Date
20 October 2017

China market provides crucial lift to Cathay Pacific

Although Cathay Pacific Airways Ltd. (00293.HK) managed to pull itself out of the red in the first half this year, it is still facing turbulence in the face of formidable challenges such as high fuel costs, tepid cargo demand and rising competition from budget carriers.

That said, some relief appears to be in store for the firm as the mainland market is showing a lot of promise and could give much-needed lift for the Hong Kong flag carrier.

According to information posted on its website, Cathay’s overall revenue passenger kilometers (RPK), a gauge of passenger traffic, recorded a 0.2 percent drop in the ten months to October due to worse than expected patronage on North America and Europe routes, key markets that are getting saturated. But RPK in mainland services saw a 4.6 percent increase in year to date, helping the airline cushion the impact from weak demand on Western routes.

Particularly in October, premium traffic from China continued to pick up as the country, especially the Pearl River Delta, entered the peak season for corporate travel. Business was spurred by the Canton Fair in Guangzhou, while Beijing and Shanghai routes, two pillars of income for the firm in the mainland, saw continued growth in passengers despite intensified competition.

Cathay has announced that its chief operating officer Ivan Chu {朱國樑} will become the carrier’s next chief executive, taking over from John Slosar. The appointment of a Hong Kong Chinese to the top job signals parent Swire Group’s aim to further beef up the airline’s presence in the mainland.

With a partnership with Air China (00753.HK, 601111.CN), which is 20 percent owned by Cathay, core mainland routes would be operated on code-share basis to take advantage of Air China’s extensive domestic network, with a particular emphasis on booming second-tier cities.

Cathay and Air China have also allied with Shanghai International Airport Co. Ltd. (600009.CN) earlier this year for a ground service company to tap into the burgeoning aviation market in east China.

While Cathay endeavors to streamline operations in other markets and cut some loss-making long-haul overseas flights to trim costs, substantial resources have been directed to consolidate its services in the mainland. Shorter routes with robust patronage in the region would certainly mean a more decent margin.

Dragonair, Cathay’s wholly-owned subsidiary that is mainly focused on the Greater China region and southeast Asia, has strengthened flights to Ningbo, Qingdao, Xiamen, Fuzhou and Kunming, restored routes to Xi’an, Haikou and Guilin and ventured into new promising regional aviation hubs like Wenzhou and Zhengzhou, Chu was quoted as saying at an analyst briefing.

Even though domestic competitors and overseas budget carriers can offer cheaper options, analysts believe many big-spending Chinese business and leisure travelers are willing to pay more to fly with Cathay and its subsidiary due to their premium brand image and more convenient transfers globally.

With more than 400 flights per week, Cathay’s available seat kilometers (ASK) for mainland routes, including those operated by Dragonair, were up 5 percent year on year in the ten months to October, enabling the carrier to accommodate more frequent flyers.

The number of transit passengers, many of whom travel from the mainland on Dragonair and board Cathay’s flights in Hong Kong for overseas destinations, has surged threefold since 2008, outgoing CEO Slosar revealed in an interview with Xinhua last year.

– Contact the writer at [email protected]

RC

EJ Insight writer

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