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Cathay Pacific

How Disgraced United Airlines Chief Smisek Talked Cathay Pacific out of a Budget Airline

How Disgraced United Airlines Chief Smisek Talked Cathay Pacific out of a Budget Airline
Joe Cortez

Former United Airlines chief executive Jeff Smisek is being credited for a business decision that had nothing to do with his legacy carrier. At a university lecture, the leader of Hong Kong’s Cathay Pacific admitted that Smisek talked him out of launching a low-cost subsidiary on the grounds that they would only be competing with themselves for customers.

Former United Airlines executive Jeff Smisek is back in the headlines again, but this time it has nothing to do with his alleged political activities. The South China Morning Post reports that the former aviation leader once talked Cathay Pacific out of launching their own low-cost carrier.

During a lecture at The Hong Kong Polytechnic University, Cathay Pacific chairman John Slosar cited a dinner with Smisek “a few years ago” for his decision to stay out of the low-cost carrier realm. In their time together, the conversation went towards American legacy carrier experiences with low-cost subsidiaries, including United’s “Ted” and Delta Air Lines’ “Song” sub-brands. As a result, Smisek advised his fellow executive to stay away, noting that a secondary brand would only compete against their main brand for flyers.

“[Smisek] was saying don’t go down the path of setting up all these different airlines, figure out how to make your main brand compete in the main markets, that is what you ultimately have to do,” Slosar told the audience, according to the SCMP. “Given the point about segmentation, its really hard to segment out, I think there is a lot of sense in that. Jeff sort of convinced us that was the right way to look at it.”

Although other carriers out of Hong Kong want to challenge Cathay Pacific for passengers, including international upstart Hong Kong Airlines, analysts believe that the flag carrier won’t start a low-cost subsidiary anytime soon. The strategy seems counterintuitive to other international carriers like Lufthansa group, which recently expanded their low-cost offerings by purchasing assets of the failed Air Berlin.

Smisek was shuffled out of United after the airline was probed for corruption over alleged flight benefits akin to bribery at Newark Liberty International Airport (EWR). For his time with the Chicago-based carrier, he received a generous compensation package which includes lifetime flight benefits.

[Photo: Shutterstock]

View Comments (5)

5 Comments

  1. geofflw

    February 13, 2018 at 4:34 pm

    That sounds like collusion. I wonder what else they discussed.

  2. LukeO9

    February 13, 2018 at 8:22 pm

    Chief Execuitives…the Royalty the US always wanted.

  3. Yoshi212

    February 13, 2018 at 8:44 pm

    I still miss Song.

  4. emcampbe

    February 14, 2018 at 7:48 am

    I also wonder how much the US experience is relevant to that of Asia.

    Low cost carrier sub-brands of US carriers have failed in the past – that’s for sure. But there’s a completely different market in Asia, and while i’m sure there are some similarities in the absolute basics, there are more differences than similarities. If this is all the decision was based on, I wonder how negligent the CX CEO must be in actually giving a LCC proper consideration. Maybe its the same result in the end, but at least considering factors relevant to the market is appropriate, and Smeisk doesn’t have that in the Asian market.

  5. htb

    February 14, 2018 at 8:35 am

    I thought low cost subsidiaries are set up to lower the cost base and replace routes previously served by the legacy carrier.There won’t be any competition between the two, just a taking over of routes. Having both carriers serve the same route will certainly see them compete over the same customer base.

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