Cathay Pacific is fast running out of superlatives to describe what has developed into a post-handover nightmare. Hong Kong's transfer of sovereignty has kept tourists away and the slump in load factors has been exacerbated by the currency and environmental crises in the region.
While the carrier isn't yet putting hard figures on potential losses, managing director David Turnbull describes passenger loads as 'appalling'. He has warned staff that unless costs are cut this year the airline could move into the red, after chalking up nearly US$1.9 billion in cumulative profits since 1992.
Travel to Hong Kong has fallen more than 35 per cent since the UK handed over control of its former colony to China in July. The worst hit is the key Japanese tourist market, with travel numbers down more than 50 per cent. The nature of Cathay's operation out of the former colony means the carrier is reliant on foreign markets for 80 per cent of its revenue. Cathay says economy load factors on Japan routes have fallen by two-thirds. Premium class revenue has held up reasonably well, even showing marginal growth, but these earnings have been negated by the dramatic drop in tourists. Overall, the carrier has suffered a double digit drop in revenue.
The size of the traffic slump has taken everyone by surprise. 'Everyone expected a slowdown in the wake of the handover but no-one foresaw its depth and it is impossible to predict how long it will continue,' says Peter Negline, senior airline analyst with Salomon Brothers Hong Kong.
The situation has been exacerbated by the region's currency crisis. The Hong Kong dollar retained reasonable stability during the turmoil as it is pegged to the US dollar, leaving the territory up to 50 per cent more expensive for tourists from regional neighbours. Moreover, Cathay's earnings are expected to suffer further, along with those of other Asia-Pacific carriers, as a result of the widespread and uncontrolled forest fires in Indonesia and Malaysia, which have cast a blanket of haze across the region and brought chaos to air travel.
Cathay refuses to be drawn on when its troubles might end. Chairman Peter Sutch suggests the tourism downturn may be more than a temporary blip and could cause lasting damage to the economy. But the carrier rules out staff cuts or the postponement of aircraft orders. 'It is without doubt one of the toughest periods we have faced for many years, and it is important that the management of the airline and the staff in general are under no illusions about the problems in front of us.' What should have been a bumper year has been turned into 'the worst possible situation for passenger revenue in decades.'
Source: Airline Business
