CX profits falls by 82%
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Another Day
Strangely enough none of you had much to say when hedging was working in our favour over the past 30 yrs.
And no doubt none of you would have much to say about whether we should discontinue it now.
I have only looked over the last two decades, not 30 years, but CX had made about $4billion over that time versus total fuel costs of > $325billion. So we had made just over 1% on fuel hedging until the end of 2014. Since then....well, you do your own math. But to put it into perspective, in the first half of this year the fuel hedging losses were equal to about 52% of the total non hedged price of fuel we used. So it appears as though we are recently either hedging about 40-50 times more than we have done for the last two decades, and/or someone decided to 'gamble' on fuel more than we have ever done in the last two decades!
And no doubt none of you would have much to say about whether we should discontinue it now.
I have only looked over the last two decades, not 30 years, but CX had made about $4billion over that time versus total fuel costs of > $325billion. So we had made just over 1% on fuel hedging until the end of 2014. Since then....well, you do your own math. But to put it into perspective, in the first half of this year the fuel hedging losses were equal to about 52% of the total non hedged price of fuel we used. So it appears as though we are recently either hedging about 40-50 times more than we have done for the last two decades, and/or someone decided to 'gamble' on fuel more than we have ever done in the last two decades!
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In simple terms, accountants have ways of showing what is the normal part of doing business and what isn't - the 'isn't' is called extraordinary.
Are wages the normal part of business? Yes - as are depreciation, taxes, route operating costs etc.
Is hedging a required part of the operation? Clearly not as many airlines don't hedge at all and somehow they manage to take passengers from A to B.
So hedging is NOT required - it is something that, if used correctly, smooths the edges of fuel price changes. But a 52% blip in fuel costs for the last six months is hardly 'smoothing the edges'.
So I still contend that hedging is a below the line item as we could have operated with or without hedging. Same reason our investments in other businesses are below the line - not affected by us running an airline.
Are wages the normal part of business? Yes - as are depreciation, taxes, route operating costs etc.
Is hedging a required part of the operation? Clearly not as many airlines don't hedge at all and somehow they manage to take passengers from A to B.
So hedging is NOT required - it is something that, if used correctly, smooths the edges of fuel price changes. But a 52% blip in fuel costs for the last six months is hardly 'smoothing the edges'.
So I still contend that hedging is a below the line item as we could have operated with or without hedging. Same reason our investments in other businesses are below the line - not affected by us running an airline.
Watching Bloomberg, one gets the distinct impression that Ivan the Terrible approves of hedging. I believe it can be laid directly at his door and, as such, he should resign or be fired.
Won't happen, of course, because that would mean admitting an almighty screw up which Cathay Managers cannot be seen to have committed.
Keep cutting corners and shutting engines down whilst taxiing in chaps. Don't waste that precious fuel cos it's very expensive - even though it could be quite cheap.
BA, by the way, have just refurbished their entire fleet of about 20 remaining -400's. How can they think ahead so well when our clowns are effectively doubling the price of our fuel.
Quite maddening.
Won't happen, of course, because that would mean admitting an almighty screw up which Cathay Managers cannot be seen to have committed.
Keep cutting corners and shutting engines down whilst taxiing in chaps. Don't waste that precious fuel cos it's very expensive - even though it could be quite cheap.
BA, by the way, have just refurbished their entire fleet of about 20 remaining -400's. How can they think ahead so well when our clowns are effectively doubling the price of our fuel.
Quite maddening.
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Implement no bonus policy
CX Managers need to show some apparent immediate profits that they can claim is result of their actions. Then they will receive bonus no matter the longer term consequences.
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You'd better hope Swires' do buy back a big chunk of the shares. A huge amount of our profit ( sic) is attributable to Air China, and has very little to do with our performance.
As things stand we could very readily be acquired by the HNA Group. ( They'd buy KA for the slots alone ) and we have no government safety net. So just like all the rest, TWA, PAN AM, Air Europe etc etc down the toilet it goes. And good luck with whining about three man long haul or failed TA's then. Who would you sell your DB /Tung Chung flat too ? Or your worthless boat. ? HKA guys ?
As things stand we could very readily be acquired by the HNA Group. ( They'd buy KA for the slots alone ) and we have no government safety net. So just like all the rest, TWA, PAN AM, Air Europe etc etc down the toilet it goes. And good luck with whining about three man long haul or failed TA's then. Who would you sell your DB /Tung Chung flat too ? Or your worthless boat. ? HKA guys ?
Amen Another day. Amen. And I can read P & L as well as the next man. Do you really think we're immune to takeover ? What bit of Bloomberg's recent report and recommendations to sell short don't you get ? Yes, the Swire Group has big pockets. However compared to the HNA group, for example, it's small change in their big pockets. Have they just ACQUIRED a stake in VS Australia, bought out Swissport, are in the market for another airport ( yes airport) in Europe and Oz. No. In fact they're running the airline in to the ground by a thousand cuts. If it weren't for the fact that these mainland outfits are run incredibly badly, and still represent a ****e experience for the travelling public, then we'd be even more in the ****. And these carriers will improve.
Right, just off to buy Elmo breakfast.
Right, just off to buy Elmo breakfast.
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It's really sad to watch CX freefall like this. I believe it is primarily the result of three factors:
1) Arrogance - Hong Kong has for decades been an aviation goldmine. It was not only the gateway to SE Asia, but also China as it burgeoned into a global power. Sadly, CX managers have thought they were brilliant this whole time and that they were the reason CX made money hand over fist. The truth is that any group of monkeys could have managed CX for the last several decades and done similarly well.
2) Penny wise, pound foolish - CX management pursues cost cutting strategies that save very little and often end up costing them more in the long run. For example, pulling the coffee machines out of the sim building, denying crew allowances based on the slightest of delays, and basically pursuing every cent of savings regardless of the goodwill it destroys. In essence, CX managers are very shortsighted. This is a structural failure within the Swire group that must be changed if CX is to survive.
3) The Market - It has changed. Our competitors from overseas and around the region have strengthened. They have improved their product while CX's has worsened. CX's premium customers are no longer loyal because the service has deteriorated, as has the on time performance and reliability. The operation runs on a shoe string while our competitors pump seats and flights into Hong Kong. The A380 operators bring scale while the LCCs and smaller international carriers bring frequency. The non-CX options in Hong Kong are substantial. Meanwhile, cargo operators flood HK with capacity at the slightest sniff of improving yield. The $5B cargo terminal is a bust as the mainland ships most of its freight direct. Meanwhile, the catastrophic fuel hedges put CX at a huge cost disadvantage against the competition.
Yes, it really is that bad. The question is whether CX will learn or not.
1) Arrogance - Hong Kong has for decades been an aviation goldmine. It was not only the gateway to SE Asia, but also China as it burgeoned into a global power. Sadly, CX managers have thought they were brilliant this whole time and that they were the reason CX made money hand over fist. The truth is that any group of monkeys could have managed CX for the last several decades and done similarly well.
2) Penny wise, pound foolish - CX management pursues cost cutting strategies that save very little and often end up costing them more in the long run. For example, pulling the coffee machines out of the sim building, denying crew allowances based on the slightest of delays, and basically pursuing every cent of savings regardless of the goodwill it destroys. In essence, CX managers are very shortsighted. This is a structural failure within the Swire group that must be changed if CX is to survive.
3) The Market - It has changed. Our competitors from overseas and around the region have strengthened. They have improved their product while CX's has worsened. CX's premium customers are no longer loyal because the service has deteriorated, as has the on time performance and reliability. The operation runs on a shoe string while our competitors pump seats and flights into Hong Kong. The A380 operators bring scale while the LCCs and smaller international carriers bring frequency. The non-CX options in Hong Kong are substantial. Meanwhile, cargo operators flood HK with capacity at the slightest sniff of improving yield. The $5B cargo terminal is a bust as the mainland ships most of its freight direct. Meanwhile, the catastrophic fuel hedges put CX at a huge cost disadvantage against the competition.
Yes, it really is that bad. The question is whether CX will learn or not.
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Last time I looked about 12 % of CX shares were publicly traded. The rest belonged to our "corporate sponsors": Swire, CNAC et al. Talk about low share price buy in and takeover all you want... not going to happen.
Did. CNAC "obliged" to divest its shares to, say, China Eastern (behind the Jetstar HK debacle), then, the remaining 12% acquired at the new rock bottom price ?
Or Swires' say f@ck it, it's not laying the Golden eggs it used to, and sell out.. Or are forced to sell out. In much the same way as they were forced to divest their majority holding in KA to continue operating out of HK post handover. And then buy back KA along with the complicated arrangement we now have with Air China. Beyond the realms of possibility. ?
I think not. Then again you know best obviously.
Or Swires' say f@ck it, it's not laying the Golden eggs it used to, and sell out.. Or are forced to sell out. In much the same way as they were forced to divest their majority holding in KA to continue operating out of HK post handover. And then buy back KA along with the complicated arrangement we now have with Air China. Beyond the realms of possibility. ?
I think not. Then again you know best obviously.
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If the HNA Group or any other state run mainland entity wanted to own CX, I believe they would already. My impression is that they want to beat CX at their own game and pick up the pieces when it all falls apart. In the last couple years, CX management seems to be complicit in this plan.
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Agree with cxorcist. Master plan: CX appoint a Chinese speaking accountant as CEO to cut costs way below minimum required to function, primarily to drive up the share price, and then be able to do the talk talk with the new Chinese buyers. Asset stripping by selling HAECO, TAECO etc to Swire already done. Only problem is they screwed up the hedging so badly and the buyers saw it coming. Net result: basket case of a company with a crap product and plunging share price.
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Unpaid leave for FA's
Way to go, management team. Whilst the rest of the world's airlines are reaping record profits the latest rumour is that our CX FA's are going to be asked to take some unpaid leave. That should keep the expanding opposition at bay. And all the while, having replaced 747's with 777's, next is the even smaller A50.
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Hey Val, talk about nails and heads. A previous really well respected CEO once said "a full economy is the bread and butter, a full premium is the jam and cream". Our little new plastic toys are further driving a wedge between us and our premium pax. Looks like it's dry biscuits for us.
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Oasis,
... part of the rebranding, my friend. Maybe we all get a lobotomy with those new ID cards. That way, we can all be mindless yes men, and CX will finally get the airline it deserves.
- The Borg
... part of the rebranding, my friend. Maybe we all get a lobotomy with those new ID cards. That way, we can all be mindless yes men, and CX will finally get the airline it deserves.
- The Borg
