Cathay Pacific

Hong Kong’s Cathay Pacific Airways fears US-China trade war will hurt vital cargo business

In departure from earlier comments, chief customer and commercial officer Paul Loo says flagship carrier will monitor long-term effects of trade situation ‘very closely’

PUBLISHED : Tuesday, 19 June, 2018, 2:30pm
UPDATED : Tuesday, 19 June, 2018, 11:25pm

As a global trade war looms, Hong Kong’s flagship carrier Cathay Pacific Airways has for the first time voiced concern over the possible impact of the increasingly likely US-China tariff dispute on its profitable cargo business.

Acknowledging the worsening political tensions between the two economic superpowers, the loss-making airline’s chief customer and commercial officer, Paul Loo Kar-pui, said the company was monitoring the long-term effects of the trade situation “very closely”.

Cathay Pacific has suffered two years of annual losses amid rising competition. It has cut jobs and reduced its spending on aircraft to save a total of HK$4 billion (US$512 million) in three years. The airline has relied on its profitable cargo unit – it is one of the world’s biggest air cargo providers – to help make up the losses from its passenger business. But it showed a surprise overall profit in the second half of last year, suggesting that the company has seen the worst of its troubles.

Following through on US President Donald Trump’s election pledges to tackle a trade imbalance with China, the White House last Friday announced it would charge a punitive 25 per cent tariff on US$50 billion of Chinese goods, affecting 1,110 imported products, mainly targeting high-end technologies including aerospace, industrial equipment, robotics and automobiles.

China hit back immediately with a reciprocal charge, starting on July 6, targeting the United States’ agriculture sector by taxing soybeans, corn, wheat, rice, beef, poultry and dairy products worth US$34 billion initially, with more products and industries to follow.

And on Tuesday, Trump raised the stakes further, announcing a plan to target US$200 billion worth of Chinese imports with a 10 per cent punitive tariff.

The shift in Cathay Pacific’s stance on the looming trade war can be seen in the changing nature of the comments made by Loo over the past three months.

At the March announcement of the company’s financial earnings for 2017, Loo said the airline did not see the rhetoric from Trump’s anti-trade agenda having a potential impact on its cargo business.

Two weeks ago, Loo was asked about the same issue in Dublin ahead of the airline launching a new flight to the Irish capital, and Cathay Pacific said it was not worried.

In Toulouse, France, ahead of the airline taking delivery of its first Airbus A350-1000 and flying the plane back to Hong Kong, Loo said Cathay Pacific was taking the threat seriously.

“I can say that we are monitoring it very closely. We don’t see any immediate impact. God knows, the whole thing is developing every day, we really don’t want to see trade disrupted. A trade war is not to anyone’s benefit,” Loo said.

When campaigning in 2016, Trump vowed to address the long-running US trade deficit with China. That gap rose to a record US$375 billion last year and amounted to US$119 billion in the first four months of 2018, according to US government data.

The US leader has also said publicly that any retaliation from China, hitting American goods with tariffs, would be met in kind, making the prospect of an all-out global trade war closer to reality.

Hong Kong International Airport is the world’s busiest airport for cargo handled, so the ripple effect of such a dispute could rock the city. The airport handles air exports in electronic parts, mobile phones, computers and machinery, some of which is being targeted by US tariffs.

Last week, the airline industry’s trade body highlighted the uncertainty presented by a protectionist trade agenda as one of the key risk factors to the industry on top of rising fuel and labour costs in 2018.

“We haven’t faced any significant decline in numbers of passengers or cargo related to trade wars or protectionist barriers up to now, but if it continues, it will happen,” Alexandre de Juniac, director general of the International Air Transport Association (IATA), told journalists at the industry’s annual meeting in Sydney.

Aside from the US-China trade dispute, Britain’s impending exit from the European Union is an emerging concern as little is known about what will happen, what it means for airlines and when the departure will take place.

IATA trimmed its 2018 outlook for global air cargo as growth in freight capacity, measured in available freight tonne kilometres (AFTKs), to 4 per cent, down 0.5 percentage points, last week in light of the risks to the trade environment.

China Eastern hints at route, aircraft changes if US trade war affects business

There are almost two dozen passenger flights in either direction between Hong Kong and the US alone, more than half operated by Cathay Pacific. Hong Kong’s hometown carrier also has a fleet of about 20 dedicated freighter aircraft and up to six daily cargo flights headed to the US.

China Eastern Airlines, one of the three big state-owned airlines, warned in April that a trade war between China and the US would have a “certain impact” on its passenger and cargo business and would prompt it to cut the number of flights to the US, describing this as a lose-lose situation and adding: “China does not want to fight a trade war – but is not afraid of doing so.”

Danny Lee is reporting from Toulouse