Cathay Pacific is facing a bleak six months ahead after announcing a massive dive in year on year first half financial results.
Citing difficulties in the mainland Chinese market, the airline announced a net profit of 353 million Hong Kong Dollars which was down over 80% from last years’ earnings.Cathay went further to say that a sharp decline in corporate sales and Business Class load factors have also played a big part in such dismal earnings results.
Revenue also fell nearly 10%.
Cathay’s hub HKG is exposing the full service carrier to a barrage of challenges, including fare wars, competition from rising Chinese carriers and the
slow introduction of low cost carriers such as JetStar, Air Asia and Cebu Pacific into the local market. Cathay also lost big on fuel hedging, with jet fuel at 10 year lows and CX currently paying well above market price.
Chairman of Cathay Pacific, John Slosar had this to say to investors following the press release:
The operating environment in the first half of 2016 was affected by economic fragility and intense competition. The slowdown in the mainland China economy caused restrictions to be placed on corporate travel. This adversely affected premium class demand, particularly on long-haul routes.
In a more telling interview, Slosar mentioned that the ‘challenging outlook’ remained for the rest of the year, especially given the airline’s fuel hedging which will keep costs high for the airline.
Another point of contention especially amongst Cathay and oneworld elites is the perceived product devaluation over the past several years that has continued at CX, especially in the airline’s regional Business Class product. Catering has taken a hit (across all classes) and staffing levels have been reduced on their 777 regional fleet.
Furthermore the airline is facing a pilot shortage as expat flight deck crew leave for other airlines or back to their home countries – this has massively hindered Cathay’s ability to grow and add new destinations. Indeed CX is even struggling to maintain their current schedule – some of CX regional flying has been seconded to Cathay Dragon as a result – seen as yet another product downgrade at the airline.
As Air China and China Eastern continue to expand out of Hong Kong into secondary Chinese cities, and as Emirates and Qatar Airways continue to gain a foothold on the Asia to Europe and Africa market CX will continue to struggle as they find their place in the changing market place.