iflylow
28th Jan 2010, 11:18
After a Bad Year, an Airline Picks Up Speed - NYTimes.com (http://www.nytimes.com/2010/01/29/business/global/29cathay.html?hpw)
January 29, 2010
After a Bad Year, an Airline Picks Up Speed
By BETTINA WASSENER
HONG KONG — On a scale of one to ten, six is not exactly great. But in the airline industry, a self-declared confidence level of six is almost gushingly positive. Especially when it comes from Tony Tyler, the chief executive of Cathay Pacific, one of the largest and most established airlines in Asia and a bellwether for the entire region.
“I have been down in the twos and threes, so that’s a big step forward,” Mr. Tyler said in an interview in his office at Cathay’s headquarters at the Hong Kong airport last week, looking considerably more relaxed than he has been for many, many months.
Since the beginning of the fourth quarter last year, he said, Cathay has seen premium passenger travel and cargo demand start to recover. “And we’re still seeing some fairly good signs in the first quarter of this year.”
Indeed, business has picked up so much that a program under which Cathay Pacific’s more than 18,000 employees were asked to take unpaid leave will most likely not be extended: “It’s a one-off,” Mr. Tyler said, in a clear sign to the airline’s still-worried staff that they would not have to forgo as much as four weeks of pay for a second year running.
Several of the other cost-cutting measures Cathay announced at the height of the global financial crisis last year have already been rolled back: a previously idled freight aircraft has recently returned to service, and a passenger plane that was to have been parked is still in action.
Many scaled-back routes and frequencies have been reinstated. Jidda, Saudi Arabia, was added to Cathay’s network last October, and direct flights to Milan start in March. “One or two other destinations,” including Moscow, are on Cathay’s radar.
The comments from Mr. Tyler, a towering but approachable 54-year-old who occasionally plays guitar in a band called Night Flight, add to a steady trickle of evidence that the airline industry, mauled by the global economic turmoil last year, is now finally on a steadier path.
Korean Air, the largest cargo carrier among the world’s commercial airlines, announced last week that it had returned to profit during the final quarter of 2009. Singapore Airlines, which like Cathay is highly oriented toward premium travel, last month said it was reinstating some flights and would add Munich to its network starting in March. The major U.S. carriers, including Delta Air Lines, Continental Airlines and Southwest Airlines, also have said they were seeing business pick up, albeit slowly.
Japan Air Lines, which filed for bankruptcy protection last week, is the most notable exception to the trend in Asia.
Much depends on how the global economy develops, cautioned Mr. Tyler, who 10 months ago announced the airline’s biggest annual loss, for 2008, and pushed back some major spending plans amid the turmoil.
Founded in 1946 and operating out of the financial hub of Hong Kong, Cathay Pacific caters to the world’s jet-setting banking community and Asia’s increasingly affluent travelers, with upscale service standards to match. So the collapse in business- and first-class travel — one premium passenger gives Cathay about as much revenue as five economy passengers — hit Cathay Pacific especially hard, as did a drop in freight traffic.
Now, it seems, those same areas are set to rebound especially strongly this year. Asian carriers like Cathay, Singapore Airlines and Korean Airlines are well positioned to benefit as growth in Asia, and China in particular, accelerates more sharply than any other region in the world, say analysts like Mark Webb at HSBC in Hong Kong.
As a result, Asia-Pacific carriers are expected to see their losses narrow considerably this year to $700 million, from $3.4 billion last year, the International Air Transport Association estimates.
“We talk to our customers, the big banks, the other big corporate accounts: they all seem to think that they are going to see much more traveling this year than last, so that helps build our confidence,” said Mr. Tyler, the Cathay chief.
So is the airline industry out of the woods? Industry watchers like Peter Harbison, chairman of the Center for Asia Pacific Aviation, a consulting firm in Sydney, do not think so. And Giovanni Bisignani, director general of I.A.T.A., said this week that “the worst is behind us, but it is not time to celebrate.”
For one thing, the world’s airlines are expected to lose a total of $5.6 billion this year, $4.5 billion of that in Europe and North America, according to I.A.T.A. forecasts. (That would still be an improvement the $11 billion loss in 2009.)
Uncertainty about fuel prices remains a perennial worry for the industry. Strikes by disgruntled staff loom at carriers like British Airways.
And while the global economy is now in recovery mode, some observers worry that another dip could still materialize. Mr. Tyler, too, cautioned that it remained unclear whether the current recovery was just a blip.
“We’ll get a better view after Chinese New Year, which is always a bit of a watershed,” he said, referring to a holiday that this year falls in mid-February.
Finally, low-cost, no-frills carriers — long an established player on the American and European air travel stage — are now gaining traction in Asia too.
Just under one in six passengers, or 15.7 percent of people flying, in the Asia-Pacific region were carried by low-cost carriers last year, up from 1.1 percent in 2001, according to the Center for Asia Pacific Aviation.
Despite the growing popularity of budget carriers, Mr. Tyler plans to keep Cathay Pacific firmly in the premium market. A recent review of Cathay’s business model has so far yielded only minor changes — tweaks to seating configurations to shrink some premium cabins, and changes to the network — rather than a full-scale strategy shift, he said.
This will dismay some analysts, who argue that Cathay should have long ago reacted more aggressively to the growing challenge of budget airlines, possibly by setting up its own no-frills offshoot. That strategy has been pursued by Singapore Airlines (with Tiger Airways, which staged a successful market listing last week) and Qantas of Australia (with Jetstar).
Some analysts say that budget carriers like AirAsia and Jetstar present little danger to Cathay Pacific. Mr. Webb, the HSBC analyst, said Cathay could take on low-cost carriers through competitive fares.
“Full-service carriers like Cathay in Asia tend to be much more efficient than those elsewhere, meaning the differences between their fares and those offered by low-cost competitors are not as big as in other regions of the world,” he said. “In addition, the greater distances flown in Asia-Pacific mean the likes of Cathay deploy larger, wide-body planes, which are cheaper to operate, per passenger, than the narrow-body aircraft that the low-cost carriers tend to fly.”
So for now, at least, Cathay is sticking firmly with its strategy: “We don’t intend to pull out of the first-class market,” Mr. Tyler said. “We’re not a no-frills carrier, were a frills carrier.”
January 29, 2010
After a Bad Year, an Airline Picks Up Speed
By BETTINA WASSENER
HONG KONG — On a scale of one to ten, six is not exactly great. But in the airline industry, a self-declared confidence level of six is almost gushingly positive. Especially when it comes from Tony Tyler, the chief executive of Cathay Pacific, one of the largest and most established airlines in Asia and a bellwether for the entire region.
“I have been down in the twos and threes, so that’s a big step forward,” Mr. Tyler said in an interview in his office at Cathay’s headquarters at the Hong Kong airport last week, looking considerably more relaxed than he has been for many, many months.
Since the beginning of the fourth quarter last year, he said, Cathay has seen premium passenger travel and cargo demand start to recover. “And we’re still seeing some fairly good signs in the first quarter of this year.”
Indeed, business has picked up so much that a program under which Cathay Pacific’s more than 18,000 employees were asked to take unpaid leave will most likely not be extended: “It’s a one-off,” Mr. Tyler said, in a clear sign to the airline’s still-worried staff that they would not have to forgo as much as four weeks of pay for a second year running.
Several of the other cost-cutting measures Cathay announced at the height of the global financial crisis last year have already been rolled back: a previously idled freight aircraft has recently returned to service, and a passenger plane that was to have been parked is still in action.
Many scaled-back routes and frequencies have been reinstated. Jidda, Saudi Arabia, was added to Cathay’s network last October, and direct flights to Milan start in March. “One or two other destinations,” including Moscow, are on Cathay’s radar.
The comments from Mr. Tyler, a towering but approachable 54-year-old who occasionally plays guitar in a band called Night Flight, add to a steady trickle of evidence that the airline industry, mauled by the global economic turmoil last year, is now finally on a steadier path.
Korean Air, the largest cargo carrier among the world’s commercial airlines, announced last week that it had returned to profit during the final quarter of 2009. Singapore Airlines, which like Cathay is highly oriented toward premium travel, last month said it was reinstating some flights and would add Munich to its network starting in March. The major U.S. carriers, including Delta Air Lines, Continental Airlines and Southwest Airlines, also have said they were seeing business pick up, albeit slowly.
Japan Air Lines, which filed for bankruptcy protection last week, is the most notable exception to the trend in Asia.
Much depends on how the global economy develops, cautioned Mr. Tyler, who 10 months ago announced the airline’s biggest annual loss, for 2008, and pushed back some major spending plans amid the turmoil.
Founded in 1946 and operating out of the financial hub of Hong Kong, Cathay Pacific caters to the world’s jet-setting banking community and Asia’s increasingly affluent travelers, with upscale service standards to match. So the collapse in business- and first-class travel — one premium passenger gives Cathay about as much revenue as five economy passengers — hit Cathay Pacific especially hard, as did a drop in freight traffic.
Now, it seems, those same areas are set to rebound especially strongly this year. Asian carriers like Cathay, Singapore Airlines and Korean Airlines are well positioned to benefit as growth in Asia, and China in particular, accelerates more sharply than any other region in the world, say analysts like Mark Webb at HSBC in Hong Kong.
As a result, Asia-Pacific carriers are expected to see their losses narrow considerably this year to $700 million, from $3.4 billion last year, the International Air Transport Association estimates.
“We talk to our customers, the big banks, the other big corporate accounts: they all seem to think that they are going to see much more traveling this year than last, so that helps build our confidence,” said Mr. Tyler, the Cathay chief.
So is the airline industry out of the woods? Industry watchers like Peter Harbison, chairman of the Center for Asia Pacific Aviation, a consulting firm in Sydney, do not think so. And Giovanni Bisignani, director general of I.A.T.A., said this week that “the worst is behind us, but it is not time to celebrate.”
For one thing, the world’s airlines are expected to lose a total of $5.6 billion this year, $4.5 billion of that in Europe and North America, according to I.A.T.A. forecasts. (That would still be an improvement the $11 billion loss in 2009.)
Uncertainty about fuel prices remains a perennial worry for the industry. Strikes by disgruntled staff loom at carriers like British Airways.
And while the global economy is now in recovery mode, some observers worry that another dip could still materialize. Mr. Tyler, too, cautioned that it remained unclear whether the current recovery was just a blip.
“We’ll get a better view after Chinese New Year, which is always a bit of a watershed,” he said, referring to a holiday that this year falls in mid-February.
Finally, low-cost, no-frills carriers — long an established player on the American and European air travel stage — are now gaining traction in Asia too.
Just under one in six passengers, or 15.7 percent of people flying, in the Asia-Pacific region were carried by low-cost carriers last year, up from 1.1 percent in 2001, according to the Center for Asia Pacific Aviation.
Despite the growing popularity of budget carriers, Mr. Tyler plans to keep Cathay Pacific firmly in the premium market. A recent review of Cathay’s business model has so far yielded only minor changes — tweaks to seating configurations to shrink some premium cabins, and changes to the network — rather than a full-scale strategy shift, he said.
This will dismay some analysts, who argue that Cathay should have long ago reacted more aggressively to the growing challenge of budget airlines, possibly by setting up its own no-frills offshoot. That strategy has been pursued by Singapore Airlines (with Tiger Airways, which staged a successful market listing last week) and Qantas of Australia (with Jetstar).
Some analysts say that budget carriers like AirAsia and Jetstar present little danger to Cathay Pacific. Mr. Webb, the HSBC analyst, said Cathay could take on low-cost carriers through competitive fares.
“Full-service carriers like Cathay in Asia tend to be much more efficient than those elsewhere, meaning the differences between their fares and those offered by low-cost competitors are not as big as in other regions of the world,” he said. “In addition, the greater distances flown in Asia-Pacific mean the likes of Cathay deploy larger, wide-body planes, which are cheaper to operate, per passenger, than the narrow-body aircraft that the low-cost carriers tend to fly.”
So for now, at least, Cathay is sticking firmly with its strategy: “We don’t intend to pull out of the first-class market,” Mr. Tyler said. “We’re not a no-frills carrier, were a frills carrier.”