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Cathay Pacific 2017 first half results - HK$2.05b loss

Cathay Pacific 2017 first half results - HK$2.05b loss

Old Aug 18, 2017, 1:58 pm
  #61  
 
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Originally Posted by 380Flyer
Read this!

Analysts, including Ms Corrine Png, chief executive officer of Singapore-based Crucial Perspective, and Mr Shukor Yusof, founder of Endau Analytics in Malaysia, have said that Cathay needs to take a leaf out of rival Singapore Airlines' book and start a budget carrier, or turn its affiliate Cathay Dragon into one to keep a grip on Hong Kong passengers.

"They still believe they have this unique market position," Mr Shukor said about Cathay. "They don't realise that the way things were done doesn't work anymore. Their reluctance to change is very disturbing."


This is when I really wonder if these analysts have any idea what they are talking about and how much they really understand the airline industry let alone the organisation that they are commenting on.

HKIA is slots constraint and why on earth would Cathay Pacific start a low cost carrier when they can manage low fare pricing within their existing offering. If these analysts attending the management briefing, they will understand that CX/KA are looking at different options to further tap into offering low fares through an expanded fanfares offering.

Conclusion: Corrine Png from Crucial Perspective and Shukor Yusof from Endau Analytics are just BAD ANALYSTS who don't understand the business.
I think those analysts have a "hometown" bias, as you pointed out Cathay are in a much different operating market than SQ. HKG slot constraint essentially negates the ability to launch an LCC subsidy.
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Old Aug 18, 2017, 4:04 pm
  #62  
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Originally Posted by sxc
I agree with what you say. But the current pricing by competitors is a bit of a chicken and egg situation. Because fuel price is low, competitors can afford to drop their fares. CX doesn't have that luxury so dropping their fares with a high fuel cost magnifies the effect of the drop in yield.
I don't fully disagree with your point.
Let me talk only about premium classes.

HKG is a special market for tickets originating there. Fares have been historically extremely high from HKG in premium classes; abnormally so. This is clearly related to the dominant position of CX and slot constraints. Other points of origin in Asia, as well as America and Europe are considerably cheaper. There CX aligns fares with others (possibly with some markup for quality, but the difference in quality has been narrowing coz all airlines introduced flat beds). Competitors exHKG could have lowered their premium fares exHKG long ago, but as long as the market (and CX) allows high fares, they have little incentives to do so. That results in my EU-HKG tickets to be much cheaper from EU than from HKG, even on CX. And I buy all my frequent return tickets from EU. For example,I now pay less than HKD40,000 for a fully flexible CX F ticket.

To return to your point, you should consider the hedge loss as a fixed (exceptional) cost. That is a given fact and no business/pricing policy can change it. CX has the option of keeping very high fares or lowering them. That has no influence on the hedge sunk cost. Given the renewed competition, keeping high fares will mean much lower load factors and bad operating results. Significantly lower fares will mean a good load factor but a drop in yield and bad operating results. lose-lose.
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Old Aug 18, 2017, 11:38 pm
  #63  
 
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Originally Posted by Cathay Dragon 666
Wow, if it was that easy why don't any major airlines do it and how did those pesky LCCs survive let alone thrive in this industry?!?!?!

Because at low fares Cathay and Dragon are losing money big time with their overhead expenses. For low fares to work, the flight needs to be completely LCC - no food, restrictive baggage rules, etc. etc. One cannot run a luxury airline with high overhead, and sell low fares, and think that will work, it won't. That's the point of the analysis.

I heard for a luxury airline like Cathay, to maintain the quality they are offering, they have to sell an average of V-fare(!!!) to break even. Anything less than that is pure loss. Now I see Cathay is throwing around Q-fare and even if they fill up the plane with Q-fare they are losing tons of money.

So to amend the situation? Cathay is degenerating towards a LCC airline (a metaphor, but you get the point). Lower service standards, lower quality of food and products, etc. etc.

Dragon had a chance to be the "Best LCC in Asia" when Cathay bought them. Instead Cathay thinks they can run Dragon like Cathay and as a result they left the flood gate open for other LCC airlines to thrive and Dragon is bleeding money the same way Cathay is.
Swire want to maintain a relatively premier image in hong kong like their property development and shopping centre. Therefore, they do not want to transform KA into LCC.
Undoubtedly, CX management 'or swire' have underestimated thr development of LCC, but it is swire.
It is quite hard for then to adapt rapid change.
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Old Aug 18, 2017, 11:46 pm
  #64  
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Originally Posted by Cathay Dragon 666
I heard for a luxury airline like Cathay, to maintain the quality they are offering, they have to sell an average of V-fare(!!!) to break even. Anything less than that is pure loss. Now I see Cathay is throwing around Q-fare and even if they fill up the plane with Q-fare they are losing tons of money.
Can you read their profit loss statement? They make a massive operation profit.

read that again. MASSIVE operating profit.

The bet wrong on fuel, and currency hedge. They incur massive fines for operating illegally.. its what Swire does.

But outside that, the company as it is.. earns BILLIONS.

Lets not forget..
CX Engineering is HAECO (SWIRE)
CX Catering (SWIRE)
Grooming (HAS - SWIRE)
Laundry (Vouge - SWIRE)

it goes on..

all the service companies take money from CX (at a high margin) and move it to SWIRE.

Its a massive shell game.
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Old Aug 19, 2017, 3:29 am
  #65  
 
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Regarding hedging - it's supposed to mitigate risk. I.e. a company fixes a proportion of their cost at a predetermined price. If they fix all of that cost it's not hedging anymore. A previous employer of mine did this mistake twice within the space of a couple of years. First, they fixed all their fuel purchases a few days before the crash in '08 (extra cost vs market USD 200 mill), then they did a rate swap (extra cost USD 80 mill). The CFO tried to argue against it, but the CEO and his rather inept right-hand advisor won the board over. Btw, every single director on that board was either-or Oxbridge/Harvard/MBA/ex McKinsey etc. For a company generating approx USD 1.3 billion in annual revenue these were dramatic times, and there was no way these losses could be compensated in any meaningful way through other cost cuts.
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Old Aug 19, 2017, 10:01 am
  #66  
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Originally Posted by 380Flyer
Read this!

Analysts, including Ms Corrine Png, chief executive officer of Singapore-based Crucial Perspective, and Mr Shukor Yusof, founder of Endau Analytics in Malaysia, have said that Cathay needs to take a leaf out of rival Singapore Airlines' book and start a budget carrier, or turn its affiliate Cathay Dragon into one to keep a grip on Hong Kong passengers.

"They still believe they have this unique market position," Mr Shukor said about Cathay. "They don't realise that the way things were done doesn't work anymore. Their reluctance to change is very disturbing."


This is when I really wonder if these analysts have any idea what they are talking about and how much they really understand the airline industry let alone the organisation that they are commenting on.

HKIA is slots constraint and why on earth would Cathay Pacific start a low cost carrier when they can manage low fare pricing within their existing offering. If these analysts attending the management briefing, they will understand that CX/KA are looking at different options to further tap into offering low fares through an expanded fanfares offering.

Conclusion: Corrine Png from Crucial Perspective and Shukor Yusof from Endau Analytics are just BAD ANALYSTS who don't understand the business.
Agreed.

Singapore are allowing unlimited LCC competition because:
1, Open Skies in ASEAN country
2, LCC stealing passengers in Singapore from nearby Malaysian airport with convenient and frequent bus between Singapore and Malaysia.
3, The exchange of allowing Jetstar to operate in Singapore for SQ to operate in Australian domestic routes.

The result is large flow of LCC is sabotage SQ's position as a leading airline in the region. Lots of regional routes could not be sustained. While Cathay Pacific is hanging on its ASEAN routes and expand in Europe, SQ is flat.

And 10 years on, LCC in Singapore is expanding yet lot of routes were cut, the room for expansion is limited. Besides few big tourist chunk routes, lots of LCC routes are underperformed. There is a real danger of the growth of LCC ASM exceeding travel public demand.

Hong Kong is so different from Singapore. From Hong Kong, its nearby airports are not LCC dominated like Singapore. Shenzhen and Guangzhou are dominated by legacy carriers and Hong Kong has more LCC carriers than both CAN and SZX. Transportation between airports in pearl delta area are expensive compare to Singapore. Mushrooming LCC in Hong Kong will only create a situation that sabotage the premier marketing position of both HKG airport and CX. I don't think people here want to see thousands of those red hat gannies going crazy in the boarding gate for missing their LCC flights to Vietnam daily...

Cathay Pacific in HKG is like a Michelin star restaurant in a Four Seasons hotel. It would be commercially suicide to turn a corner of this popular restaurant into a Caf de Coral.
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Old Aug 19, 2017, 10:12 am
  #67  
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Originally Posted by Cathay Dragon 666
I heard for a luxury airline like Cathay, to maintain the quality they are offering, they have to sell an average of V-fare(!!!) to break even. Anything less than that is pure loss. Now I see Cathay is throwing around Q-fare and even if they fill up the plane with Q-fare they are losing tons of money.
It is a myth.

CX does not need to sell average V fares to break even.

CX can break even (without oil hedge of course) with revenue from F/J and cargo.

Let us consider this, the revenue for CX on I fare is 10 times of Q fare. And V fare? it is at best of 2 times of Q fare. While a Y, B or H fare is at least 8 times of Q fare and 4 times of V fare. So you flood the market with 50 Q fares (instead of 20), but sell more Y B and H fares. For the extra 30 Q fares, you just need to sell 7.5 Y B H fares (suppose these 30 extra Q seats was to be sold at V).

Many Y seats are sold at a loss. It does not matter how many Q fares CX sell as long as CX meet its financial target of revenue.
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Old Aug 19, 2017, 12:21 pm
  #68  
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Originally Posted by deadinabsentia
Can you read their profit loss statement? They make a massive operation profit.

read that again. MASSIVE operating profit.

.
I don't see where you read that.

Operational loss before non-recurring items stands at -2,534. If you add the normal financing charges of 814, you get a total loss of 3,348. Hedging losses including in this loss amount to 3,230. So CX would have shown a loss anyway.
Of course, they used various non-recurring tricks like divesting of shares that had been purchased lower a long time ago. They could have shown that extraordinary capital gain at any time, but it helps embellish the awful results. But this is a one time accounting gain.
As an ongoing concern CX is losing money beyond its fuel hedges.
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Old Aug 19, 2017, 7:02 pm
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Originally Posted by Aus106080
Swire want to maintain a relatively premier image in hong kong like their property development and shopping centre. Therefore, they do not want to transform KA into LCC.
Undoubtedly, CX management 'or swire' have underestimated thr development of LCC, but it is swire.
It is quite hard for then to adapt rapid change.
SWIRE has been around for 200 years.

If it did not adapt they would have sunk a long time ago...

realistically look at the LCC market, yes it is growing but what % share does it have?

Why would you launch an LCC in a slot constrained airport?!!!!
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Old Aug 19, 2017, 8:34 pm
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Originally Posted by Kachjc
SWIRE has been around for 200 years.

If it did not adapt they would have sunk a long time ago...

realistically look at the LCC market, yes it is growing but what % share does it have?

Why would you launch an LCC in a slot constrained airport?!!!!
It makes you wonder why some of these smart analysts are saying all the wrong things about CX and LCC.

CX does not need to take a leaf out of the SQ playbook about starting an LCC.

SQ's Budget Aviation Holdings only made SGD 3 million for Q1 FY2017-18. Hardly much given the amount invested in running this subsidiary. Break-even load factor was 86% whilst passenger load factor was 84%.

It also seems SQ's cargo division hasn't benefited greatly from the recent cargo rebound. Not to mention profits declining at their regional subsidiary Silkair.

SIA itself had a one-off item which inflated their Q1 FY2017-18 results. If you exclude this and add the Q4 (Jan-Mar 2017) figures, then SIA Group would be running an overall loss.

To me, it seems obvious that some of these Singapore based analyst have a deeper affiliation and bias towards SQ - BAD ANALYSTS!!!
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Old Aug 19, 2017, 9:40 pm
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Originally Posted by 380Flyer
BAD ANALYSTS!!!
Analysts are analysts because they do not want to take the risk and actually bet on their opinions. They can say what they want with little consequence.

CEO's, executives etc are the ones who make actual bets...

analysts have always had a bias towards SQ....
so do magazines etc and most posters
SQ is untouchable.

and SQ is government owned. - Talk to a bank about financing when they know that a government is behind you- Talk to the same bank and they know a private business is behind you...

Guess who gets the better terms?

but they forget that SQ was always bigger than CX.

until 2005
Since then CX has left SQ a long way behind. CX needs to be compared to larger airlines at their hubs. BA at LHR, LH at Frankfurt etc - until these airlines launch LCC's from their own hubs- asking CX to launch an LCC makes no sense.

The only region where SQ is stronger than CX - Australia NZ

and that is only because QF has used the Aussie government to slow CX and CX has not been aggressive in NZ like SQ ( 2wice daily CHC over summer- daily winter)
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Old Aug 19, 2017, 9:43 pm
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Originally Posted by deadinabsentia
Can you read their profit loss statement?
Lets not forget..
CX Engineering is HAECO (SWIRE)
CX Catering (SWIRE)
Grooming (HAS - SWIRE)
Laundry (Vouge - SWIRE)

it goes on..

all the service companies take money from CX (at a high margin) and move it to SWIRE.

Its a massive shell game.
and soon to add Seats apparently... Seats are going in house for the A350-1000
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Old Aug 19, 2017, 10:06 pm
  #73  
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Kachjc and 380flyer: this time I agree with both of you
If CX can keep out competition and keep a vice-like grip on HKG bilaterals then I agree there's no need to set up a LCC
No need to give the public any expectation of lower prices when there's no competition making you do so

chongcao: if you're the only restaurant around you can charge Michelin prices for Cafe de Coral food. Milk your schedule til passengers pips squeak. Given recent complaints here and offline I don't think the analogy's an exaggeration.

---

CX is increasing ASK by 1.1% but decreasing yield by 5.2%
Given I doubt any of us are decreasing yield by 5% the benefit is likely to be enjoyed by outport O&D and transit pax.
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Old Aug 20, 2017, 1:42 am
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CX Catering, HAS and Vogue Laundry are all 100% subsidiaries of CX so there is no leakage to Swire when CX pays them for their services.
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Old Aug 20, 2017, 2:13 am
  #75  
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Originally Posted by percysmith
Kachjc and 380flyer: this time I agree with both of you
If CX can keep out competition and keep a vice-like grip on HKG bilaterals then I agree there's no need to set up a LCC
No need to give the public any expectation of lower prices when there's no competition making you do so

chongcao: if you're the only restaurant around you can charge Michelin prices for Cafe de Coral food. Milk your schedule til passengers pips squeak. Given recent complaints here and offline I don't think the analogy's an exaggeration.

---

CX is increasing ASK by 1.1% but decreasing yield by 5.2%
Given I doubt any of us are decreasing yield by 5% the benefit is likely to be enjoyed by outport O&D and transit pax.
Hard to argue with these observations.
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