The network changes apply through the winter 2019/2020 schedule, but mainland China may take longer to reinstate capacity.
