Cathay Pacific

Cathay Pacific must push ahead with its restructuring

As an icon in the city, its return to health is important for our image and economy

PUBLISHED : Saturday, 25 March, 2017, 3:18am
UPDATED : Saturday, 25 March, 2017, 3:20am

Aviation fuel accounted for nearly 30 per cent of Cathay Pacific Airways’ total operating costs last year. Wrong-way bets on future fuel costs can therefore weigh on its balance sheet. But it is not hedging losses that have soured investor sentiment towards Cathay. Rather it is the negative trend in its business environment behind an unexpected announcement of a HK$575 million loss last year, a reversal of a HK$6 billion profit the previous year. Moreover there is no prospect of early relief from the pressure on earnings.

Job cuts expected as Cathay Pacific targets 30 per cent savings in head office management costs

The airline blames a slump in business travel, the increasing global reach and competitiveness of rival mainland airlines, falling visitor numbers to Hong Kong, rival carriers increasing the number of seats on competing routes, more passengers paying lower fares – plus, of course, the ongoing fuel-hedging losses.

These are mostly not one-off factors, tempered by the promise of better times on the horizon. Airline chiefs warn that the passenger yield on major routes will remain under pressure. The outlook puts the onus on Cathay management to push ahead with the turnaround plan unveiled in January .

The aim is to restore the group, incorporating long-haul focused Cathay Pacific and Asian regional carrier Cathay Dragon, to financial health – a three-year transformation involving investment in technology, a cost-saving fuel-efficient fleet, and redeployment of staff. It is the biggest restructuring in two decades in response to structural changes in the industry, and not just a cyclical swing to which aviation is prone from time to time.

Why Hong Kong and Singapore must help their airlines soar

As Cathay chief executive Ivan Chu says: “We have seen our revenue come under pressure before, but what we are experiencing now is different.” The changing competitive landscape will require Cathay to do things differently. The airline has already revealed a target of a 30 per cent cut in head-office costs, affecting middle and senior management levels.

What is bad for Cathay is not good for Hong Kong. As Asia’s biggest airline, it is one of the city’s most visible international brands. We need it to do well for the sake of our image as well as the well-being of our economy. The restructuring may produce more losses before a return to profit. It should be completed with resolve.