Date
23 July 2018
Chief executive Ivan Chu is expected to unveil the results of a review of the airline's operations on Wednesday. Photo: Bloomberg
Chief executive Ivan Chu is expected to unveil the results of a review of the airline's operations on Wednesday. Photo: Bloomberg

Cathay set for overhaul

Cathay Pacific Airways (00293.HK) is expected to announce job cuts, cost reductions and shifting of flights to its short-haul arm when it unveils the results of a key review this week.

The 71-year-old Hong Kong airline is under pressure to combat aggressive state-supported mainland carriers, and to position itself against an “open skies” deal signed last month between China and Australia, Reuters reports.

Cathay scrapped its second-half profit forecast in October and announced a review of its business.

According to the December edition of Cathay’s staff magazine, seen by Reuters, chief executive Ivan Chu will unveil the results on Wednesday.

Cathay declined to comment on the details of its review.

“The new management direction has to look past market share gains,” said Will Horton, a Hong Kong-based analyst for aviation consultancy CAPA. “That hasn’t been profitable and will become more competitive. It is well past time to get serious on costs.”

Cathay’s share price has tumbled to its lowest level since the depths of the global financial crisis in 2009, and none of the 18 analysts polled by Thomson Reuters have a “buy” recommendation on the stock.

Some analysts say the carrier will for 2017 report its first full-year loss since 2010.

The rapid growth of Chinese rivals such as China Eastern Airlines (00670.HK, 600115.CN) and China Southern Airlines (01055.HK, 600029.CN) has put pressure on ticket prices at a time when Cathay’s costs have risen because of the strength of the Hong Kong dollar against the Chinese renminbi.

Lower-cost hometown rival Hong Kong Airlines is also expanding rapidly to destinations served by Cathay.

James Pearson, who heads Basair Aviation College in Brisbane, said Cathay may need to slash its 33,700 workforce, reduce frequencies on underperforming routes and cut costs at short-haul arm Cathay Dragon, where it could shift more flights.

“[It could also] focus more greatly on ancillary products to drive incremental revenue, a focus on the back-end of the plane which hasn’t traditionally been Cathay’s forte,” Pearson said.

Cathay does not have a low-cost arm, and costs at its short-haul carrier Cathay Dragon are nearly as high as those at the parent, said one source with knowledge of the situation.

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RA/CG

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