Cathay Pacific Asia Miles - Profit warning by CX

CX just announced a profit warning today..says profit will be "disappointing" on the back of 1H petrol prices 60% above y/y average.

They're also getting hit with that $60mm fine in the US for collusion

CX just announced a profit warning today..says profit will be "disappointing" on the back of 1H petrol prices 60% above y/y average.

They're also getting hit with that $60mm fine in the US for collusionFollowed shortly thereafter by Qantas. And I'm sure they'll have plenty more company. I bet there are some smart people who shorted airline stocks as they were buying oil futures and who are making a lot of money.

Hard to imagine knowing that a LAX-HKG-TPE-HKG-LAX fare is almost $1600 for third class...

Hard to imagine knowing that a LAX-HKG-TPE-HKG-LAX fare is almost $1600 for third class...

Slightly off topic.....Have you seen the fares from LAX-SAN on AA? $348 excluding taxes!!!!

Hard to imagine knowing that a LAX-HKG-TPE-HKG-LAX fare is almost $1600 for third class...

If you're bored here's the math:
A 747 will burn about 310 gallons round-trip LAX-HKG per pax. TPE-HKG on an A330 will burn about 30 gallons per pax per round-trip. So you burn roughly 340 gallons in jet fuel alone. Assume $3.50 per gallon for jet fuel...and suddenly you're looking at the fuel bill alone for that flight being over $1k USD. Historically we've seen 30% of airline's cost structures going to fuel, but now it's at or over 40%. Still, there are 60% other costs that aren't included in that...making it pretty obvious all else equal they're losing money on that ticket they're selling you for $1600.

The above is also assuming completely packed flights (400 pax in 747, 250 in A330). If you assume 80% capacity it ends up costing the airline even more, because the marginally lighter weight from fewer pax doesn't compensate for the need to still carry all the excess fuel from LAX-HKG. In a total economic sense it's an even worse fuel/pax ratio if the plane isn't full, which nearly is always the case.

Yea...not exactly encouraging for the future of cheap fares.

If you're bored here's the math:
A 747 will burn about 310 gallons round-trip LAX-HKG per pax. TPE-HKG on an A330 will burn about 30 gallons per pax per round-trip. So you burn roughly 340 gallons in jet fuel alone. Assume $3.50 per gallon for jet fuel...and suddenly you're looking at the fuel bill alone for that flight being over $1k USD. Historically we've seen 30% of airline's cost structures going to fuel, but now it's at or over 40%. Still, there are 60% other costs that aren't included in that...making it pretty obvious all else equal they're losing money on that ticket they're selling you for $1600.

The above is also assuming completely packed flights (400 pax in 747, 250 in A330). If you assume 80% capacity it ends up costing the airline even more, because the marginally lighter weight from fewer pax doesn't compensate for the need to still carry all the excess fuel from LAX-HKG. In a total economic sense it's an even worse fuel/pax ratio if the plane isn't full, which nearly is always the case.

Yea...not exactly encouraging for the future of cheap fares.Thanks for that - and I was bored - it's raining at Wimbledon!

I guess we should thank the J/F passengers who are obviously financing our vacations in Y - or more aptly, their companies!


http://www.angrybackhand.com

Thanks for that - and I was bored - it's raining at Wimbledon!

I guess we should thank the J/F passengers who are obviously financing our vacations in Y - or more aptly, their companies!



On the other hand, SQ and NH are still very profitable airlines, thanks to - not surprisngly, to Int'l First and Business pax who filled their planes. All Nippon Airways recently announced their earnings, despite the rising fuel costs, their Int'l Operations turned in a stellar performance.

The bottom line is in this environment, it is hard for the airlines like CX to make money from discounted Y pax. That's why many airlines have shifted away from the discounted Y class market and instead offer a premium version of the Y cabin, which allow them to charge a premium. This discussion of course excludes those poorly managed US airlines. But take the profitable ANA as an example, its Y cabin is actually fairly small these days on a B777-300, its primary long-haul aircraft. A significant chunk is devoted to Premium Economy cabin, with a clear product differentiation and based on FT feedback, an awesome Y product that could probably rival old business class 15~20 years ago. They don't sell a lot of deep discount Y class tickets as they are aiming those willing to pay slightly more in return for better food & service, that's why you won't see people flying LAX-NRT-TPE or LAX-NRT-HKG-NRT-LAX very often in discounted Y from US. And their First & Business class cabins are usually full. Why? Because they actually got excellent products whereas I think a lot of people can see the obvious deterioration and downgrade of CX inflight services based on the feedback here. Customers do react to airline cut backs and I am sure a lot of CX premium flyers pack their bags and vote with their wallet when they see CX took them for fools.

I can't help but notice those airlines who hold their grounds and keep a differentiated and good premium product do well through tough times such as Continental, which is profitable and doing relativley well. CO never stop serving meals within the U.S. whereas its competitors have gone to the "We are full-service airlines but we want to act like LCC." model such as UA, AA, US, DL and NW. All of them went into financial difficulty. Getting stuck in the middle is never a good thing. That's what happen here, those airlines are stuck in the middle, they are neither cost leader or differentiated enough. Likewise, JAL is in financial difficulty too after it cut back many of its services such as stop serving caviar.

My unconfirmed theory is airlines executives who sought short-term benefits of service cutbacks may see their numbers improved in the short-run but doing so is to gamble with the future profitability of the airlines. In the long-run, customers will adapt and premium pax will switch to competitors and may never come back.

Science.howstuffworks
A plane like a Boeing 747 uses approximately 1 gallon of fuel (about 4 liters) every second. Over the course of a 10-hour flight, it might burn 36,000 gallons (150,000 liters). According to Boeing's Web site, the 747 burns approximately 5 gallons of fuel per mile (12 liters per kilometer).

This sounds like a tremendously poor miles-per-gallon rating! But consider that a 747 can carry as many as 568 people. Let's call it 500 people to take into account the fact that not all seats on most flights are occupied. A 747 is transporting 500 people 1 mile using 5 gallons of fuel. That means the plane is burning 0.01 gallons per person per mile. The 747-400 passenger version can accommodate 416 passengers in a typical three-class layout or 524 passengers in a typical two-class layout. (Wikipedia)

In other words, the plane is getting 100 miles per gallon per person! They are also carrying profitable cargo (or used to before they got caught for fixing prices to USA) The typical car gets about 25 miles per gallon, so the 747 is much better than a car carrying one person, and compares favorably even if there are four people in the car.

The current JetA price is 391.1 cents per gallon. (IATA site) so a full plane load the cost for a journey say, HKG - JNB 6660 miles would cost the airline 66.6 gallons per pax. That is US 260.4. The HK Government charges US 83 cents aviation fuel tax per liter which is US 3.142 per US gallon which adds US 209.26 to the fuel bill per pax.
There are 3.785411 liters per gallon (US) and 4.54609 liters per gallon (UK). I would guess IATA uses the US gallon.
Add taxi-ing etc and the total is approx US 470 - 475 per pax HKG-JNB.
The current Fuel Surcharge allowed by HKG Civil Aviation department is HK$ 710 / US 91 per pax on long haul (valid until 31 July 2008)http://www.cad.gov.hk/english/fuel_surcharge.htm . That means it costs CX US 470 minus US 91 = US 379 per pax on long haul fuel cost.

However - Tony Tyler quote "At current prices, it costs us 360,000 US dollars in fuel alone to fly a (Boeing) 747-400 to London and back." http://www.eturbonews.com/2687/airline-fuel-surcharges-hiked-37-cent-hong-ko On Asiamiles site HKG-LHR is 5983 miles which works out at US 30 per mile so maybe they have a special deal by way of jet fuel futures contracts or Tony Tyler does not know his numbers ?
Perhaps someone more knowledgeable could enlighten us ?

However - Tony Tyler quote "At current prices, it costs us 360,000 US dollars in fuel alone to fly a (Boeing) 747-400 to London and back." http://www.eturbonews.com/2687/airline-fuel-surcharges-hiked-37-cent-hong-ko On Asiamiles site HKG-LHR is 5983 miles which works out at US 30 per mile so maybe they have a special deal by way of jet fuel futures contracts or Tony Tyler does not know his numbers ?
Perhaps someone more knowledgeable could enlighten us ?

Tony's numbers are right, I'm not sure where your calc went wrong but I can tell you the 747 has a fuel tank of a bit over 60,000 gallons, nearly all which will be burned on an LAX-HKG flight. Assume $3.5usd per gallon of jet fuel...over $200k usd per each way. Then take off about 15-20% because LHR-HKG isn't as far.

Hmm.. I wonder how the numbers stack up for first, second, and third class in terms of fuel.

Dont forget cargo revenue.... Since CX charges ~$2.5/kg for air cargo (HKG-LAX), I'm sure there was some calculated decisions in terms of figuring out what to charge... Just for perspective, I paid $1100 in April for the same itinerary PLUS PVG-HKG segment. So it'd be $1800 if I added PVG-HKG to this one.

In either case, it amazes me how I spend so much time to research the same exact itinerary every few months.... It'd be great if they can put some sort of economy plus like SG or BR, I'm sure it'd be much easier to fill a plane with less seats...

If you're bored here's the math:
A 747 will burn about 310 gallons round-trip LAX-HKG per pax. TPE-HKG on an A330 will burn about 30 gallons per pax per round-trip. So you burn roughly 340 gallons in jet fuel alone. Assume $3.50 per gallon for jet fuel...and suddenly you're looking at the fuel bill alone for that flight being over $1k USD. Historically we've seen 30% of airline's cost structures going to fuel, but now it's at or over 40%. Still, there are 60% other costs that aren't included in that...making it pretty obvious all else equal they're losing money on that ticket they're selling you for $1600.

The above is also assuming completely packed flights (400 pax in 747, 250 in A330). If you assume 80% capacity it ends up costing the airline even more, because the marginally lighter weight from fewer pax doesn't compensate for the need to still carry all the excess fuel from LAX-HKG. In a total economic sense it's an even worse fuel/pax ratio if the plane isn't full, which nearly is always the case.

Yea...not exactly encouraging for the future of cheap fares.

Tony's numbers are right, I'm not sure where your calc went wrong but I can tell you the 747 has a fuel tank of a bit over 60,000 gallons, nearly all which will be burned on an LAX-HKG flight. Assume $3.5usd per gallon of jet fuel...over $200k usd per each way. Then take off about 15-20% because LHR-HKG isn't as far.

Just being a little picky - 744 has a fuel capacity of slightly over 57000 gallons and a max range of about 8400 miles.

On the other hand, SQ and NH are still very profitable airlines, thanks to - not surprisngly, to Int'l First and Business pax who filled their planes. All Nippon Airways recently announced their earnings, despite the rising fuel costs, their Int'l Operations turned in a stellar performance.

The bottom line is in this environment, it is hard for the airlines like CX to make money from discounted Y pax. That's why many airlines have shifted away from the discounted Y class market and instead offer a premium version of the Y cabin, which allow them to charge a premium. This discussion of course excludes those poorly managed US airlines. But take the profitable ANA as an example, its Y cabin is actually fairly small these days on a B777-300, its primary long-haul aircraft. A significant chunk is devoted to Premium Economy cabin, with a clear product differentiation and based on FT feedback, an awesome Y product that could probably rival old business class 15~20 years ago. They don't sell a lot of deep discount Y class tickets as they are aiming those willing to pay slightly more in return for better food & service, that's why you won't see people flying LAX-NRT-TPE or LAX-NRT-HKG-NRT-LAX very often in discounted Y from US. And their First & Business class cabins are usually full. Why? Because they actually got excellent products whereas I think a lot of people can see the obvious deterioration and downgrade of CX inflight services based on the feedback here. Customers do react to airline cut backs and I am sure a lot of CX premium flyers pack their bags and vote with their wallet when they see CX took them for fools.

I can't help but notice those airlines who hold their grounds and keep a differentiated and good premium product do well through tough times such as Continental, which is profitable and doing relativley well. CO never stop serving meals within the U.S. whereas its competitors have gone to the "We are full-service airlines but we want to act like LCC." model such as UA, AA, US, DL and NW. All of them went into financial difficulty. Getting stuck in the middle is never a good thing. That's what happen here, those airlines are stuck in the middle, they are neither cost leader or differentiated enough. Likewise, JAL is in financial difficulty too after it cut back many of its services such as stop serving caviar.

My unconfirmed theory is airlines executives who sought short-term benefits of service cutbacks may see their numbers improved in the short-run but doing so is to gamble with the future profitability of the airlines. In the long-run, customers will adapt and premium pax will switch to competitors and may never come back.

I think you should go over to the SQ forum and see some of the post from a number of high end PPS members. I don't know the changes SQ have implemented recently but it seems they have really pi**ed off a lot of the high end members in the overall structure of the loyalty programme. Also the service offerings on board is cutting back as well, so sometimes I think we should put things into overall perspective.

No doubt CX is cutting back in a number of areas, but as a reltively low yield DM I can dare say the amount of extra care/service/recognition is way more than what I will get on SQ and I am relatively happy in both the hard and soft product offerings in all classes based on the cost that I am forking out. Sure the A380 suites are nice, but is it that much better to warrant the fare increase?

Sure the A380 suites are nice, but is it that much better to warrant the fare increase?


I suggest you find out.

I suggest you find out.

Don't intend to do it if SQ continue its pricing.

Are the Suites twice as BIG and Comfortable than the new CX F Suties.

Having tried the CX F suites a number of times and really happy with it I don't think I have to throw money in the sea when I get die hard SQ PPS members (who I am sure travel far more than me) commenting on the value and overall satisfaction of their experience.

BTW have you travelled in CX's F and J before?

BTW have you travelled in CX's F and J before?
Have you flown SQ's business and/or first class (new and/or the old one)?

CX has come to my help several times when there was trouble because of actual force majeure reasons.

They could have just let me arrange everything by myself but in the end paid quite a lot of money to cater for my needs more than once.

Whatever happens I'm going to keep my CX status first and only then consider loyalty to other airlines.

QRC3288 states "Tony's numbers are right, I'm not sure where your calc went wrong but I can tell you the 747 has a fuel tank of a bit over 60,000 gallons, nearly all which will be burned on an LAX-HKG flight. Assume $3.5usd per gallon of jet fuel...over $200k usd per each way. Then take off about 15-20% because LHR-HKG isn't as far"

well firstly there is only 70 miles difference between HKG-JNB and HKG-LHR which is 1% mileage not 15-20% as stated
second - JetA world pricing is US 3.91 per gallon as shown on IATA site
third - CX and other carriers have to pay a HKG Government tax on aviation spirit of HK$ 6.5 per liter so the numbers are as I showed above assuming CX is paying world rate for its JetA out of Hong kong - what it pays elsewhere or taxes elsewhere I do not know
:confused:

CX has come to my help several times when there was trouble because of actual force majeure reasons.

They could have just let me arrange everything by myself but in the end paid quite a lot of money to cater for my needs more than once.

Whatever happens I'm going to keep my CX status first and only then consider loyalty to other airlines.

Totally agree with you as CX have helped me out in so many ways over the year in helping me to get to my destination when they have no obligation to. Especially I am prob one of the lowest DM by revenue. I appreciate people vent their concerns regarding the drop in standards and things for CX to improve on. However consider the actual price they charge and the quality they provide, I Feel. Yes it is my opinion, CX still remains excellent value in YJF Class.

Sometimes I feel people keep on nick picking things and trying to stir up things which does not help the situation. I am sure SQ is a really fine airline, although I only have a limited number of experience in their J and F Class (744 products) they have been really good. But the description that some people here making SQ sound like they are always 100% faultness and make CX sound like a 3rd world airline is just not fair.

I get die hard SQ PPS members (who I am sure travel far more than me) commenting on the value and overall satisfaction of their experience.

I would posit that some of the most vocal, and some that are the most vocal commentators are hardly "die hard" PPS Club members. Some are probably not PPS Club members at all.

Sorry, going off topic. I shall refrain from diverting the topic further!

I would make the point that a profit warning of disappointing results doesn't mean it's not making money - it probably is.

I would posit that some of the most vocal, and some that are the most vocal commentators are hardly "die hard" PPS Club members. Some are probably not PPS Club members at all.

Sorry, going off topic. I shall refrain from diverting the topic further!

I would make the point that a profit warning of disappointing results doesn't mean it's not making money - it probably is.

Urmm: Last time I checked SQ Solitaire = PPS??

Examples:
"We have all written and received, at best, the boilerplate responses. I even had one letter from an SQ Country Manager which, essentially, told me to *O."

"It is clear to me that the Premium products on SQ and in SQ lounges have been downgraded to the point that there is a general recognition. The attempt to make P passengers pay more for service is, at this point in time with a recession and better competition,"

If SQ is so perfect as you always want everyone to believe (despite you haven't even travelled on it). I am really surprised there is a post that is more than 15 pages with the following title:

" I am developing doubts about the SQ F product. My recent experiences."

As I said many times before I am not saying SQ is terrible but sometimes I think it doesn't help when you stir up readers on other borads with your unbalanced view on things.

I agree. As I have not travelled on Singapore Airlines I shall refrain from commenting.

My apologies IHEARTNY1.

However consider the actual price they charge and the quality they provide, I Feel. Yes it is my opinion, CX still remains excellent value in YJF Class.
.
I remember your vibrant attacks on some pax who were crazy enough to spend huge money on F class in CX, so how come you personally have so much experience in CX F?

QRC3288 states "Tony's numbers are right, I'm not sure where your calc went wrong but I can tell you the 747 has a fuel tank of a bit over 60,000 gallons, nearly all which will be burned on an LAX-HKG flight. Assume $3.5usd per gallon of jet fuel...over $200k usd per each way. Then take off about 15-20% because LHR-HKG isn't as far"

well firstly there is only 70 miles difference between HKG-JNB and HKG-LHR which is 1% mileage not 15-20% as stated
second - JetA world pricing is US 3.91 per gallon as shown on IATA site
third - CX and other carriers have to pay a HKG Government tax on aviation spirit of HK$ 6.5 per liter so the numbers are as I showed above assuming CX is paying world rate for its JetA out of Hong kong - what it pays elsewhere or taxes elsewhere I do not know
:confused:

I'm now completely confused on what you're even arguing about! I was comparing HKG-LAX as a baseline not JNB, please read the post of mine that you yourself pasted from (LAX-HKG represents basically a full tank of gas). Second, I was conservatively assuming $3.50 a gallon...if you read my posts you'll see I'm basically insinuating that a $1600 round trip LAX-HKG flight is, unfortunately, probably not an unrealistic break-even or even loss-making fare, all else equal (ignoring cargo, empty seats, etc). Your higher gas price would make that even more painful...which may not even be out of the question in the future (although as a point of contention you've ignored CX's oil futures). You're welcome to believe what you want but CX mgmt again confirmed last week that $350k round trip is about the right price for HKG-LHR.