UA's Smisek convinced Cathay not to join the budget airline race (SCMP Article)
 

Interesting article in today's South China Morning Press:
How a disgraced United Airlines chief influenced Cathay Pacific?s decision to forgo a budget airline | South China Morning Post

According to the article, CX's chairman decided against joining the LCC boom in Asia after a dinner with Jeff Smisek. While it's not explicitly stated, the article certainly goes on to strongly imply that the decision to forego that market, and CX's deepening losses in the region to other carriers' LCC subsidiaries, are directly related to Swire's decision to remove Slosar as Chairman of the airline last week.

Found the way this article was written very interesting, because it smacks of a lot of the news and rumors circulating around UA during the merger. A leader firmly convinced of his own correctness, a willingness to double-down on strategies that few others are buying, sticking to a plan-on-paper that looks great but isn't playing out in the real world, and an eventual fall-from-grace as a result...

Can't actually figure out if Slosar revealed this to credit Smisek with the strategy, or throw him under the bus for it!

This is what I don't understand (if this is proven true...)

Smisek was the CEO of a large airline. OK. But a CEO that left his post in shame. Under his leadership, there were lots of problems.

I would assume the leadership of a leading airline would be a tad careful about any advice he had to offer. And yet... they listened to him? Maybe even paid for his advice?

I mean... really?

If so, it is really an old boy's country club out there.

Article suggests this conversation happened long before Smisek was forced out in disgrace.

I read it as Cathay's current CEO, who's being pushed out, explaining why Cathay didn't jump on this opportunity, and pointing to United's lack of success with a LCC operation as a reason that it too didn't take that course.

CX's problems derive from gross mismanagement of the airline operation, including particularly disastrous fuel hedging and a totally uncompetitive fare structure. It's almost comical that he seems to be blaming a single dinner with another CEO for everything that went wrong.

Not sure this belongs in the UA forum.

Wow so Smisek badly damaged two airlines (3 if you count CO). What a poisonous creature

Smisek happens to be right here, the network-carrier owned LCC model has failed time and time again in the US. CO tried, DL tried, UA tried, US tried. All gone.

El Al announced last month that they're killing their LCC after losing millions trying to make it work.

Not a great track record for it to work.

wow just, wow...
 

This is very revealing about how bereft of understanding Jeff was. He advises another executive (and a competitor at that) not to employ a business model in Asia because it did not work in the US back in the 1990s? He is unable to see the very different business environment, nor CX's very different position ex-HKG where it was (for a while) the only home carrier. Very revealing about how little understanding Jeff had, but also his arrogance to share what are reported to be very amateurish thoughts with a competitor.

Not sure what it says about the CX chair that he bothered even listening, let alone believed anything Smisik would tell him was of any value whatsoever. :rolleyes:hg

Jeff is a great guy and gave great advice. He’s the type of guy that is not afraid to do what is necessary to get things done. That is how I try to model myself in my professional life and I would say that I wish more people were like that but then I’d have competition.

Seriously. If Smisek had told him to put wings on pigs, would he have done that, too?

Had CX actually listened to Smisek and started a LCC brand, there would be criticism from the same corners of Smisek's boneheaded-ness to even suggest diluting CX's sterling image for the lower common denominator. But the reality remains that the full-service model of CX (and SQ) was bound to be trampled by the same market forces that trampled the US3 in the 1980s and 1990s. Like SQ, which continues to struggle now despite Silk and Scoot, CX would be in the same predicament it is today with or without a LCC subsidiary.

SQ is having issues - in part - because AirAsia is just eating into their traffic, and is providing the service levels that fit well with the SES level of Malyasia, etc. But neither have hurt SQ's reputation, and I would argue that SQ would be in a lot worse shape if it did not have the low cost airlines as feeders.

Hong Kong Airlines is also doing well (owned by the corporate parent of Hianan airlines) and I think CX would have benifited from having that low cost feed.

ULCC's work when (a) they have a good airport to work from, (b) they have low cost structures, and (c) they have a lot of travelers who will pay for budget fares, but not higher full fare fares offered by traditional (and often state owned, see e.g. MH) carriers.

All the cutbacks, staff reductions, and criticisms of SQ’s financial losses/returns over the last several years suggest that CX would have just as tough if not a more difficult time competing in the new norm of the market. No fan of Smisek am I, but IMO he’s a straw man for a struggling carrier whose problems are more systemic than the lack of a LCC subsidiary.

As this is principally about CX and its business strategy and there is an existing discussion in the CX forum of this article, will close this thread pending a discussion among the UA moderator on the relevance to UA and refer all to the CX discussion.

WineCountryUA
UA coModerator