Cathay Pacific Asia Miles - Future of CX.....OneWorld vs Star Alliance

Here's an interesting read regarding the recent transaction between Air China and CX:

http://www.centreforaviation.com/news/2009/08/18/air-china-cathay-pacific-move-to-shake-up-star-alliance-and-oneworld/page1

One of the most interesting topics is the future of CX. Whether it will stay with OneWorld or change to Star Alliance because of Air China.

Maybe Air China will buy Singapore Airlines too? There is no other way that Cathay and them would endure in the same alliance.

I don't mind if CX joins ........ as long as MU stays the hell out of *A :mad:

People seem to forget that Swire has a 42% stake in CX, which CA would have to buy first if it was going to take over CX.

Also there is the matter of the 25% that is in public hands.

And also it will be stupid for CA to get CX in *A, it's the best that you can get traffic from 2 alliance (ow + *A) instead of just one

If they need closer collaboration, they can just do joint venture flight (like HKG PEK). Imagine a CX flight to fly PEK then continue to MAN on CA callsign (CX metal), CX will quickly become the most popular one

Sounds like something that won't happen in the near future but if it does, I'm all for it! Difficult trying to keep 1k with UA and Gold/diamond with CX.

If they need closer collaboration, they can just do joint venture flight (like HKG PEK). Imagine a CX flight to fly PEK then continue to MAN on CA callsign (CX metal), CX will quickly become the most popular one

What it would hopefully lead to is flights like HKG - PEK/PVG - ICN. Have been waiting to get Club Miles from China - Korea flights for a while now. .

I hope this doesn't happen for awhile. I fly BWI-HKG route regularly, if CX leaves OneWorld that means Pier and Wing lounges are no longer accessible to OneWorld members :(

really doubt CX will leave oneworld and join *A, since they would be in straight competition with many of those asian carriers, especially SQ and TG

really doubt CX will leave oneworld and join *A, since they would be in straight competition with many of those asian carriers, especially SQ and TG

Also would ANA, SQ, TG allow CX to join?

What if CA leaves *A and join OW?

Also would ANA, SQ, TG allow CX to join?

thats why I said I doubt they would be in

What if CA leaves *A and join OW?


Does CA have the quality to join OW? they are not regarded as a high class airline in today's standard

Does CA have the quality to join OW? they are not regarded as a high class airline in today's standard

Perhaps, but OW has been trying to court domestic Chinese airlines (ie. China Eastern). If by some very small chance CA does decide to leave *A, I think OW will gladly accept them.

Perhaps, but OW has been trying to court domestic Chinese airlines (ie. China Eastern). If by some very small chance CA does decide to leave *A, I think OW will gladly accept them.

yes, with the close relations between CA and KA, where many of their flights are codeshare to many other Chinese cities
But would this actually lead to CA taking over the whole Chinese market and KA start to lose their own route?

I am sure OW will do what ever possible to keep CX within that alliance.

If CX to leave OW then OW will be fallen apart.

I am sure OW will do what ever possible to keep CX within that alliance.

If CX to leave OW then OW will be fallen apart.

most likely, since CX is the only airline in OW that has a rating of 5*
while the rest only have 3 or 4 stars

does CX have that much influence within OW that its departure will lead to OW to fall apart?

On the other hand, if CA would get through with a hypothethical CX purchase, they could demand to become the dominant voice within Star Alliance.

For example, force all the other Star carriers into codeshares and revenue sharing on all flights to China and kick reluctant partners out of the market with their close connection to the local aviation authorities.

Would the other OW partners really care that much if CX were to leave? CX already competes with BA and QF on their big money routes: LHR-HKG & HKG-SYD & LHR-SYD. So it's not like there is a big hole left if CX were to leave.

Would the other OW partners really care that much if CX were to leave? CX already competes with BA and QF on their big money routes: LHR-HKG & HKG-SYD & LHR-SYD. So it's not like there is a big hole left if CX were to leave.

i think CX plays quite an important role in the alliance that it helps the alliance to connect to the vast chinese market because of KA. Also BA does rely alot on CX for many of their asian flights like seoul, manila, taipei
Also, AA still needs to codeshare their flights with CX, or else they would not have a single flight to HK

well...to be honest, QF is the later one to join in on the LHR-HKG route, it was dominated by BA and CX before.

most likely, since CX is the only airline in OW that has a rating of 5*
while the rest only have 3 or 4 stars

I seriously doubt that Skytrax rankings have any bearing on alliance membership decisions.

I seriously doubt that Skytrax rankings have any bearing on alliance membership decisions.

ofcourse the management would not think this way, but who knows when it come to about reputation and revenue

Agree with JALlover that taking CX out of OW would seriously undermine its coverage of China and rest of eastern Asia in general.

I'm still holding out hope for a CA defection. With Shanghai Airlines and China Eastern merger, I can see a remote possibility of government involvement to make sure that one domestic airline is represented in each of the three alliances.

Agree with JALlover that taking CX out of OW would seriously undermine its coverage of China and rest of eastern Asia in general.

I'm still holding out hope for a CA defection. With Shanghai Airlines and China Eastern merger, I can see a remote possibility of government involvement to make sure that one domestic airline is represented in each of the three alliances.

I don't think the Chinese relevant authorities share your view. What they seem to want is China dominating global air travel and the preferred tool for that look like to be monopolies or duopolies in the home market.

I find it quite funny / interesting that everyone thought Air China will take over CX just because it has increase it share holdings...

Everyone seem to forget that CX also holds a 17.5% cross share holdings at Air China... hence, the actually ownership for Air China in CX (after the cross shareholding is deducted) is a small, 12.4% compare to Swire 42%... So I highly doubted Air China will convince CX to go Star Alliance or have more management control in CX... As a matter of fact, the opposite might happen... CX already trains many of the Air China international flight attendents and many Air China middle management are often send to CX for 6 months to 1 year internship to gain experience... so I think you will see more of this, as Air China is working very hard to improve their own management and front line staff... CX in turns will influence Air China a lot because CX will train many of Air China staff...

Also, there will be more co-operation, Air China and CX will probably have a unified purchase scheme from spare to fuel... I think they are already co-operating on a certain level with regards to fuel hedging...

Also, Air China and CX will stay with their own respective alliance, this is the only logical sense, they are having the best of both worlds...

So will Air China take over CX eventually? Probably not in the near to mid-term... long term, no one can predict that... it depends on how profitable CX remains, as that will be the main factor for Swire to remain a major shareholders at CX... however, with Swire having so much of its business in aviation related business, I can not see Swire pulling out just like that. Also, I think Air China will find a lot of resistance if they eventually consider a take over bid of CX... a lot of resistance from current customer, Hong Kong locals and even within the staff group... even this simple share holdings changes, it has cause a lot of concern within the CX staff and management have publish many updates that nothing is going to change at CX. CX staff generally are very proud of their airline and know that CX are generally very competent compare to many carriers... so it worries a lot of them when there is a possibility that an airline not as highly regards as their own (ie: CX) might took over control of CX, especially, it is one that is still learning from CX in many area. Also, generally speaking, a lot of CX staff prefer a western style management over a chinese style management (not to be bias or racist, but it is just the general sense / feelings within the staff group). However, this does not preclude the fact that if one day Air China have improve themselves to the point that they are on par or even superior to CX, I can see that there will be a possibility of Air China taking over CX then... but right now... I can tell you, it won't happen...

I find it quite funny / interesting that everyone thought Air China will take over CX just because it has increase it share holdings...

Everyone seem to forget that CX also holds a 17.5% cross share holdings at Air China... hence, the actually ownership for Air China in CX (after the cross shareholding is deducted) is a small, 12.4% compare to Swire 42%... So I highly doubted Air China will convince CX to go Star Alliance or have more management control in CX... As a matter of fact, the opposite might happen... CX already trains many of the Air China international flight attendents and many Air China middle management are often send to CX for 6 months to 1 year internship to gain experience... so I think you will see more of this, as Air China is working very hard to improve their own management and front line staff... CX in turns will influence Air China a lot because CX will train many of Air China staff...

Also, there will be more co-operation, Air China and CX will probably have a unified purchase scheme from spare to fuel... I think they are already co-operating on a certain level with regards to fuel hedging...

Also, Air China and CX will stay with their own respective alliance, this is the only logical sense, they are having the best of both worlds...

So will Air China take over CX eventually? Probably not in the near to mid-term... long term, no one can predict that... it depends on how profitable CX remains, as that will be the main factor for Swire to remain a major shareholders at CX... however, with Swire having so much of its business in aviation related business, I can not see Swire pulling out just like that. Also, I think Air China will find a lot of resistance if they eventually consider a take over bid of CX... a lot of resistance from current customer, Hong Kong locals and even within the staff group... even this simple share holdings changes, it has cause a lot of concern within the CX staff and management have publish many updates that nothing is going to change at CX. CX staff generally are very proud of their airline and know that CX are generally very competent compare to many carriers... so it worries a lot of them when there is a possibility that an airline not as highly regards as their own (ie: CX) might took over control of CX, especially, it is one that is still learning from CX in many area. Also, generally speaking, a lot of CX staff prefer a western style management over a chinese style management (not to be bias or racist, but it is just the general sense / feelings within the staff group). However, this does not preclude the fact that if one day Air China have improve themselves to the point that they are on par or even superior to CX, I can see that there will be a possibility of Air China taking over CX then... but right now... I can tell you, it won't happen...

wow...nice detail analysis on the situation
yes, is true that CA would not be taking over CX in the short even medium term, as the the timing is still not right
In the long term, the max CA would be able to do is increase their influence in CX, I doubt they are able to take full control of the airline, since as stated before, there would be huge objection for this decision (especially from the HK public and frequent flyers who fly CX because of their service and high standard. Many CX staff thinks that with a change in management from western to more chinese control would result in the loss of many freedom and rights that they used to have.

CX can do well in either oneworld, Star Alliance, or SkyTeam, for that matter. Intra-alliance competition always exists unless ATI is present, so that's a red herring argument.

For regular travellers on CX, I think more pressing matters are of importance than the alliance they are in. From the SCMP:

Air China presence in Cathay to show contrast in corporate cultures
Charlotte So
Aug 22, 2009
|

When Cathay Pacific Airways (SEHK: 0293) executives joined the board of state-owned Air China (SEHK: 0753, announcements, news) after the carrier took a stake in the mainland airline in 2006, they were in for a rude awakening.
Instead of discussing fuel costs, cargo loads or routes, the mainland directors had a much more pedestrian concern - the type of shoes they were wearing.


"The board meeting was conducted in a very informal way and some of the directors were comparing their shoes and exchanging information about the brands," said a transport analyst, who was told about the exchange by a senior Cathay executive.

The incident underscores the huge cultural gap between Cathay - a British colonial icon considered as one of the best-run airlines in the world - and the bureaucratic Air China. While Cathay directors actually have a say in the running of the carrier, directors at mainland airlines are often no more than a rubber stamp for their masters in Beijing.

With Air China this week announcing it would lift its stake in Cathay to almost 30 per cent as part of an eventual plan to take control of the Hong Kong carrier, those differences are about to be writ large. Two more Air China directors are expected to join the Cathay board, bringing the representation to four.

Cathay and Air China come from two radically different corporate worlds. One of the most noticeable differences is the remuneration for top people. Air China chairman Kong Dong has pocketed HK$327,000 from sitting on Cathay's board since May last year - 1.7 times his annual salary at the mainland carrier, according to the company reports.

Zhang Lan, a senior vice-president at Air China, received a HK$529,000 director's fee from Cathay last year. Details of her salary at Air China are not available.

By contrast, Christopher Pratt and Philip Chen Nan-lok, the Cathay executives sitting on Air China's board, received no fee from the mainland carrier. At Cathay, Mr Pratt earned HK$3.46 million as chairman last year while chief executive Tony Tyler received HK$15 million.

Poor compensation at state-owned enterprises is not the only problem for mainland directors. Boards at state-run companies really only have one function - to say yes to the decisions passed down from the ultimate owner in Beijing.

Andrew Tse, who founded Hong Kong Express Airways in 2004, had first-hand experience of this top-down management style after HNA Group, the fourth-largest mainland aviation group, became the carrier's single largest shareholder in 2006.

Hong Kong Express, which is losing millions of dollars a month, applied for a licence to operate a new air-cargo business last month over the objections of Mr Tse, who was concerned the carrier lacked the resources to start freight operations.

"There is no discussion at all ... Whoever is the majority shareholder makes the call," said Mr Tse, who still owns 14.7 per cent of the airline.

In Hong Kong, directors are elected by shareholders at annual general meetings and the management of the company is then appointed by the board. The appointment of senior executives at state-owned enterprises is solely controlled by Beijing.

That may explain the unease being felt at Cathay about the prospects of an Air China takeover. Middle management were more willing to initiate new policy or challenge their bosses if they found decisions were not in the best interests of the company, said one Cathay manager who declined to be named. Such a system would be anathema to a state-run airline.

The cultural differences extend to day-to-day matters. A former executive at Hong Kong Express recalls senior managers communicating with their colleagues by passing around fax paper with notes in red ink. The executive still cannot figure out why the mainland managers did not use the office intranet.

The corporate peculiarities got even stranger earlier this year when cabin crew at Hong Kong Express and sister carrier Hong Kong Airlines were asked to memorise and recite a company creed on command. Staff who failed to recite correctly faced punishment.

While Cathay remains in the hands of Swire Pacific (SEHK: 0019), staff can rest assured they will not be forced to recite a creed anytime soon. But whether Swire remains in control over the long term remains to be seen.

Air China is keen to get its hands on Cathay to boost its international presence and take advantage of the Hong Kong carrier's experience in training and services.

John Slosar, the Putonghua-speaking chief operating officer of Cathay, has reassured staff and investors that the strategy and management would not change despite Air China's increased presence.

At the moment, Air China would probably have to dig pretty deep to further increase its stake in Cathay.

"It remains the firm intention of Swire to remain the single largest shareholder in the airline, as indeed we have been for the past 60 years," Mr Pratt, the chairman of both Swire and Cathay, said last week. "Swire is wholeheartedly committed to the long-term development of the aviation industry in Hong Kong and on the mainland."

Cathay also claims it has a legally binding agreement that Air China has to get the written consent of Swire if it intends to increase its stake to more than 30 per cent.

But in the volatile world of aviation, one should never say never. Swire could change its mind if Cathay encounters another once-in-a-lifetime crisis like the current one it has just flown through. If that crisis was so big that it had to raise funds from its shareholders - Air China and Swire - all bets could be off.

Air China, a state flag carrier with unlimited access to low-cost funding, could easily dilute Swire's holdings if Cathay is in need of a huge amount of capital to pay down debt.

The carrier's net-debt-to-equity ratio increased to 81 per cent from 69 per cent in the first half of the year. Cash outflows of HK$1.2 billion were incurred in the first half because of a HK$2.9 billion cash settlement for fuel hedging losses. The situation is not alarming right now, but if there is any significant reversal in oil price movement, losses could start to mount.

"We have to face the reality that the airline industry is a tough one with very thin profit margins," said Mr Tse, an industry veteran. "The mergers and acquisitions involving airlines in the United States and Europe show that."

Without support from a state-backed carrier, Cathay could lose out under the "open skies" policy that seeks to liberalise routes around the world. Cathay is already losing the one-route, one-carrier privilege on many mainland routes, a protection that was passed down from Hong Kong's former British government.

Hong Kong Dragon Airlines, a subsidiary of Cathay, has a comprehensive network on the mainland but it is reportedly operating at a loss amid fierce competition from mainland carriers.

State-owned mainland carriers have deep enough pockets to increase their fleet and expand their network as part of Beijing's goal of stimulating the nation's economy.

"The room for a purely commercial airline to survive is getting narrower than ever," Mr Tse said.

The mainland is considered one of the aviation industry's growth engines and it would appear Cathay is on the doorstep of a hugely lucrative market. But the cosy position Cathay held in colonial days is truly over.

With cash-rich mainland airlines breathing down its neck and the city's airport seeking closer co-operation with airports in the Pearl River Delta, the road could be even more bumpy ahead for Cathay.

Cathay may be Hong Kong's most recognisable brand. But the world is changing and cultural differences not withstanding, Cathay's future lies more and more across the border.

I am glad the SCMP writer shares my view ;)

Just like I said, if CX remain profitable, I do not think Swire will offload CX shares... however, if CX continue to make losses, this could be a different story...

Also, as you can see the corporate culture are quite different, that's why CX staff worries about a Air China take over (if and when that might or might not happen)

Just my two cents ;)