High-flying Cathay Pacific hopes to fly farther
Few airlines in the world have been as blessed as Cathay Pacific Airways.
From its base in Hong Kong, Cathay has benefited like few other carriers from the mainland economic miracle. It does not suffer from the sort of labour union problems that some of its United States and European counterparts have to deal with, and competition from rivals, while growing, has been relatively benign up to now.
So, when Cathay managing director David Turnbull hosts the Hong Kong Management Association's Leadership and Success conference next week, what cautionary tales of management woe, a regular topic at such gatherings, will he have to talk about?
'Morale on the whole is quite good' at Cathay, Mr Turnbull acknowledged in an interview with the South China Morning Post.
'In 1998 [after the Asian economic crisis], one out of every four staff at Cathay were retrenched for economic reasons,' he said.
'But since then, no one's lost their job because of cuts', despite the cumulative impacts of the September 11 terror attacks, the war in Iraq and Sars, he said
As such, the great majority of the staff were relaxed and confident, he said, adding: 'After all, there are many airlines in other parts of the world where life is pretty uncertain.'
After eight years at the helm of Cathay, Mr Turnbull is tipped to take over the chairmanship of parent Swire Pacific, the property-to-transport conglomerate, at the end of this year.
'The bigger we get, the more different it feels. We do try to keep it as much as it was in the old days, when we were a much smaller airline, but the days when we knew everyone else's name in the company are no more,' he said.
'That means more management jobs and more systems to ensure managers are doing things right. For example, the people managing our cabin crew will have seven, eight, nine thousand staff to manage.'
Still, for all its natural advantages, Cathay is not insulated from global economic turmoil and the trend towards increasing competition.
Fuel prices have skyrocketed to record levels, with airlines particularly hard hit.
'I think in our last press release [in September], we said we expected to pay about $1 billion more in fuel costs this year. But since then, the price of fuel has risen some more, so our additional net burden is rising, maybe to $1.5 billion,' Mr Turnbull said.
'Quite a few of our routes are unprofitable because of the high fuel costs. But we are not rationalising any for the time being.'
Continued cost cutting will be a focus of management efforts in the future.
Cathay managers had annual cost-reduction targets in their departmental budgets, Mr Turnbull said, and some of those targets might have to be moved up.
'Last year, we achieved our goal to reduce costs to $2 per air tonne-kilometre [ATK] and we had a plan to further reduce our costs to $1.80 per ATK by 2006,' he said.
'Since then, oil prices have risen some more, so we may need to adjust our cost-control target. But we have still got to be realistic' about what was achievable, he said.
Another issue for Cathay is that Hong Kong, still the region's second-largest hub for air travel and cargo, behind only Tokyo's Narita International Airport, will face increasing competition from mainland cities and regional rivals eager to displace Chek Lap Kok.
'Hong Kong needs to be aware of that danger. There are still more flights between Hong Kong and the mainland than anywhere else but the others are beginning to catch up,' Mr Turnbull said.
'I know the government is well aware of this issue. Is Beijing aware? I don't really know, except that they may have other agendas.'
Competition from rivals will also intensify, especially with Singapore's commitment to attracting a new breed of low-cost airlines for regional supremacy.
Temasek Holdings, the Singapore government's investment fund, has already poured money into two new startups, Tiger Airways and Jetstar Asia.
'We're not afraid of competition, if there's an equal exchange. If these airlines come to Hong Kong, then we will compete. It is interesting that we may find ourselves having to compete with Singaporean taxpayers very soon, though,' Mr Turnbull said, noting that Hong Kong airlines would never dream of being able to tap the local government for financial support.
Despite the challenges, he said Cathay was in a position to expand.
'I see a lot more thickening of our existing routes. We want to fly between London and New York, but we don't know when that will happen. The issue is the availability of good slots at Heathrow,' he said.
'We've applied for landing slots for summer [next year], but the congestion is as bad [at Heathrow] as it was in Kai Tak, so we may have to find some other way to get slots.
'In 2007, we'll have 110 planes and beyond that we'll see what we want to do. By 2010, we should have about 130 aircraft.
'But as we grow, staff training will become even more important. Next year, we're planning to recruit about 1,000 cabin crew, mostly from Hong Kong.'
