Cathay Pacific posts worst results since 2008
#32
Join Date: Mar 2014
Posts: 546
Hong Kong is not a big enough market to support a major international airlines without significant number of transit passengers (same with Singapore). With competition at both ends (mainland Chinese carriers and ME3), they'll continue to bleed. CX lost money on fuel hedging but that's a one-time issue. Its problem is long term.
#33
Suspended
Join Date: Jul 2007
Posts: 4,477
First, when you change a plane's configuration, there are investments that you have to fund. By change 9 abreast to 10 abreast, you have firstly to order the seats, cost millions;
Second, during retrofit, you have literally rewire the whole aft section of the plane, due to added in flight PTV requirement, cost millions;
Third, once you start to retrofit, you have to take each plane out of service for 14 to 21 days. Cost lost revenue, millions;
Fourth, you fly to the plane to HAECO, to do the retrofit, cost millions;
Fifth, after you added many seats in the plane, you will have to sell these seats, otherwise your yield suffers. What is worse, if you added all these seats and can only sell they at the cheapest price that Air China/China Eastern/United/...etc can charge, your PRASM is going to be ugly. In the mean time you loose core customers as they feel the brand is going down hill...another few millions here and there.
It is easy to do by adding more seats you can compete with the lowest priced rival, but the economic impact on an airline is difficult to measure until it is proven. At this moment, CX needs to refrain to commit to big project that will cost the airline millions. Current it is a peak of an airline cycle, when travel demand fall within one year or two, CX will suffer even further when its competitor aggressively price the bottom. CX has a higher cost base and the smart thing to do is to maintain the revenue per seats rather than lower the PRASM by adding more seats so they it can match the revenue by lowering the price.
It is wise to conserve cash at the peak of the market and (so that it can) be aggressive at the bottom of the market. CX is missing its chance in this decade by entering scandalous fuel hedge.
#34
Ambassador, Hong Kong and Macau
Join Date: May 2009
Location: HKG
Programs: Non-top tier Asia Miles member
Posts: 19,807
First, when you change a plane's configuration, there are investments that you have to fund. By change 9 abreast to 10 abreast, you have firstly to order the seats, cost millions;
Second, during retrofit, you have literally rewire the whole aft section of the plane, due to added in flight PTV requirement, cost millions;
Fourth, you fly to the plane to HAECO, to do the retrofit, cost millions;
Second, during retrofit, you have literally rewire the whole aft section of the plane, due to added in flight PTV requirement, cost millions;
Fourth, you fly to the plane to HAECO, to do the retrofit, cost millions;
BTW investment in seats is not a one-time charge into the P&L - you depreciate over time. Sure old seats might be fully depreciated but then you have to think about how many inoperable seats and safety issues you can reasonably take.
Really when serving PRC and HK tourist traffic you're just coping with surge demand.
You have to keep up frequencies to business destinations, true
But you can cut all those extra frequencies to OKA DPS and CTS, and maybe even make them less than daily.
Fifth, after you added many seats in the plane, you will have to sell these seats, otherwise your yield suffers. What is worse, if you added all these seats and can only sell they at the cheapest price that Air China/China Eastern/United/...etc can charge, your PRASM is going to be ugly. In the mean time you loose core customers as they feel the brand is going down hill...another few millions here and there.
It is easy to do by adding more seats you can compete with the lowest priced rival, but the economic impact on an airline is difficult to measure until it is proven. At this moment, CX needs to refrain to commit to big project that will cost the airline millions. Current it is a peak of an airline cycle, when travel demand fall within one year or two, CX will suffer even further when its competitor aggressively price the bottom. CX has a higher cost base and the smart thing to do is to maintain the revenue per seats rather than lower the PRASM by adding more seats so they it can match the revenue by lowering the price.
It is easy to do by adding more seats you can compete with the lowest priced rival, but the economic impact on an airline is difficult to measure until it is proven. At this moment, CX needs to refrain to commit to big project that will cost the airline millions. Current it is a peak of an airline cycle, when travel demand fall within one year or two, CX will suffer even further when its competitor aggressively price the bottom. CX has a higher cost base and the smart thing to do is to maintain the revenue per seats rather than lower the PRASM by adding more seats so they it can match the revenue by lowering the price.
There's nothing stopping CX from selling a 398-seat 10-abreast plane as a 358 in low season and keeping prices as before. So nothing will be changed from before. And passengers won't be too upset because they find empty seats.
It's in peak season where the 40 extra seats will be pure profit for CX.
Last edited by percysmith; Mar 15, 2017 at 10:50 am
#35
Join Date: Sep 2016
Location: MNL / SFO / NYC
Programs: IHG Spire | Marriott Plat | UA Plat | AA Plat Pro
Posts: 533
No you misunderstood.
First, when you change a plane's configuration, there are investments that you have to fund. By change 9 abreast to 10 abreast, you have firstly to order the seats, cost millions;
Second, during retrofit, you have literally rewire the whole aft section of the plane, due to added in flight PTV requirement, cost millions;
Third, once you start to retrofit, you have to take each plane out of service for 14 to 21 days. Cost lost revenue, millions;
Fourth, you fly to the plane to HAECO, to do the retrofit, cost millions;
Fifth, after you added many seats in the plane, you will have to sell these seats, otherwise your yield suffers. What is worse, if you added all these seats and can only sell they at the cheapest price that Air China/China Eastern/United/...etc can charge, your PRASM is going to be ugly. In the mean time you loose core customers as they feel the brand is going down hill...another few millions here and there.
It is easy to do by adding more seats you can compete with the lowest priced rival, but the economic impact on an airline is difficult to measure until it is proven. At this moment, CX needs to refrain to commit to big project that will cost the airline millions. Current it is a peak of an airline cycle, when travel demand fall within one year or two, CX will suffer even further when its competitor aggressively price the bottom. CX has a higher cost base and the smart thing to do is to maintain the revenue per seats rather than lower the PRASM by adding more seats so they it can match the revenue by lowering the price.
It is wise to conserve cash at the peak of the market and (so that it can) be aggressive at the bottom of the market. CX is missing its chance in this decade by entering scandalous fuel hedge.
First, when you change a plane's configuration, there are investments that you have to fund. By change 9 abreast to 10 abreast, you have firstly to order the seats, cost millions;
Second, during retrofit, you have literally rewire the whole aft section of the plane, due to added in flight PTV requirement, cost millions;
Third, once you start to retrofit, you have to take each plane out of service for 14 to 21 days. Cost lost revenue, millions;
Fourth, you fly to the plane to HAECO, to do the retrofit, cost millions;
Fifth, after you added many seats in the plane, you will have to sell these seats, otherwise your yield suffers. What is worse, if you added all these seats and can only sell they at the cheapest price that Air China/China Eastern/United/...etc can charge, your PRASM is going to be ugly. In the mean time you loose core customers as they feel the brand is going down hill...another few millions here and there.
It is easy to do by adding more seats you can compete with the lowest priced rival, but the economic impact on an airline is difficult to measure until it is proven. At this moment, CX needs to refrain to commit to big project that will cost the airline millions. Current it is a peak of an airline cycle, when travel demand fall within one year or two, CX will suffer even further when its competitor aggressively price the bottom. CX has a higher cost base and the smart thing to do is to maintain the revenue per seats rather than lower the PRASM by adding more seats so they it can match the revenue by lowering the price.
It is wise to conserve cash at the peak of the market and (so that it can) be aggressive at the bottom of the market. CX is missing its chance in this decade by entering scandalous fuel hedge.
Long-haul business class cabin with no IFE (only small iPad minis with no holder), 'PEY' that was only 3-4 inches of pitch difference vs. Y (with exorbitant premiums for the market), Y and PEY had no IFE at all... and the list goes on.
In the end they could not compete with the LCC model as a legacy carrier, and the previous owner sold it back to one he bought it from since it was bleeding revenue as premium passengers switched over to SQ/CX/NH/JL/DL/BR, etc... Y passengers could not be relied on as competition could sell seats at Php 1.00 (USD 0.02) + taxes for all routes while the lowest they sold theirs was at Php 75.00 as a one off sale during their anniversary but typical 'sale' fares are closer to USD 20.00 for short haul and USD 200 for regional.
The new owner is now trying to revive the airline by re-designing the cabins again to a 1-2-1 J product (which it plans to launch to regional routes and if prices stay the same could add additional hurt to CX) and enhanced Y 2-4-2 with a dedicated PEY cabin in a 2-3-2 config.
https://runwaygirlnetwork.com/2017/0...-with-details/
#36
Join Date: Feb 2012
Location: HKG
Programs: CX DM, SPG Pt, Le Club Accor GO, Shangri-La GC Jade
Posts: 1,327
Well I think the remaining hard shells and even some of the earlier cradles could go.
BTW investment in seats is not a one-time charge into the P&L - you depreciate over time. Sure old seats might be fully depreciated but then you have to think about how many inoperable seats and safety issues you can reasonably take.
Not if you do it in slack season.
Really when serving PRC and HK tourist traffic you're just coping with surge demand.
You have to keep up frequencies to business destinations, true
But you can cut all those extra frequencies to OKA DPS and CTS, and maybe even make them less than daily.
CX doesn't have to sell every seat all the time. It's just to cope with surge demand.
There's nothing stopping CX from selling a 398-seat 10-abreast plane as a 358 in low season and keeping prices as before. So nothing will be changed from before. And passengers won't be too upset because they find empty seats.
It's in peak season where the 40 extra seats will be pure profit for CX.
With $20B liquid funds do you think CX is short of cash to make investments in hardware http://www.hkexnews.hk/listedco/list...142.pdf#page=9 ? It's not AZ.
BTW investment in seats is not a one-time charge into the P&L - you depreciate over time. Sure old seats might be fully depreciated but then you have to think about how many inoperable seats and safety issues you can reasonably take.
Not if you do it in slack season.
Really when serving PRC and HK tourist traffic you're just coping with surge demand.
You have to keep up frequencies to business destinations, true
But you can cut all those extra frequencies to OKA DPS and CTS, and maybe even make them less than daily.
CX doesn't have to sell every seat all the time. It's just to cope with surge demand.
There's nothing stopping CX from selling a 398-seat 10-abreast plane as a 358 in low season and keeping prices as before. So nothing will be changed from before. And passengers won't be too upset because they find empty seats.
It's in peak season where the 40 extra seats will be pure profit for CX.
With $20B liquid funds do you think CX is short of cash to make investments in hardware http://www.hkexnews.hk/listedco/list...142.pdf#page=9 ? It's not AZ.
Also don't ever think $20B cash is a lot... Quite a portion of which is prepayment for service yet to be rendered...
#37
Suspended
Join Date: Jul 2007
Posts: 4,477
With $20B liquid funds do you think CX is short of cash to make investments in hardware http://www.hkexnews.hk/listedco/list...142.pdf#page=9 ? It's not AZ.
As sscywong said, you have to pay attention to PRASM as well as the yield. By adding seats while not matching the demand, you would have routes that is 100% full while marginal routes like Dusseldorf, Barcelona to drag the overall yields down. You have to remember while CX is adding seats as well as adding planes, while virtually all other Asian carriers are adding more wide-body planes. Air China just added 30 B787 which would be delivered in next 5 years. There are over capacity building in Transpacific market and Euro-Asia market. Unfortunately CX will face competition in all directions. If you add seats in an environment that everybody is adding capacity you will have to sell these excessive capacity in a market rate since your USP and your brand image is gone. The end result: lower yields, lower PRASM, lower profit. And the whole airline can be destroyed if the market became unfavourable (i.e. sudden drop of demand like SARS or Chinese airline improved in both product and service). As I said I think we are in the peak of aviation market for this decade, it is unwise to corner yourself into a position that you have to compromise PRASM and future earnings when you are bleeding money. Stop the conversion programme of B777 would save CX money in short term which could boost investor confidence. Stop the conversion programme of B777 could also save CX in the long term as CX could not compete on price due to higher cost.
#39
Join Date: Mar 2011
Programs: AA LifeTime PLT (2.982 MM, But 3MM+ Total), HHonors GOLD, IHG AMB
Posts: 787
#40
Join Date: Mar 2017
Location: LHR, HKG
Programs: gate lice
Posts: 315
Exactly. CX is a pretty tough time ahead, especially with the premium market. U.S. carriers are rolling out all-aisle-access flatbeds. I can see UA taking more chunks out of Cathay's ORD, JFK, and EWR market share when Polaris is rolled out. CX has top-notch lounges, but I've heard pretty good things about UA's new lounge as well.
There's also geopolitical volatility with 45's administration, not to mention nationalism in Europe.
I think the Bloomberg article fails to distinguish between premium and Y cabins -- it does nothing to address the fact that Cathay F and J are overpriced in a market where competitors are catching up, and premium cabins is where a good chunk of revenue comes from.
There's also geopolitical volatility with 45's administration, not to mention nationalism in Europe.
I think the Bloomberg article fails to distinguish between premium and Y cabins -- it does nothing to address the fact that Cathay F and J are overpriced in a market where competitors are catching up, and premium cabins is where a good chunk of revenue comes from.
#42
Join Date: Dec 2008
Location: Hong Kong
Programs: CX DM
Posts: 1,140
CX blamed weak passenger demand, especially in premium cabins, in an analysis mid-2016.
Is it just me, or does CX charge insane prices for F and J classes? I can understand that CX can charge a premium as a reputable airline with plenty of nonstops to HKG and a focus on business travelers. But 27k USD for round-trip transpacific in F or 9k in J seems overkill, especially when UA charges 5k for J. Not to mention the less-than-satisfactory CX J food I read about on this forum.
Is it just me, or does CX charge insane prices for F and J classes? I can understand that CX can charge a premium as a reputable airline with plenty of nonstops to HKG and a focus on business travelers. But 27k USD for round-trip transpacific in F or 9k in J seems overkill, especially when UA charges 5k for J. Not to mention the less-than-satisfactory CX J food I read about on this forum.
#43
Join Date: Jan 2011
Location: Some hole
Posts: 2,783
I flew Singapore to SIN a few years ago and CX charged almost 5-800 US additional!
I got a better product on SQ's A380 and medium-haul 772ER. Not necessarily the seats as I kinda prefer CX's cirrus over the SQ A380 seats. But the food was better so was the price.
I got a better product on SQ's A380 and medium-haul 772ER. Not necessarily the seats as I kinda prefer CX's cirrus over the SQ A380 seats. But the food was better so was the price.
#44
Join Date: Dec 2008
Location: Hong Kong
Programs: CX DM
Posts: 1,140
I wonder what the impact of the Marco Polo Club changes have been? While probably too early as not a full year since the changes, the loss of solid (though not high value for those who do not value the Y+/Y Diamonds) and reliable member must now be feeding through.
Whereas each year I used to fly 20-25 times with CX I have not set foot on a CX place since last August, and cannot see my next flight on CX unless I do a redemption booking.
Definitely would hope the Treasury Department has been smartened up though.
Nicc
Whereas each year I used to fly 20-25 times with CX I have not set foot on a CX place since last August, and cannot see my next flight on CX unless I do a redemption booking.
Definitely would hope the Treasury Department has been smartened up though.
Nicc
I am no longer a good customer as the long hauls are in J but the regional flights are in Y. So they're losing the most profitable revenues yet retaining the costs of me being DM.
#45
Join Date: Dec 2008
Location: Hong Kong
Programs: CX DM
Posts: 1,140
Or..get back to the basics..1) improve the product, 2) incentivise the customers- especially the best ones- to bring business back, and 3) have a leadership that inspires the team. Small bits on all, though admittedly hard-work...harder work than a) changing the menu design and claiming F&B improvements, b) paying a cheap consultant for a bad copy paste job, c) an all hype, no concrete takeaway strategy session
Basically the opposite of what's been going on- cutbacks when competition is improving, kicking the loyal base in the backside, and a leader who inspires antagonism from pretty much all stakeholders, continuing at the helm..
Basically the opposite of what's been going on- cutbacks when competition is improving, kicking the loyal base in the backside, and a leader who inspires antagonism from pretty much all stakeholders, continuing at the helm..