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Cathay Pacific posts huge loss

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From South China Morning Post

 

Turning around the fortunes of Swire Pacific’s aviation and offshore marine services divisions will be the two biggest challenges facing incoming chairman Merlin Bingham Swire, according to analysts.

 

Jonathan Galligan, head of Asia gaming and conglomerates at CLSA, singled out Cathay Pacific Airways, in which Swire Group owns a 45 per cent stake, and Swire Pacific Offshore (SPO) as two underperforming units that will require a lot of time and effort to turn around.

“Cathay Pacific continues to face structural challenges as competitive pressures increase, which the group will need to continue to address.”

Cathay Pacific reported its worst half-year results in at least two decades, a loss of HK$2.05 billion (US$262 million), almost double the estimated HK$1.2 billion forecast by analysts. The company blamed the result for the six months ended June 2017 on fierce competition and higher jet fuel costs, including losses from fuel hedging.

 

http://www.scmp.com/property/hong-kong-china/article/2132755/cathay-pacific-and-offshore-marine-business-will-test

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Cathay Pacific has the same problems as many of the older established carriers in Asia. Like SIA it built its long-haul international reputation by offering far better service and plane interiors when it entered into competition on routes previously served by airlines like BA, UA and Northwest. With lower costs it had lower fares. As one of its former Chairmen lamented some years ago, it was making such good profits it overdid its in flight offerings for example giving business class passengers wines that it cannot now afford to offer in first. Despite reining in costs regularly as Hong Kong became a far more expensive base from which to operate, it has never been able to generate anywhere like the profits of the 1980s and 90s.

 

So just as Cathay was once the upstart cheaper competitor, now it is the Gulf and Chinese airlines with their lower cost base that can offer much cheaper fares. The business class offerings on the Gulf carriers seem unbeatable. Over the Pacific few Chinese carriers can yet compete on service, seating and journey length. But when the business fare difference is less than half, many companies now insist their executives take the longer journey. And it was at the front of the planes that Cathay used to make most of its profits.

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