Cathay CEO: No light at end of tunnel for aviation industry

Cathay CEO: No light at end of tunnel for aviation industry

Related News •   Construction starts on Hong Kong cargo terminal •   Fuel concerns force Cathay Pacific reshuffle •   Cathay sputters to first half loss of $85 million

   Cathay Pacific Chief Executive Tony Tyler has warned that the Hong Kong airline is not immune to the financial crisis facing the aviation industry and foresees no immediate end to the turbulence.
   “These are extremely difficult times for the aviation industry and I'm sorry to say there doesn't appear to be any light at the end of the tunnel just yet. The industry is now in the middle of a major crisis and it's unlikely that we are going to emerge unscathed,” he wrote in the latest edition of CX World, the airline’s in-house newsletter.
   Cathay recently posted a first half loss of HK$663 million, lending weight to the International Air Transport Association’s assessment that a 'toxic combination' of high fuel costs and falling demand will see airlines post losses of $9.3 billion over the next two years.
   Tyler said that despite the recent dip in crude oil prices the price for aviation fuel Cathay is paying is still higher than the average for the first six months. In addition, he expressed concerns about how demand will hold up in the coming months.
   'We're already seeing some softening in the Hong Kong corporate market, which is worrying because it's our single biggest source of revenue. At the moment this market has almost stopped growing, despite a big rise in capacity.'
   To make matters worse, the airline's performance in August was hit hard by the impact of Typhoon Nuri and softened demand during the Olympic Games held in Beijing.
   The economic downturn in major markets such as the United States and United Kingdom is also a worry.
   'That would hit us hard,' Tyler said. 'The U.S. generates a big percentage of our revenue and we are highly exposed to the U.K. market with four long-haul flights a day.”
   Cathay responded to the interim result by realigning its service network with an emphasis on routes with greater revenue potential. Its turnaround plan also includes increasing fares and surcharges, as well cost-cutting measures.
   'We are committed to sticking to that strategy as long as it remains the right thing to do, but these are very uncertain times and nothing can be set in stone,' Tyler said.
   'So far the fuel crisis has been different from, say, the Asian financial crisis because demand has been robust. However, if revenue drops — and some believe we are about to enter phase two of the crisis when demand will start to collapse — then we'll have to think again.
   “Cathay Pacific has been through a number of crises before and we've always come out stronger. I have every reason to believe we'll get through this current turmoil and I remain very confident about our long-term success. That's why are continuing to invest in projects such as the new cargo terminal, and why we continue to bring new aircraft into the fleet. It's vital that we look to the future.
   “But we also have to think about the current situation and be very aware of the severity of the storm we are facing. We have put a clear plan in place to tackle this, which includes redeploying capacity, getting fares and surcharges up and reshaping our fleet. It includes getting our costs down, which is an area where we can all play a part. We need to think and act as a team if we are going to get through this — and, if the situation changes for the worse, we may have to change our strategy.” ' Simon Heaney