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CX Issues Trading Statement
Trading Statement
In the interim report for 2016 of Cathay Pacific Airways Limited (“Cathay Pacific”), it was indicated that the operating environment in the second half of the year was expected to continue to be affected by the same adverse factors as in the first half and that the overall business outlook remained challenging. When the interim report was issued, it was expected that, as is normal for seasonal reasons (and notwithstanding the adverse factors referred to in the report), the Cathay Pacific group’s results for the second half of 2016 would be better than those of the first half, when the consolidated profit attributable to shareholders was HK$353 million. Since the interim report was issued, the outlook for our airlines’ business has deteriorated. Overcapacity and strong competition is putting particular pressure on our passenger business, with continued shortfalls in revenue compared with forecasts and heavy pressure on yield. Against this difficult revenue picture, we are engaged in a critical review of our business, the goal of which is to improve revenues and to reduce costs so as to maintain a strong financial position and to deliver acceptable financial returns. The review will consider all options for improving efficiency and productivity. At the same time, we understand the need to continue to invest in our businesses and to improve continuously the products and services which we provide to our customers. Against this background, it is no longer expected that the Cathay Pacific group’s results for the second half of 2016 will be better than those of the first half. Source: http://www.cathaypacific.com/dam/cx/...atement_en.pdf My comments: this is not surprising as they did mention the challenging environment in their interim results briefing. What they need is a Low cost airline subsidiary to better compete with regional LCC and changing consumer trends. There are reports in the media notably from Ben Sandilands that doesn't make any sense. Airlines issue profit statements in line with the stock exchange requirements. This doesn't mean that the airline is in crisis mode. Yes, the market is challenging at the moment but CX has a strong balance sheet to weather the storm. |
So if they add another column of seats to make the 777 10 abreast, wouldn't that be adding to capacity?
I hope CX don't start going down the route of BA and "enhance" everything within an inch of its life. I've just recently started flying Cathay and have made it my first choice of travel between the UK and Australia, even though it is often at a premium compared to some other airlines. I've done 2 trips so far in the last 10 months and the next one booked in a few months time. And I've been spreading the word on social media too. Maybe I should reign that in for a bit. |
Originally Posted by 380Flyer
(Post 27338349)
My comments: this is not surprising as they did mention the challenging environment in their interim results briefing. What they need is a Low cost airline subsidiary to better compete with regional LCC and changing consumer trends.
Do you know, instead of spending money for a LCC or cutting costs, the best way to maintain its competitiveness? Ans: Stop pissing off customers. |
Originally Posted by dddc
(Post 27338382)
So if they add another column of seats to make the 777 10 abreast, wouldn't that be adding to capacity?
I hope CX don't start going down the route of BA and "enhance" everything within an inch of its life. I've just recently started flying Cathay and have made it my first choice of travel between the UK and Australia, even though it is often at a premium compared to some other airlines. I've done 2 trips so far in the last 10 months and the next one booked in a few months time. And I've been spreading the word on social media too. Maybe I should reign that in for a bit. |
Originally Posted by garykung
(Post 27338389)
Not really.
Do you know, instead of spending money for a LCC or cutting costs, the best way to maintain its competitiveness? Ans: Stop pissing off customers. |
Loads do look really dreadful right now. I saw a set of all loadings ex-HKIA last week. CX's long-haul #s were dreadful. 120pax total going to Paris on the daytime flight, 150 on the nighttime flight, a load of 140 to SYD, 160 to EWR. It's only a week....maybe it was a very bad one....but the #s were atrocious.
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Originally Posted by QRC3288
(Post 27338784)
Loads do look really dreadful right now. I saw a set of all loadings ex-HKIA last week. CX's long-haul #s were dreadful. 120pax total going to Paris on the daytime flight, 150 on the nighttime flight, a load of 140 to SYD, 160 to EWR. It's only a week....maybe it was a very bad one....but the #s were atrocious.
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Originally Posted by 380Flyer
(Post 27338528)
Maintaining its competitiveness is important but it needs to increase revenue to offset the high cost of operating out of HK!
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I wonder what "critical review" will entail. If they are dealing with the next six months, they won't be able to do anything major that affects short term results. Any long term structural change will take at least 1-2 years to enact and filter through.
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Originally Posted by dddc
(Post 27338382)
So if they add another column of seats to make the 777 10 abreast, wouldn't that be adding to capacity?
I hope CX don't start going down the route of BA and "enhance" everything within an inch of its life. I've just recently started flying Cathay and have made it my first choice of travel between the UK and Australia, even though it is often at a premium compared to some other airlines. I've done 2 trips so far in the last 10 months and the next one booked in a few months time. And I've been spreading the word on social media too. Maybe I should reign that in for a bit. Their big challenge is what to do now the mainland passengers have started flying mainland carriers. It's not only HK's airline industry that is noticing the downturn there. |
Originally Posted by QRC3288
(Post 27338784)
Loads do look really dreadful right now. I saw a set of all loadings ex-HKIA last week. CX's long-haul #s were dreadful. 120pax total going to Paris on the daytime flight, 150 on the nighttime flight, a load of 140 to SYD, 160 to EWR. It's only a week....maybe it was a very bad one....but the #s were atrocious.
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Originally Posted by G-CIVC
(Post 27339334)
My friend was on 383 earlier this week. The loading was 1/17/4/52. :(
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How much of this could be blamed on fuel hedging? I know it's been discussed before but I think one of the reasons why CX cannot offer competitive prices is because it is paying more for fuel than most of the other players....
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Mainland carriers are also seeing their yields fall as they add capacity.
https://www.bloomberg.com/gadfly/art...cating-embrace Fuel hedging adds to the yield issues. But then, mainland carriers don't hedge at all, which dented them a few years back. They're just at a different point in the cycle now. |
Originally Posted by hkskyline
(Post 27340461)
Mainland carriers are also seeing their yields fall as they add capacity.
https://www.bloomberg.com/gadfly/art...cating-embrace Fuel hedging adds to the yield issues. But then, mainland carriers don't hedge at all, which dented them a few years back. They're just at a different point in the cycle now. |
It is really hard to understand what is happening.
The Annual report issued in April 2016 showed excellent results. The Chairman stated " The high passenger load factors experienced in the first half of the year continued in the second half." Sure there was some warning about premium longhaul demand and decrease in yield. But the overall tone was positive. Sure oil prices have increased a bit to $50, but the average price in 2016 is not above the average price in 2015. But why the dramatic and sudden change in mood? CX must be planning some drastic measures and needs this dramatic profit warning following a bleak interim report three weeks ago. |
My flights to/from CDG last Feb/Mar (night flights both ways) were full and the return over booked as there were waitlist pax. My flights in Jan/Mar (260 out and 261 back) look quite booked up too.
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Originally Posted by Lussac
(Post 27340910)
My flights to/from CDG last Feb/Mar (night flights both ways) were full and the return over booked as there were waitlist pax. My flights in Jan/Mar (260 out and 261 back) look quite booked up too.
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When the CX Board of Directors engage in the critical review of their business, I hope that a majority of them realize the need to replace Ivan Chu and also hope that a majority if not a super majority vote to get rid of him.
In my view, replacing Ivan Chu with a better manager and leader is a pre-requisite to fixing the increasing challenges that CX faces. It's like CX has their own equivalent of Jeff Smisek. Chu's tenure is one where CX suffers from severe financial losses, declining customer service, employee dissatisfaction, increased customer dissatisfaction, and critical IT issues and failures. Contrary to the CX statement, I don't believe that there is any real improvement in the products and services which CX provide to their customers. This forum is replete with examples of significant decline of CX products and services. Certainly any improvement in products and services is not enough to improve their passenger business. While I will re-qualify for Diamond in 2017, I've moved significant business away from CX this year. |
Can somebody please help me understand something. One of the main issues outlined was over capacity yet they are increasing network capacity by moving to 10 abreast on the 777s and adding new routes and frequencies. As for Ivan Chu, I don't think you will find a single member on this board who would defend him.
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...And something I really don't understand: why is the Board so slow to act on Ivan Chu? What's keeping him there?
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Originally Posted by Aus106080
(Post 27338981)
Not surprise. SQ may have even lower loading. From CAPA report, the loading fo SQ is the lowest among all Asia and European airlines in the euro-Asia market.
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Originally Posted by boybi
(Post 27343354)
CX's and SQ's fares are very prohibitive. J pricing are almost always 2x that of ME carriers. I have never flown SQ because of its fares.
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They normally follow a cycle right? I mean like John Slosar, was CEO for 3 years from 2011 to 2014 before moving to Swire. Does that mean Ivan Chu still has until 2017?
Originally Posted by Mr. Strong
(Post 27341378)
When the CX Board of Directors engage in the critical review of their business, I hope that a majority of them realize the need to replace Ivan Chu and also hope that a majority if not a super majority vote to get rid of him.
In my view, replacing Ivan Chu with a better manager and leader is a pre-requisite to fixing the increasing challenges that CX faces. It's like CX has their own equivalent of Jeff Smisek. Chu's tenure is one where CX suffers from severe financial losses, declining customer service, employee dissatisfaction, increased customer dissatisfaction, and critical IT issues and failures. Contrary to the CX statement, I don't believe that there is any real improvement in the products and services which CX provide to their customers. This forum is replete with examples of significant decline of CX products and services. Certainly any improvement in products and services is not enough to improve their passenger business. While I will re-qualify for Diamond in 2017, I've moved significant business away from CX this year. |
Ivan Chu is dragging this company to the bottom since he took over the top job. Chu seems to have no issue with being an average middle of the pack carrier as long as the balance sheet looks good. I'm really hoping the board of directors has enough common sense in them to realize this downhill slide hasn't stopped since Slosar moved on to Swire. I truly believe that if CX chose to strive for excellence in every category they would have a much better chance at competing and pulling ahead of their competitors rather attempting to have the absolute lowest costs without falling too far down the ladder. Its frustrating to see a brand and company that I respect and believe in devaluing like this. Hopefully the ship can be righted before it hits the iceberg.
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Originally Posted by KrazyTrain18
(Post 27343691)
I'm really hoping the board of directors has enough common sense in them to realize this downhill slide hasn't stopped since Slosar moved on to Swire. I truly believe that if CX chose to strive for excellence in every category they would have a much better chance at competing and pulling ahead of their competitors
They don't need to be competitive, they need to be profitable (from the directors' POV) If they can achieve that by Cruz-style cost-cutting and leeching their slot hog, that's fine by the directors. |
Originally Posted by KrazyTrain18
(Post 27342889)
Can somebody please help me understand something. One of the main issues outlined was over capacity yet they are increasing network capacity by moving to 10 abreast on the 777s and adding new routes and frequencies. As for Ivan Chu, I don't think you will find a single member on this board who would defend him.
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Originally Posted by KrazyTrain18
(Post 27342889)
As for Ivan Chu, I don't think you will find a single member on this board who would defend him.
Originally Posted by hikouki
(Post 27343148)
...And something I really don't understand: why is the Board so slow to act on Ivan Chu? What's keeping him there?
Originally Posted by boybi
(Post 27343354)
CX's and SQ's fares are very prohibitive. J pricing are almost always 2x that of ME carriers. I have never flown SQ because of its fares.
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Originally Posted by sscywong
(Post 27346029)
Usually direct flight is more expensive... That high price is a trade off for convenience and time saving...
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Originally Posted by Aus106080
(Post 27338981)
Not surprise. SQ may have even lower loading. From CAPA report, the loading fo SQ is the lowest among all Asia and European airlines in the euro-Asia market.
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Did anyone notice on the Bloomberg interview with Ivan Chu following the release of 1H 2016 results where Ivan mentioned about the acX lounge at T5 at LHR. Boy is this guy out of touch where they fly to at LHR.
I vote for his removal and replacement as CX needs a proper leader to manage the airline. I've also noticed how Airline Business magazine hasn't even done a profile on him unlike other CX CEO who have featured regularly. There are signs that media and the industry do not like Ivan. I can also feel that the senior management team has the same feeling as those of us on this board. They should never allow Ivan to speak to media as a) we cannot understand his English, b) inability to articulate interviewers questions and c) giving wrong facts such as lounge at LHR T5. Here is Bloomberg video: http://www.bloomberg.com/news/articl...ting-discounts Go to 2:03 minutes to hear the comments on the T5 lounge. Unbelievable for a CEO to be out of touch or perhaps he has been flying BA to LHR secretly! REPLACE IVAN ASAP! MOVE HIM TO SWIRE CHINA........ In adddition, the finance director, Martin Murray also needs to be replaced for the fuel hedging losses. Can they also bring someone that we can understand their English! |
Originally Posted by MeltingAlf
(Post 27348375)
Interesting. Do you happen to have the article from CAPA? I've been reading CAPA for the past five months or so and I think I missed it out. :confused:
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Originally Posted by Aus106080
(Post 27351751)
http://centreforaviation.com/analysis/asia-europe-slowest-growing-major-market-but-dynamic-af-klm-and-sia-shrinkas-oneworld-china-grow-305914
I don't happen to see where 'From CAPA report, the loading fo SQ is the lowest among all Asia and European airlines in the euro-Asia market.' but just that 'SIA's European load factors in 2016 are many of its lowest load factors in a decade: SIA posted a 67% European load factor in May-2016' - which clearly refers to itself and not in comparison with the other Asian/European airlines. :confused: |
Get this about Ivan Chu:
A little birdie met Ivan recently and during his discussion, Ivan was bragging about how he used to date loads of flight attendants when he was young. Now why on earth would he talk like this when a) he is a turn off and not even good looking and b) as a CEO, you would not expect to talk in this manner. He is bringing himself to the same low level as Donald Trump. He apparently gloated about Jetstar HK and said "we're dead if we've Qantas at the top & Jetstar at the bottom". Just goes to show how comfortable CX has been with their dominant position in HK which is now disappearing at a very fast rate. This guy is such a fool to say that he lives in mid-levels and that he is a high flyer. To be honest, this guy does not impress me one bit. What a turn off!!!! I am just disgusted by this man and he really needs to exit CX soonest given his lack of leadership and vision. I know from the beginning that he was not the right fit for the job and my gut feeling has confirmed that he is not the right person for the job. Time to bring change! |
Originally Posted by 380Flyer
(Post 27358998)
Get this about Ivan Chu:
A little birdie met Ivan recently and during his discussion, But unless there's some credible source to this, I'm not sure what you're trying accomplish here spreading such rumours? |
Originally Posted by nolounge
(Post 27359135)
Ivan Chu might not be the greatest fit for this role.
But unless there's some credible source to this, I'm not sure what you're trying accomplish here spreading such rumours? |
http://downloads.cathaypacific.com/c...pdf/CXW246.pdf
Page 3: How severe are the business challenges at the moment? The environment is very tough indeed. We have seen more and more capacity added into the market. Our revenues are declining and yield is under great pressure. The weakness of the global economy has led to a reduction in premium demand, with major companies tightening their belts on corporate travel. There are other factors too – the decline in Hong Kong’s inbound tourism, for example, and the impact of security scares in Europe. Is this just another short-term problem? We believe that what we are facing now is the “new normal”. This is not a short-term crisis but one that will impact us over the long term – and it will require us to do things differently. In recent years we have been working hard to increase our productivity and keep our underlying cost base – that is, costs without fuel – competitive. We’ve had some success, but we need to do more. Other airlines are facing the same external environment as us, with fuel surcharges gone and revenues weakening, but they are doing better than we are because they have a leaner cost base. That’s why we need to get more productive – and fast. What can we do to turn things around? We have already begun a critical review of our business which will look at how we can improve revenues and costs. We will review every option for improving efficiency and productivity to help us maintain a strong financial position and deliver acceptable returns to our investors. We understand the need to continue to invest in our businesses and to continuously improve our products and services. But this is going to require us to do things differently, so we will review the way in which we are organised, the work which we do and our cost base. At the same time we are also in the process of developing our future strategy for the long term What will the strategy review entail? This body of work is already underway, led by [Chief Operating Officer] Rupert Hogg and the directors. The focus will be on how we can win over the next five to 10 years and the things we need to do to survive and thrive for another 70 years in an environment that is experiencing significant change. As part of this we will need to refocus our organisation on the things our customers really value, making better use of data to inform our decision-making, accelerating our digital capabilities, and looking at new ways to use our brand reputation to drive revenue premiums. You will be hearing a lot more about our new strategic focus in the months ahead. As part of the business review, will we be reassessing our fuel hedging position? Hedging is, and always will be, a core element of our riskmanagement strategy. Fuel is by far our single biggest cost, and we hedge to manage volatility and protect ourselves against severe and sustained fuel-price rises that could put our entire business in jeopardy. We expect oil prices to continue to be volatile and so we have taken another look at our hedging policy and the specifics of how we hedge. The key point to make is that the trading statement was not about hedging. The real problem is the continued deterioration in our revenues, and that’s what we want to address through this business review. Will the drive to cut costs affect our customer offering? It is vital that we continue investing in things that will improve the travel experience for our customers on the ground and in the air, spending money on the areas that they truly value. The challenge is to be able to do things more productively and efficiently as we deliver a differentiated experience to our customers. When do we expect things to improve? It’s not going to be overnight. It will take a sustained recovery of the global economy for the market to absorb all the excess capacity and for premium and corporate demand to recover. But of course we can’t afford to wait for this to happen, so we’ll need to focus on rebasing our costs and improving productivity, while continuing to deliver experiences that our customers really value. What should our people do in the face of the current challenges? We need our colleagues to understand that what we are facing is not a short-term challenge but a structural problem that requires a careful and sustained response. As we undertake our review we need everyone to ensure their work continues to have a positive impact on our customers and performance. We have an amazing team – passionate and committed – that has been through many challenging times with us before. It will take a concerted effort to get through this latest challenge, but we will keep you all informed of our progress every step of the way. How can I find out more? We will be communicating openly and frequently as we undertake the business review and begin our strategy work. The leadership team will be running town hall sessions and giving updates to their teams. We have already published a detailed FAQ on the current situation and invited everyone to give feedback through Slido. |
What I read about in the above statement, my feeling is as following:
1>, We management can do no wrong and we would not admit that we lost our pants in fuel hedging. As a good gambler, we will continue to hedge our fuel to make some loss back (yeah...). If the fuel is really that volatile in future, we can proudly say that we were right to hedge; should the fuel was not that volatile and we continue to have a loss, we can say that we have told you that there was some structural problem within the company and nothing to do with us management. 2>, We management can do no wrong and we would not admit that we have lost touch to our customer base. We would not admit that HK Express is causing more problem than we anticipated. We would not admit that we made a huge mistake not to form a JV with Qantas on JetStar HKG when first offered few years back before they approach China Eastern. 3>, We management can do no wrong and we would not admit that the company is in worse shape even when the fuel had dropped. So to prove that we will continue our cost cutting by remove food and beverage, checked luggage etc. from the current Y fares. And we will start to sell alcoholic drinks or any drinks in Y cabin from now on. If success we can proud us management, if fail we blame the market. Simples. |
What i read from that is the management doesn't really have a plan.
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Originally Posted by 1010101
(Post 27390029)
What i read from that is the management doesn't really have a plan.
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