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For years, Cathay Pacific has offered one of the best first-class products, and a fantastic business class as well, and the airline continues to make efforts to further improve its (overall fairly young) fleet, retiring the beloved but gas-guzzling 747 and adding the brand-new Airbus A350, which it will soon fly to San Francisco and Newark. But despite these passenger improvements (or perhaps partially because of them), Cathay has already lost a tremendous amount of money this year.
Just how much are we talking? Well, in the first half of 2017, Cathay Pacific lost a total of $262 million (2.051 billion Hong Kong dollars), compared to a profit of $45 million during the same period last year — even though the airline has actually marginally increased revenue, by a fraction of a percent. According to Hong Kong newspaper South China Morning Post, this first-half performance puts Cathay on track for another year in the red, the carrier’s first consecutive annual loss in its 70 years of existence.
So what’s going on? Here’s Cathay’s explanation, offered during its first-half earnings call:
Fundamental structural changes within the airline industry continue to affect the operating environment for our airlines and created difficult operating conditions in the first half of 2017. The factors which affected our performance were largely the same as in 2016. Intense competition with other airlines was the most significant. Other major adverse factors were higher fuel prices (including the effect of our hedging), the adverse effect of the strength of the Hong Kong dollar on revenues denominated in other currencies, and higher aircraft maintenance costs.
Competition from low-cost carriers continues to be an issue for legacy airlines in Asia and beyond, and with Hong Kong Airlines about to launch nonstop service to the US with the Airbus A350 (and perhaps other destinations as well), the situation is unlikely to improve anytime soon.
Cathay Pacific has begun implementing a plan to cut costs by reducing headcount, while recognizing that “We must strengthen our brand while maintaining our high standards, identity and excellence in a challenging environment.”
In addition to adding the A350 (of which it now operates 17), the carrier recently launched service to Tel Aviv and a seasonal flight to Barcelona, and will begin flying to Christchurch, New Zealand later this year. Cathay has also boosted service to a handful of cities around the world, with more flights on the way throughout the rest of the year. Additionally, an increase in seat density on the 777 (expected to begin mid-2018) should eventually have a positive impact on the airline’s bottom line, although unfortunately that increased revenue comes at the cost of economy passenger comfort.
Would you choose to pay more to fly Cathay Pacific over a low-cost carrier?
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