"Cathay management appears oblivious to reality..." - SCMP
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"Cathay management appears oblivious to reality..." - SCMP
Cathay Pacific is a flawed business model in a changing world | South China Morning Post
Cathay Pacific is a flawed business model in a changing world
Peter Guy
Cathay Pacific Airways has lost its glamorous and exclusive image because it is no longer a glamorous and exclusive business. “Arrive in better shape” was their old slogan. Today, it means “Lost in transit.” Their business model is irrevocably flawed in a changing world.
An unexpected announcement of a HK$575 million loss last year and a reversal of a HK$6 billion profit in the previous year suggests there is no turnaround on the horizon. Aviation fuel accounted for nearly 30 per cent of total operating costs last year. Yet, near catastrophic bets on future fuel costs raise serious questions about management competence.
We will probably never know how Cathay’s management erred to cause a huge US$1.8 billion loss in oil derivatives, even though they try to explain it with phlegmatic dignity. Derivatives salespeople are laughing all the way to the bank and surprised the senior management team still survives.
The airline blames a slump in business travel, global conditions and the increasing competitiveness of mainland airlines. But all airlines operate in difficult conditions. Cathay management appears oblivious to reality, living in the fantasy profit world of Hong Kong’s protected cartels now beset by the cruel world.
According to Bloomberg, China plans to build more than 50 airports by 2020 to accommodate more passengers, raising the number of civil transport facilities from 210 to 260. The government also plans to build six airport clusters nationwide and elevate airports in Beijing, Shanghai and Guangzhou to international hubs.
Through the 70s and 90s Cathay Pacific benefited from its colonial monopoly concession from the Hong Kong government. That co-dependency hasn’t changed. Cathay and its owners, Swire, have such a unique and lucrative deal with the government that taxpayers will be paying for a third runway. They collude to prevent Hong Kong travellers from benefitting from the entry of local, low cost, discount airlines.
Sustaining the cost, and passing on the pricing structure of a premium airline to passengers is unsustainable when confronting the onslaught of competition from mainland airlines.
Cathay is mired in a stuck-in-the-middle strategy – unable to compete as a discount airline and unable to sustain a premium brand. They respond in the typical, smug, self-immolating Hong Kong (and I mean Hong Kong British and Chinese) fashion that characterises many of the local businesses when confronted with real competition – they cut quality.
That’s evident in the numerous complaints online about Cathay’s service quality, and a mileage awards program which looks about as difficult to achieve as a manned expedition to Mars. Even the business class lounge has been subcontracted to an outside manager.
Controlling your brand is paramount when your business is in turmoil. Instead of reinventing the business or innovating, management chooses to die by a thousand cost cuts over time.
Cathay management complains like an aged prostitute whose uterus is about to drop out. They shouldn’t be encouraged with sympathetic SCMP op-eds that describe Cathay as a Hong Kong “icon”. They are owned and controlled by a wealthy family who run it for profit, not public trust.
The only sensible option for Swire is to sell Cathay Pacific while it still holds valuable assets like landing slots, a decent cargo business and maintenance facilities. No doubt, a mainland company will devour them. Current management is utterly confused and cannot stop the insurmountable competition and deterioration of value.
Peter Guy is a financial writer and former international banker
Finally a journalist who is not afraid to call it as he sees it. Enough said...
Cathay Pacific is a flawed business model in a changing world
Peter Guy
Cathay Pacific Airways has lost its glamorous and exclusive image because it is no longer a glamorous and exclusive business. “Arrive in better shape” was their old slogan. Today, it means “Lost in transit.” Their business model is irrevocably flawed in a changing world.
An unexpected announcement of a HK$575 million loss last year and a reversal of a HK$6 billion profit in the previous year suggests there is no turnaround on the horizon. Aviation fuel accounted for nearly 30 per cent of total operating costs last year. Yet, near catastrophic bets on future fuel costs raise serious questions about management competence.
We will probably never know how Cathay’s management erred to cause a huge US$1.8 billion loss in oil derivatives, even though they try to explain it with phlegmatic dignity. Derivatives salespeople are laughing all the way to the bank and surprised the senior management team still survives.
The airline blames a slump in business travel, global conditions and the increasing competitiveness of mainland airlines. But all airlines operate in difficult conditions. Cathay management appears oblivious to reality, living in the fantasy profit world of Hong Kong’s protected cartels now beset by the cruel world.
According to Bloomberg, China plans to build more than 50 airports by 2020 to accommodate more passengers, raising the number of civil transport facilities from 210 to 260. The government also plans to build six airport clusters nationwide and elevate airports in Beijing, Shanghai and Guangzhou to international hubs.
Through the 70s and 90s Cathay Pacific benefited from its colonial monopoly concession from the Hong Kong government. That co-dependency hasn’t changed. Cathay and its owners, Swire, have such a unique and lucrative deal with the government that taxpayers will be paying for a third runway. They collude to prevent Hong Kong travellers from benefitting from the entry of local, low cost, discount airlines.
Sustaining the cost, and passing on the pricing structure of a premium airline to passengers is unsustainable when confronting the onslaught of competition from mainland airlines.
Cathay is mired in a stuck-in-the-middle strategy – unable to compete as a discount airline and unable to sustain a premium brand. They respond in the typical, smug, self-immolating Hong Kong (and I mean Hong Kong British and Chinese) fashion that characterises many of the local businesses when confronted with real competition – they cut quality.
That’s evident in the numerous complaints online about Cathay’s service quality, and a mileage awards program which looks about as difficult to achieve as a manned expedition to Mars. Even the business class lounge has been subcontracted to an outside manager.
Controlling your brand is paramount when your business is in turmoil. Instead of reinventing the business or innovating, management chooses to die by a thousand cost cuts over time.
Cathay management complains like an aged prostitute whose uterus is about to drop out. They shouldn’t be encouraged with sympathetic SCMP op-eds that describe Cathay as a Hong Kong “icon”. They are owned and controlled by a wealthy family who run it for profit, not public trust.
The only sensible option for Swire is to sell Cathay Pacific while it still holds valuable assets like landing slots, a decent cargo business and maintenance facilities. No doubt, a mainland company will devour them. Current management is utterly confused and cannot stop the insurmountable competition and deterioration of value.
Peter Guy is a financial writer and former international banker
Finally a journalist who is not afraid to call it as he sees it. Enough said...
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Reading this article makes me alternate between embarrassment and feeling anger.
Embarrassment because it is our airline that is suffering.
Anger because some people working on the third floor seem hellbent on flushing it down the toilet.
Embarrassment because it is our airline that is suffering.
Anger because some people working on the third floor seem hellbent on flushing it down the toilet.
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Wish I could write like that.....
There are very few who are useless at everything, but many who wind up in something they're not good at.
The answer is help them find something they're good at and don't be shy about it. It's OK to run track and field if you really suck at cricket. It's not OK to force the cricket team to keep you onboard and take them down with you.
It's OK (and sometimes even good) to fail at something so long as you use it to learn and don't keep failing at it. And it's OK to ask for help and listen to ideas that are not your own--especially in times of need--and even try them.
And it's a good thing to get humbled from time to time.
Perhaps things would have worked out better if--rather than forcing operational decisions-- Mr. Ismay was given a set of binoculars, taught how to use them, and sent up to the crow's nest to look for ice.
There are very few who are useless at everything, but many who wind up in something they're not good at.
The answer is help them find something they're good at and don't be shy about it. It's OK to run track and field if you really suck at cricket. It's not OK to force the cricket team to keep you onboard and take them down with you.
It's OK (and sometimes even good) to fail at something so long as you use it to learn and don't keep failing at it. And it's OK to ask for help and listen to ideas that are not your own--especially in times of need--and even try them.
And it's a good thing to get humbled from time to time.
Perhaps things would have worked out better if--rather than forcing operational decisions-- Mr. Ismay was given a set of binoculars, taught how to use them, and sent up to the crow's nest to look for ice.
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The AoA?. F****ng joke.
You get the president you elected, a complete political animal, concerned about his own ego and nothing more, friend to everyone...Enjoy!
Diluted CC/TB by adding HKPA and now their spending resources on some screaming left wing feminist, who things incompetent women in our ranks are being discriminated against because they are women. News flash, their just ****e at the job, get over it princess.
The AoA is as incompetent as our management.
There was a reason the DFO didn't want to deal with RF, cause he was effective
You get the president you elected, a complete political animal, concerned about his own ego and nothing more, friend to everyone...Enjoy!
Diluted CC/TB by adding HKPA and now their spending resources on some screaming left wing feminist, who things incompetent women in our ranks are being discriminated against because they are women. News flash, their just ****e at the job, get over it princess.
The AoA is as incompetent as our management.
There was a reason the DFO didn't want to deal with RF, cause he was effective
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Perhaps we should wait to see his official response - Any day now!
When you have chest-beating apes like him, who aren't actually willing to do anything, you can expect more of the same.
I can reel off countless occasions when idiots of his like claimed "this is the final indignation", over the last few years. Nothing but bluster. Zero credibility, and zero cajones.
Utter hypocrite, and nothing more.
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I reread the article, can't see any reference to the AOA as this thread would lead me to believe.
Glad someone has said it. Im sure Im not alone in my feeling of doubtfulness for the future of this airline.
Glad someone has said it. Im sure Im not alone in my feeling of doubtfulness for the future of this airline.
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DS - waste of space. Want credibility, want to do your job as Chair? Resign from training AND put up the motion. Soon you'll be Chair of a sinking ship. Dont miss the lifeboat, or you'll go down with the rats.
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