samuelo

Enough people obviously because business class is usually full

sscywong

1. No before, but since CX use long haul flights for PEK and PVG, yes as they pay the same price for J... Plus the regional J is.... hardware-wise PEY minus level comfort

2. When ATC continues to happen frequently

Psychiatrist

Oh yeah. Still remember it was 3-4 years ago. PVG on a flight with F seats but just J service. They seated DMs in F.

Everybody on board, then delayed 4 hours on the ground in HKG. Being in F was great. Slept really soundly for a few hours before take off.

FlyerTalker688786

CX needs to add more PE seats per plane while busy reducing the offering of Y class.

For someone spending $1,800++ for a Y/B/H class ticket to have the same crappy service and offering with the customers spending $500-800 for O/N/G/Q class ticket is very self defeating. Those $1,800 customer may well start to look to travel on another airline at greater comfort.

So at the current CX's future strategy, more people will buy the $500 tickets to share the crappy service and seats. I just do not see how they can retain $1,000 spender for K/L/M tickets not alone for the $1,500 spender. CX should be able to afford to loose some $500 passengers but need to try harder to retain $1,000 and $1,500 passengers.

KrazyTrain18

I know this comment won't be too popular, but once again everybody needs to take a step back and look at it objectively without a "sky is falling" mentality.

Cathay would be looking just fine if the fuel hedging fiasco hadn't occurred, that keeps getting overlooked and some of the radical ideas such as merging with CA aren't necessary at all for the well being and future of the airline. As for the loss of premium travelers, I chalk that up to the times we live in. People simply aren't willing to pay for a premium for anything anymore even if it offers added value, the low cost ideology is making its way into every industry because people are getting cheaper and cheaper.

My view for the last 3 years has been that CX need to continue its current strategy of offering premium services whilst restructuring KA into the lowest cost model it possibly can to better compete with the LCC boom.

Aus106080

I agree that the loss of premium traveler is somehow inevitable especially for the short-haul flight.

I hear that KA operating cost is lower. CX should transfer more plane and more routes to KA.
In the long term, all place with regional configuration should transfer to KA and CX only keeps the planes with long haul setting.

380Flyer

Having read the Bloomberg and SCMP articles, it is really missing the point.

Recommending CX to launch a low cost carrier is not the answer. The slot constraints at HKIA would not make it feasible as it is evident from HK Express' struggle that working with what you have is the best solution.

Also suggesting that Cathay Dragon be converted to an LCC is ludicrous as KA provides crucial feeder and cargo capabilities to the group. More insane thought by some analysts is how CX should merge with Air China - I think the cross shareholding structure is fine as it stands today.

CX had been caught up with high fuel hedging which was inevitable given its long haul operations and lessons from 2008 with the spike in oil price. Whilst we can comment on this in hindsight, at the time, it was probably the right decision based on the outlook for oil and inline with their hedging strategy. Such bets can go wrong if the oil declines significantly as it did. Who would have predicted this!

The focus now is for CX to transform and they are taking the necessary steps which will result in them being more agile with a streamlined structure to make quicker decisions. This was long due and should have been done 2 years ago under Ivan Chu. But then again, business was good 2 years back! Lessons learnt I hope!

Overall, CX remains a premium airline with great service. SQ is in no better shape despite them having less exposure to fuel hedging so this really sums up where these two premium airlines stand today.

deadinabsentia

Exactly..

Whats not being reported... for whatever reason.. is that CX makes a HUGE operating profit. HUGE.

That's fact.

They then slice it up to pay Haeco/Catering/Vogue Laundry.. whoever to shrink that.

They have a huge 'paper' loss in hedging.. Anyone want to guess if that's to another Swire company.

It's a shell game.

fakecd

yeah so what. Fact is their NET profit is down. As an investor i dont give rats arse about their operating profit margin if their Treasury is/was ran like a big hedge fund creating huge black hole.... they could have novated/collapsed their fuel hedges and reported one huge loss but they decided to stay put, which eats on thei credit line sitting on such an out of money option.

one could argue their underlying business model is sound. but in my eyes this is severe management oversight and lapse of governance which is a bigger concern for longetivity of a firm. On a flip side if they can get fresh blood and make significant overhaul (think QF/JAL/MH even) it could be a great turnaround story, as underlying business may be sound, for now.

KrazyTrain18

Well said, thank you for looking at it objectively and with a level head.

feh

I’d agree that CX becoming a LCC is not the answer. Would simply confuse CX’s position even more. And likewise, it’d be folly to shift KA to LCC. Especially now that KA is CX’s regional arm and often competes against HK Express etc, where it competes on quality (and whilst CX service in back-end seems to have declined, on KA it seems to have improved in recent years)

Leaving aside the hedging losses, if we’re talking about CX’s market positioning I’d say there have been three key dynamics at work:
1. PRC-Taiwan direct flights (still largely constrained to CX/KA’s advantage)
2. HKG’s declining role as the hub for PRC
3. Erosion of the Kangaroo Hop (not sure how significant; likely more a case of growth foregone than decline)
4. Growth of PRC carriers (size and service)

As a bit of background, I first came to HKG in 1993 (though didn’t move permanently in ’93). I had a small role (still junior then) on a project called “Comprehensive Traffic Forecasts for the New Airport at Chek Lap Kok.” This made two crucial, explicit assumptions if my memory serves correctly (which is admittedly not guaranteed after all this time and my limited role almost a quarter of a century ago):
1. Aircraft fleet mix would be similar to that at Kai Tak. This was erroneous as Kai Tak’s limited capacity (one runway) meant larger planes and less frequent flights, whereas shifting to two runways enabled more frequent flights on smaller airframes (plus a growth in narrow volume flights to third tier PRC cities)
2. It was only a matter of time (a few years) before direct PRC-Taiwan flights would be fully liberalised (obviously still not happened – but nevertheless a prudent assumption at the time, to prevent over-/mal-investment).

Anyway:
1. CX/KA is still positioned to take advantage of PRC-Taiwan, but with less of a monopoly than it had (okay, “cartel” might be a better description of those years when CX and KA were separately owned).
2. But in more general terms, routeing through HKG is no longer obligatory or virtually obligatory when going to China from Europe, N. America or Aus/NZ. This has chipped away at some of CX’s markets.
3. I’m not convinced that the Middle East carriers have substantially dented HKG-Europe, as CX has continued to expand capacity into Europe, which I assume it wouldn’t have done had EK, QR & EY done real damage. In other words, the market grew sufficiently to accommodate both. Nevertheless, Middle East carriers have at the very least denied growth to CX on the Kangaroo Hop (Europe to Aus/NZ)
4. The big shift is the growth in PRC carriers, including in both size and service. This has worked together with (2) against CX’s interests. And not much CX could have done about it.

However, I would have thought in the intervening period, CX should have monitored developments and seen it coming. Maybe they did, hence the CX-CA cross-shareholdings. Though it's still hard to see how these help travellers, or whether MPC Elites would see the worth in flying CA metal, especially on connecting international flights (with 2 chances of ATC delay in China each time).

Anyway, beyond the change in the dynamics of PRC airlines, CX needs to decide where it positions itself vis-a-vis F/J (presumably keeping things premium, hence where changes to MPC seem to reinforce preference for F/J over Y/PEY) and also in Y/PEY, where the issues can be harder.

I like the idea of differentiating upper Y fare classes from lower Y fare classes. And to be honest i could never understand why the 72 hour guarantee (for MPC Gold) extended to the cheapest fare classes (though now CX has gone way, way too far in the opposite extreme, to all intents and purposes cancelling the 72 hour guarantee - something which in years when I held Gold (or 1 year as Diamond) I used to use to justify paying a bit extra to fly CX rather than EK or QF or TG).

OK, let's face it CX PEY is what CX Y used to be: amenity kit, extra drinks service, etc. But perhaps a slightly bigger seat pitch than Y had. But post-911 CX chipped gradually away at Y, thus creating the "gap in their own market" for PEY.

What would suit me is expansion of PEY, with prices coming down a bit as a result (I've noticed PEY pricing can be erratic - sometimes a smidgeon more than normal economy, other times almost as much as business - likely due to there not being many PEY seats). I could probably justify that to clients (I'm self-employed, can book my own flights but subject to client approvals). Then CX could be more honest with the downgraded back-back-end. Though even there, the issue is whether that's right for them.

Having said which, I'm still not 100% convinced that CX should join the race-to-the-bottom, even for the lowest fare classes. And I get the feeling CX don't really know either. But how can they reach out to back-end passengers to gauge their views with their surveys now, having ejected a lot of economy-only MPC former elites from MPC?

CX HK

Reading the comments on the SCMP article, common complaints from the (alleged) frequent fliers:

- Terrible IT / website
- Bureaucratic management, reeking of the old colonial British firms
- Still too many overpaid European expats
- Highly dissastisfied crew, which affects their service

andersonCooper

You seem to focus on Southeast routes, but from my experiences on NA-Asia routes, PEY is really priced competitively compared to JAL, QF and even AA (Not at all in J). I am not familiar with mainland carrier's pricing and cabins availability, but PEY, with the exception of ex-HKG route, from NA to Asia/Australia, is cheap. The problem is people don't want to take a connection in HKG and prefer direct flights from China to NA.

Whether the soft/hard products/services current PEY receive is the real PEY is another question.

Aus106080

Surprisingly, for china-NA transfer market, CX have done quite a good job. Even the NA-China direct flight supply have increase unprecedently, CX can still keep the market.

The below link show that the number of people transfer via HK in the US-China market has not changed while KE and NH drop significantly.

Below link is in Chinese.

http://news.carnoc.com/list/414/414227.html

christep

The obvious answer is "the person who accepted Cathay's bet". One aspect of the fuel hedging which has never come out is who exactly won the bet that Cathay lost? It was a zero-sum bet, so every billion lost by Cathay was a billion made by someone else.