Cathay Pacific CEO John Slosar, in CX World Magazine Nov-2012, stated (Nov-2012) on the cost side, the biggest issue for the carrier is fuel, which is the carrier's single largest cost. He commented, "We planned for fuel to be expensive this year, but it has been even more expensive than we anticipated. The actual cost of fuel into plane...has exceeded budget by about 6%." He continued: "6% may not seem like much but, looking at all our flights together on an annual basis, if we had done nothing, this higher fuel price would have meant our total fuel bill this year would have exceeded the high budget we had planned by HK$2.5 billion! The increase in the price of fuel since 2010 has had a big impact on the operating cost of our routes." Using a specific example, Mr Slosar said: "On a 747-400 flight to London, fuel today represents 62.5% of the total cost of the flight. In 2010, when fuel was substantially lower, it represented only 47.9%. That is a big jump! Let me try to put that into perspective. Taken over a year, on that one flight pair alone, the fuel bill will have increased by HK$110 million – again, on just this one flight pair". He said the carrier has limited options to directly address the fuel situation. While the carrier hedges fuel, "hedging is not a miracle solution, particularly when fuel prices have been stubbornly high for so long". He also noted it is difficult to raise fares in the current weak economic environment. On fuel surcharges, he commented: "We are allowed to collect fuel surcharges, but these require regulatory approval and help us recover only about 50% of the extra fuel cost we pay. So this also helps, but cannot fill the gap." Mr Slosar said the carrier has been the most aggressive in taking steps to reduce fuel consumption with the retiring of Boeing 747s from its fleet and replacing them with 777-300ERs being key to this. He noted, "The 777s are overall more than 20% more fuel efficient than the 747-400s. As we move into 2013 and take delivery of more 777-300ERs, we’ll see an even bigger benefit but the full benefit will not be realized until 2014." Mr Slosar said fuel costs are not the only cost issue facing the carrier, adding, "There is significant cost pressure all around us. We are seeing increases in airport charges, overflight charges, catering charges, landing and parking charges, handling charges and passenger costs to name a few". [more - original PR]
Cathay Pacific notes significant increases in cost-base, fuel costs in 2012 exceeding budget by 6%
You may also be interested in the following articles...
HK Express to grow to 15-20 aircraft in 2016, pursuing LCC hybridity with A321s and interlines
HK Express, Hong Kong's only LCC, expects to add A321s to its all-A320 fleet, allowing it to grow, despite constraints on traffic rights and slots. HK Express in Oct-2015 will mark two years as an LCC. HK Express should carry over two million passengers in 2015, and end next year with 15-20 aircraft, including 5-10 A321s.
The carrier has cut over from Travel Sky to Navitaire, enabling connecting itineraries and stronger control over ancillary revenue products. Ancillary revenue accounts for approximately 15% of the airline's revenue, with HK Express CEO Andrew Cowen targeting 20%.
Initial connections between HK Express flights could grow to connecting to/from sister carrier Hong Kong Airlines, with later interlines to/from other carriers that want to use Hong Kong's hub position. HK Express moved into profitability in Dec-2014 and was profitable in the first quarter of 2015, projecting a full year of operational profitability in 2015.
China Eastern's LCC China United is expected to start international flying, challenging Air China
China Eastern Airlines is taking the lead amongst the country's state-owned carriers in developing an LCC presence. This follows Beijing's embrace and active promotion of LCCs, which it sees as spearheading new growth and being in line with the country's increasing austerity and efficiency targets. China Eastern has converted its subsidiary China United Airlines, based at the smaller Beijing airport of Nanyuan.
China United only flies domestically, and mostly to secondary cities, but in Jan-2015 applied to regulator CAAC to expand its business licence to international services. China United is expected to be given the right to fly internationally from its Beijing home but also Shenzhen.
Shenzhen's international development has been stunted – possibly due to lobbying from Air China partner Cathay Pacific, which feeds on the Shenzhen market – and local carrier Shenzhen Airlines has a minimal international presence. Shenzhen Airlines is majority owned by Air China, meaning China United's international expansion could eventually challenge the Air China group at multiple levels. With time there will also be an impact to the Hong Kong market, although crossing the border is still far from seamless.