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Cathay Pacific

Cathay Pacific chairman says global airlines facing consolidation pressure

PUBLISHED : Wednesday, 25 May, 2016, 7:45pm
UPDATED : Wednesday, 25 May, 2016, 10:53pm

Economic headwinds are about to usher in a wave of airline industry consolidation globally, said John Slosar, chairman of Cathay Pacific Airways.

Speaking at an industry gathering on Wednesday, Slosar said industry consolidation, the emergence of Chinese airlines as international brands, and investment into data analytics are among the ongoing trends in the industry.

His remarks comes as a pending stake sell by Air New Zealand in Virgin Australia has attracted a slew of Chinese suitors including Hainan Airlines, China Southern Airlines as well as Cathay, according to the Australian Financial Review.

Cathay chief executive Ivan Chu had said the speculation on Virgin was “groundless”.

Hainan, the flagship carrier of the acquisitive HNA Group, and China Southern, the largest Chinese carrier on the China-Australia market, are both deemed logical buyers by analysts. Owning part or all of Australia’s second-largest carrier would not only give network access to the Chinese airlines eager to enhance their global networks, but allow them to benefit from the increasing number of Chinese tourists taking short flights within Australia.

Slosar said traffic is far less concentrated around Asia’s big airlines than it is for their US counterparts, after repeated mergers and restructurings helped to transform the formerly loss-making US airline sector into one with healthy profits.

The International Air Transport Association estimates US airlines made on average US$22.48 per passenger last year, compared with a mere US$4.89 for Asia Pacific airlines.

Slosar said Cathay and its subsidiary Dragonair account for about 45 per cent of the movements in Hong Kong, while Singapore Airlines accounts for about the same in its home territory. But US giants - American Airlines, United Airlines and Delta dominate 60 to 70 per cent of the traffic in their hubs respectively.

“So that revenue pit, I think, is pretty big,” Slosar said.

“But is consolidation the future of the industry? I don’t know, I hope the answer is no,” he said.

Cathay Pacific in 1990 purchased a 89 per cent stake in Dragonair - then Hong Kong's only other airline - and made it a wholly-owned subsidiary in 2006. It also entered into a cross share-holding agreement with Air China in that year. Cathay owns 20.13 per cent in Air China and Air China owns 29.99 per cent of Cathay.

Slosar said its partnership with China’s flag carrier gives it a unique position to take advantage of the Chinese outbound travel market, which is set to rise past 200 million annual trips in the 2020s.

Big data analytics that help airlines learn about these travellers and what they want will produce winners and losers among airlines, Slosar said.

“There are network effects, the guys that get there first will have an advantage,” he said. He said Cathay is investing heavily on information technology but would not give a dollar figure.

The line between full service and low-cost carriers could also be blurred, he said.

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