Cathay Pacific Airways Limited announces 2021 Annual Results
 

https://www.cathaypacific.com/conten...results_en.pdf

Better than I expected... what do you think?

-Chris

There is a "positive" trend, so to say.

What we should not forget is: "How much money do you need to invest to recreate an airline with the quality CX did have, pre-Covid" ?

As long as that is (significantly) more than the expected accumulated losses, it is still worth absorbing all the losses and have (in the end) a company able to generate profit and recuperate the accumulated losses.

This is same reason why Boeing is still alive, despite its enormous losses in the past 3 years, the still not resolved issues around the 787 and 777X deliveries and its completely shattered reputation.

The bigggggg issue is China's persistent adherence to the Zero-Covid scenario. A Zero-Covid scheme fails in the end, there is no doubt about that, though the alternative now is even worse (some 1.5+M dead Chinese, presumable all supporters of the perfect political system, so the China Communist Party does not want to lose its supporters).

Though, until the Zero-Covid scenario is dropped, the CX losses will accumulate, with no real end in sight.

The end is when the cash pool run out, right?

On the contrary.

Actually, the answer is already in my earlier writing: As long as the owners deem the original (or maybe better: future value, when all hell is over) value of the company to be bigger than a "build from scratch", they will supply (in some way or another) new cash to feed a depleted cash box.

And even after that, it could be, another party shows up, being prepared to give it another shot and fund more cash.

You think of this matter from a business point of view. Right now CCP is in control. Not the CX management or the shareholders. There are someone in China talking about starting a new airline from scratch. Call it Big Bay Area Airline. They are ready if they can take over CX route and assets.

Two points I want to make:

1. Greater Bay Airlines is already approved. This will be detrimental to Cathay's near-monopolistic hold on HKG; I can only assume that HK Govt officials, pro-Beijing citizens, or just politically indifferent and price sensitive customers will switch their business to GBA. However, this also strengthens Cathay's survival chances - there is now no urgent need for a Chinese company to take over Cathay, given that the HK aviation scene is no longer just Cathay. GBA provides the Chinese alternative; while I am sure they will do well, I fail to see how Cathay's business will be destroyed by GBA. Times will be tougher, but hey, perhaps some competition is good for Cathay, especially even for us loyal Cathay flyers we understand that their ex-HKG prices often were ridiculous.
   
2. It has been reported many times over the years that Swire has a special attachment to Cathay. This continues to remain the case. Swire has very deep financial and political pockets, and will do everything in their power to keep the airline. They can ride out this storm, and in my opinion 2020/2021 was probably the worst time for CX. 2022 should signal a better year financially. Swire, like the old Jardine holding structure, has very complex defensive mechanisms against a hostile takeover. Now yes, I am not naive enough to think that the CCP couldn't just strong arm them into selling, or shut them down a la Next Media, but I reckon they still have enough political sway to prevent that from happening for now.

TL;DR: GBA will end Cathay's monopoly-status in HK, but also get the bullseye off of Cathay's back (HK skies no longer just dominated by a British-family run brand). Competition will probably be good for consumers. And Swire will not just sell Cathay for economical reasons, it is deeply intertwined in the company's history and culture and is a source of great pride (and is their most visible brand).

I agree on the second point, but why do you think GBA is so much more capable than HX?

I think HX has heavy debt burden, and it's going concern ability is a huge issue.

HX firstly is/was a pretty insignificant part of the sprawling HNA Group, and when troubles began at HNA a number of years ago, HX basically fell into the wayside and was poorly managed.

GBA on the other hand is backed by a seemingly savvier businessman with airline experience, and run by competent ex-Cathay management.

Yep, CCP is in control, or at least, that is what they want. Reality might be a bit different, even in China, more and more people get completely fed up with the policies enforced with violence and threats.
Even a Greater Bay airline, would suffer in HK from the same issues CX is facing. So, no gain for a new-comer, not to say, a big disadvantage, given that starting an airline does cost a fortune, especially, when the flights can only be limited.

Not to say, what I heard -though from far away- the Greater Bay owner is not in such a good standing with the China government. Understandable, since proper service (needed for a successful airline) and communism aren't on the same plate, IE, more on the opposite sides (proper service being at the top).

Just think: What value proposition would a new airline need to bring, to attract bookings ? Low Pricing ? Network ?
Low Pricing does only bring profit when the airplanes are full.
A network: It takes ages to build an extensive network.

Both of these items are already solved at CX (only partial low pricing, a huge amount of knowledge around pricing), and CX does have an extensive network (though put asleep at the moment, though that would apply to Greater Bay to).

Who is in control: As long as the CX shareholders fund money to keep the airline alive, they are in control.

When you are dealing with China, you can't take things at its face value. Jiang ZeMin wouldn't tell you that he is a huge shareholder of Alibaba, Tencent and Ant Financial. Who do you think is the owner of that South Africa private equity that owns 30% of Tencent? You have to read between the line and find out what is not said.

Of course, the whole of China is full of secrecies and hidden agendas.

Though, that won't change the Zero-Covid strategy in China, nor the closing off from the rest of the world (China needs to be protected, probably not only against Covid, though even more against the threats to the CCP and its political system). No change in opening up the country immediately implies, no flights into China (or better, no incoming passengers). Implying very limited options to successfully set up an airline, with a target to "connect" China/Hong Kong with the outside world.

In the airline industry, there is a fundamental rule: If you want to end up with a small fortune, you need to start with a big fortune.

On this point, an aircraft leasing company has petitioned the court to wind up HX.

https://www.thestandard.com.hk/break...-Kong-Airlines

That's interesting. HX is just like one of these luxury houses on the Peak that mainland tycoons bought in 2010-2014, when it was boom time, and now are left decrepit.

I hope someone takes over HX soon. Cathay & HK Express, along with 2 other smaller competitors will be good for the HK market.