For Air China and Cathay Pacific, it’s one country, two airlines (but for how long?)
What looks like fierce competition may be more a lovers’ tiff in transit to an aviation marriage of convenience
WHEN Cathay Pacific celebrated its 60th anniversary in 2006, the number of mainland Chinese taking airline flights – domestically or internationally – each year stood at 158 million. By last year, that figure had multiplied by a factor of more than three to 488 million, in other words, just shy of half a billion.
Perched on the very edge of this phenomenal market and with a business model significantly reliant on long-haul connections to a world plagued by historic levels of political and economic uncertainty, it is hardly surprising that Hong Kong’s flagship airline has been having a turbulent time of it lately.
If the captain of flight Cathay Pacific was speaking to his passengers right now, he would definitely be telling them to keep their seat belts fastened.
A measure of the business headwinds Cathay is flying through is illustrated by the recent job cuts and the fact that management is in talks with pilots to cut pay, pensions and housing benefits after announcing the worst half-year loss in two decades earlier this year.
Underway is one of the biggest corporate revamps in the company’s history as it seeks to reverse an earnings slump brought about by a combination of fierce competition from Middle Eastern carriers at the premium end of the market, and low-cost and mainland Chinese rivals at the other, plus the negative impact of its fuel-hedging positions.
Ironically, a significant portion of that competition now sits in Cathay’s own backyard, in the shape of 30 per cent shareholder, Beijing-based Air China and most recently, Qatar Airways, which last week paid Hong Kong-based Kingboard Chemical Holdings HK$5.16 billion for its 9.6 per cent stake in the company.
