Cathay Pacific

Cathay warns of cost-cutting

PUBLISHED : Saturday, 21 April, 2012, 12:00am
UPDATED : Saturday, 21 April, 2012, 12:00am

Cathay Pacific Airways has warned it may have to park aircraft, reduce schedules and cut office spending if an already tough operating environment does not improve.

The Hong Kong-based carrier has been feeling the pinch of high fuel costs and weakening passenger demand since the fourth quarter of last year and the situation has deteriorated further recently.

Although the business environment is not yet as bad as that experienced during the global financial crisis of 2008, it has prompted the carrier to consider the same cost-cutting measures it deployed three years ago.

That includes cutting flight schedules and parking up aircraft, Cathay chief executive John Slosar told the company's newsletter.

Passenger revenue has fallen well behind targets over the past several weeks and failed to keep up with capacity growth, which he said was not a sustainable situation.

'Keeping non-fuel costs under control is already a top priority and we are taking a serious look at what more can be done to further pare back spending,' Slosar said.

Cathay is not alone in cutting costs. Singapore Airlines offered up to two years' unpaid leave to pilots last month while Qantas selected 150 of its 2,000 pilots to take unpaid leave in January. Delta Air Lines even said it considered buying a refinery from ConocoPhillips for up to US$125 million to reduce fuel costs.

Cathay is studying comprehensive proposals to cut cost, spokeswoman Carolyn Leung said.

'We would like to get our staff prepared for what we are up to by showing them the big picture,' she said. No concrete measures have been decided yet, she added.

Falling passenger yields, uncertainty in the global economy and surging fuel bills all added up to another challenging year for airlines.

'We've already seen a few high-profile casualties and predictions are that we will see the demise of more airlines,' Slosar said.

He added that Cathay is not immune to these challenges.

Over the past four to five months, several European airlines have gone bankrupt including Hungary's flagship Malev Airline and Spanair.

Kingfisher Airlines, backed by Indian billionaire Vijay Mallya, has slipped from being India's largest domestic carrier to its smallest in the space of only six months amid a restructuring plan to help it stay afloat.

While Cathay's passenger volumes are still in line with expectations, rising 10 per cent year on year last month, it claims that the growth came at the expense of yield due to falling air fares in the economy cabin.

Passenger yield, which measures the revenue per passenger including fuel surcharges, has been dropping and there are clear signs the gap is widening, the company said. 'The economic situation is causing many companies to cut their travel spend while leisure travellers are starting to adopt a wait-and-see approach,' said James Tong, general manager of revenue management for Cathay.

Business traffic on major routes to places such as Singapore and New York has been reduced because financial institutions are cutting back on travel plans. And demand from holidaymakers was very low during the off-peak seasons, Cathay said.

The International Air Transport Association said the outlook for airlines remains fragile because improvements in business confidence slowed in February.

This will limit the potential for business class travel growth, the trade body representing over 230 airlines said.


Cathay's year-on-year growth in passenger volumes last month - but this was offset by a fall in yield due to a reduction in economy class fares