Cathay Pacific Airways could face further pressure for another round of cost-cutting in the face of an estimated HK$1.2 billion in losses for the first six months of this year, in what analysts described as one of the “worst results in its operating history”. The figure was compared to a HK$353 million profit in the same period last year, and a HK$575 million full-year loss previously, with the latest financial results of Hong Kong’s ailing flagship carrier due on Wednesday.
The company had earlier trimmed 600 jobs as part of a three-year business restructuring aimed at saving HK$4 billion over the period.
High on CEO Rupert Hogg’s turnaround agenda is convincing passengers to pay more for air tickets while fending off competition from budget carriers, mainland and Middle Eastern airlines wooing customers with cheap travel deals. Last month, Hogg said the first six months of 2017 had been “disappointing” for the company, while noting that the rest of the year would “remain challenging”. Cathay has to sell cheaper tickets to keep up with the competition, but according to company reports, this may be offset by a strong performance in its cargo business after carrying more lucrative freight this year, as well as a smaller loss on fuel hedges.
But Corrine Png, CEO of independent transport research firm Crucial Perspective, said the airline is on track to report a performance that would be “a worst in its operating history”, with HK$1.2 billion in interim losses. Png said that the airline could mitigate overall losses by convincing passengers that they should pay more for quality.
The pressure Cathay is facing also necessitates its move to add an extra row of seats in economy class. “For some of the passengers, it’s a bit of a discomfort, but for a company in competition with low-cost carriers, that is the only way to go,” Geoffrey Cheng, BOCOM International Holdings’ head of transportation and industrial research, said. Cheng also said that the cargo and fuel hedging effects would help Cathay limit its full-year loss to HK$472 million. “Management has to address the passenger yield and overall revenue,” he added.
Contributing to the airline’s struggles are a HK$300 million bill from its redundancy payouts, and a fine of HK$476 million by the European Commission, Cathay’s share of a wider penalty slapped on major airlines found guilty of engaging in illegal cartel behaviour for air freight. More details are also expected to emerge over how the company is expected to handle a “comprehensive review” of 7,600 overseas staff.
The losses would put Cathay’s cost-saving strategy into sharper focus – ultimately on how it would prevent more losses and whether it needed to shed more jobs to tackle competition.
Since Rupert Hogg took over the airline’s top post, its share price has rebounded thanks to the focus on cost cuts. But renewed warnings about competitive pressure saw the share price pull back ahead of Wednesday’s report on interim earnings.
Meanwhile shareholder Air China’s 30 per cent stake in Cathay will be reviewed to explore a platform for the business to turn itself around. “Cathay should indeed look to deepen its cooperation with Air China,” Png said.