In a surprising turn around, Hong Kong-based airline Cathay Pacific is set to announce a profitable 2018.
After two years of straight losses and a gloomy horizon, this turn around speaks volumes of the many changes that Cathay has implemented to stay as competitive as possible.
What are the details?
Cathay Pacific has released an early profit prediction of $293 million for 2018, before their press release next month.
This comes somewhat as a surprise as the market situation did not look good for Cathay over the last two years. Chinese airlines had rapidly grown in the north (especially China Southern with their nearby hub in Guangzhou), Middle Eastern Airlines had been able to coax away premium customers with unique offerings and low-cost carriers in Asia had been eating away at their low paying economy passengers.
Paired with a rising fuel price (and massive financial mistakes that Cathay made pegging their buying price), a loss of $160 million USD in 2017 was not surprising. But new Cathay CEO Rupert Hogg had a new plan and one that would solve their financial woes.
“Cathay Pacific’s earnings recovery should accelerate as it benefits from continued improvement in its core passenger business”
How did Cathay save money?
Cathay took several steps to shore up their costs and earn more revenue in 2018.
- Adding more seats on board their fleet of Boeing 777 Aircraft. Known as ‘densification’, this additional economy capacity (one seat more per row) means more revenue per flight and cheaper tickets for the market.
- Better soft products for premium customers. Cathay upgraded the food offering for premium economy, encouraging passengers to upgrade simply for the better food.
- Reducing routes and focusing any new routes on profitable routes
- Downsizing staff (Such as its cabin crew base in Toronto) and streamlining operations
Overall reducing up to four billion HKD in expenses in one year alone.
“The company’s transformation program has had a positive impact,” – Cathay Pacific
But it’s not all good news in Hong Kong…
Hong Kong Airlines is still struggling
Cathay’s home town rival Hong Kong Airlines has had a bad 2018. They had several senior staff leave under dubious reasons (one rumor that was gagged was that the airline may have been trading insolvently) and thanks to the closure of the A380 program, their multiple delayed order of 10 A380s canceled by Airbus.
They are currently suffering some cashflow problems and are seeking a $500 million USD loan to cover expenses and finance fleet expansion. They had previously dreamed of launching on to the local stock exchange, but that plan fell into disarray as strategy shifted.
They still control around 15% of the Chinese Hong Kong to the Mainland market (compared to 44% Cathay), but their dream of another growth year may be fading.
What do you think? Does Cathay deserve this success?