And this just in..
Airline braces for more pain following 2008 record loss
Posted On: 12 Mar 2009
Briefings for staff on Thursday - conducted by Chief Executive Tony Tyler and Chief Operating Officer John Slosar - pulled no punches in giving details of why the Cathay Pacific Group made a big loss last year, and why the situation seems to be going from bad to worse.
The reasons behind the HK$8.6 billion loss - the triple whammy of a soaring fuel bill, fuel hedging losses and a recession-drive in passenger and cargo demand - were clearly outlined, with both Tony and John going into some detail to explain how the hedging losses came about. "The airline business was a bad business to be in last year and the hedging situation just made it worse," said John.
Staff were shocked to discover that, disregarding hedging and other variables, CX and KA actually made a HK$1.34 billion operating loss in 2008 compared to a HK$5.2 billion gain in 2007, and that there was a significant drain on the Group's cash reserves last year.
Tony made it clear that the big worry is what will happen in the months to come. Hedging losses are still being made - HK$1.9 billion in the first two months of 2009 - but the major concern now is the continued impact of the economic downturn on the airline's core business.
"We budgeted for an overall reduction in revenue this year, but cargo revenue is well down even against this low budget and passenger revenue is also well behind," said Tony. "We are filling up the back end, but at very low yields, while our front end revenue for January and February was down 34% on 2008. And remember that every premium passenger we lose is worth many in Economy Class."
John explained that negative currency effects are also taking a big bite out of earnings. "Generally we'd like the dollar to be weak because it means the tickets we sell in other currencies can be turned into more Hong Kong dollars, but at the moment we have a 'perfect storm' of currencies working against us to push down yields."
Yields are also being driven down by a slew of cheap fares that are propping up back-end business, and to make it a perfect storm all round the airline's hedging position means it is not getting the full benefit of the low fuel price.
Both the CE and COO concluded that 2009 is going to be a very tough year. The weakening revenue picture makes it clear that even the airline's revised budget and general belt tightening will not be sufficient.
"If we don’t take action now we are looking at another, possibly even larger operating loss for 2009. Given the rate at which our cash balance has been depleted this would place the airline in a very precarious position," John said.
A thorough review of every flight - passenger and cargo - to every destination is now being undertaken and management will soon have a clearer picture of which flights the airline cannot afford to keep operating. This will give an estimate of what surplus capacity there is and whether aircraft need to be parked. The team is already looking at lease renewals and the possibility of deferring deliveries.
In terms of conserving cash, cancelling some flights will help and further efforts will be made to reduce non-customer costs and defer capital expenditure. Both John and Tony made it clear that some difficult decisions might have to be made.
"I know that job security is uppermost in everyone’s minds and it remains our wish and intention to do all we can to keep the network intact, and to keep the team together. However, at the end of the day our ability to do that will depend on the market - and the market has got much worse than we expected," Tony said.
"I fear it’s inevitable that there is going to have to be some pain, which will be shared by all of us on the team. To get our costs down and to preserve our cash balances I think it’s unavoidable that we will be asking for more unpaid leave. And I can’t rule out the possibility of even more painful measures being needed to be taken."
In a sharp and painful downturn "we need to plan for the worst. But eventually the market will recover - and Asia will probably lead the charge when it does," Tony said. "Our job is to make sure CX is alive and well and ready to take advantage when that happens and we will do everything we can to guide the company through these challenges.
"Right now, what you can all do to help is to do your job as well as you possibly can."
CCD
..and so the spin continues to try and soften up everyone for the 1-2 days, or perhaps a week-months unpaid leave that will be FORCED down our throats very shorty..whilst there are the likes of ex-Oasis DEC's who
SHOULD NOT BE in CX in the first place!!!!
