Cathay Pacific Faces Challenges as Hong Kong Moves to Open Skies
Source: China Times
HONG KONG, June 5 (AFP) - Hong Kong's flagship carrier Cathay PacificAirways Ltd. will encounter mounting challenges as the territory's governmentshifts toward an open skies policy leading to a gradual increase incompetition, analysts said.
Unless Cathay Pacific successfully opens new markets, in particular thosein China, it will not be easy for the carrier to counter the expected drop inload factors and the squeeze on margins, they said.
Concerns over competition began with the granting of fifth-freedom rightsto Air New Zealand by the territory's authorities.
The move would allow the carrier to pick up passengers in Hong Kong and flythem to London by the end of the year, directly competing with Cathay Pacificon that particular route, analysts said.
It was also suspected the government will abandon its long-held "one route,one airline" principle in upcoming negotiations with Taiwan.
This would permit Hong Kong's Dragon Airlines (Dragonair) -- 19percent-owned by Cathay -- to operate flights between Hong Kong and Taipei, alucrative route for Cathay Pacific estimated to account for 15 percent of thefirm's total revenue, they added.
South China Securities analyst Patrick Pang noted the policy changes werecoming at a time of global economic slowdown.
He said Cathay's passenger load factor fell to 72.1 percent in Aprilcompared with 76.2 percent the previous year.
"With competition escalating and the global economy slowing" Pang said heexpected the load factor to fall further to 71.4 percent this year.
The delivery of 11 new planes this year would further impact load factors,analysts added.
Tiffany Co, an analyst with Salomon Smith Barney, said she expected Cathayto post 4.7 billion Hong Kong dollars (604 million US) in net profit this year,compared with 5.0 billion dollars a year earlier, with the yield from cargoservices dropping by around 2.0 percent.
Mark Webb, a regional airline analyst with HSBC Securities, said the keyissue would be whether Cathay Pacific was willing to slash ticket prices toboost volume which "to my knowledge, Cathay does not want to do."Brian Thomas, an analyst with Dresdner Kleinwort, said Cathay Pacificshould open new markets to offset the competition, adding that China would be agood place to kick off.
South China Securities' Pang noted Cathay was in talks with the three majorChinese air carriers on possible cooperation which showed that "Cathay reallywants the China market to cushion the pressure from further marketliberalisation."Pang added that Cathay's move to take on China-backed CITIC Pacific Ltd. asa strategic investor was a clear sign the firm intended to enter the mainlandmarket at some point.
CITIC holds a 25.6 percent stake in Cathay Pacific and a 28.5 percent stakein Dragonair. Swire Pacific Ltd. holds around 45 percent of Cathay.
It seems that Cathay Pacific is continuously facing challenges. I have heard rumours about Li Kar Shing, one of the Richest men in the World planning to start up its own airline. Can anyone confirm this for me? Thanks!!!
If the Hong Kong Government decides to open up the Aviation Market, it may affect the morale of the staff at Cathay. Besides, the airline itself may not be that motivated to build itself as one of the Best Airlines in the World due to the impact this issue has affected the company.
I believe that CX will eventually be bigger than Singapore Airlines. Hong Kong has the Best Airport on earth, and is a much bigger hub. The limitations at Kai Tak limited the potentials of Cathay.
It is time for Cathay Pacific to pull their socks up and solve their labour problems and compete against other airlines rather than competing among themselves within the Airline.
What do you guys think?