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Editorial | Hopes of Hong Kong also ride with Cathay Pacific
- Following lay-offs and other money-saving measures two years ago, the city’s flagship carrier has climbed into profit and struck a deal to finally enter the budget airline sector by acquiring HK Express
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It hardly seems nearly two years since Cathay Pacific Airways, now cashed up with an appetite for acquisitions, was slashing headcount and other expenses to rein in a loss of more than a billion dollars. Office staff paid with their jobs for the airline’s failure to be competitive in the air against the increasing global reach and competitiveness of mainland carriers and rivals who were increasing the number of seats on competing routes.
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A measure of the challenge Cathay faced in restoring profit was that the lay-offs were comparable with those during the Asian financial crisis nearly 20 years before. However, it met the challenge and the net profit announcement of HK$2.3 billion for last year represented a turnaround of more than HK$3 billion. This has finally emboldened it to take the plunge into the budget airline sector with a HK$4.93 billion deal to acquire low-cost carrier HK Express.
That said, while such cost-cutting can be an unpleasant way to restore a business to health, anyone can do it of necessity. The test for Cathay is whether it can remain lean and hungry as it spreads its wings into the competitive budget travel market with its new acquisition. Cathay took a lot of convincing that a low-cost arm would appeal to its customers more than cheap deals and fewer entitlements on bigger planes, or that it would be more cost-effective. Indeed, the cost of starting a budget airline at an expensive international airport such as Hong Kong’s was a factor. Moreover it feared a customer backlash against dilution of its premier image.
However, as Cathay had to cut fares to meet growing competition across the board, it no longer seemed an option to wait for new opportunities expected to open up with the third runway in 2024. Aviation analysts maintain mixed views about how much Cathay will benefit from the acquisition, but the basic strategy won some endorsement in terms of improving its long-term position. That said, there is understandable concern that as operator of three of the city’s four carriers, Cathay will be tempted to exploit the pricing power of a near monopoly. Reassurances about that are welcome. What is good for Cathay is good for Hong Kong and vice versa. It is one of the city’s most recognisable and trusted brands. We need it to do well for the sake of our image as well as our economy.
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