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...
Cathay Pacific 1H2015: 'Our commitment is unwavering.' But the market is not returning loyalty
Cathay Pacific remains attached to its premium business model, which in 1H2015 showed some improvements from a low base while profits from subsidiaries and associates – namely an unhedged Air China – greatly helped the bottom line. "We must be doing something right," chairman John Slosar said.
But the going is getting tough. A 12% decrease in fuel net of hedging losses was largely passed on to consumers with a 9% decrease in yields, although there is some impact from foreign exchange. Premium long haul demand remains soft. Cathay's recipe for relying on efficiency improvements could be reaching a ceiling: aircraft utilisation may be tempered to address growing congestion while load factor is at 86%. A350s, and later, 777Xs bring improvements but other gains will be precious. Cathay must rely on incremental improvements to remain ahead of competitors that have better geography and bigger local markets. Restructuring of China's bloated state-owned airlines was once a fantasy but is now coming into focus, a concern for Cathay.
Jetstar Hong Kong licence application rejected: Hong Kong becomes an island of protectionism in Asia
"Never imagine yourself not to be otherwise than what it might appear to others that what you were or might have been was not otherwise than what you had been would have appeared to them to be otherwise.” (Alice in Wonderland; Lewis Carroll).
The battle of semantics over the issue of Jetstar Hong Kong's compliance with an esoteric and highly subjective definition of the words "principal place of business" appears to be over. As Hong Kong's licensing authority rejected Jetstar Hong Kong's licence application on 25-Jun-2015, Cathay Pacific had successfully defended its market dominance with arguments more befitting of a scene from Alice in Wonderland. It is a precious victory over longstanding foe Qantas, which recently attacked Hong Kong's bilateral access to the Australian market as making no "concession to the legitimate interests of Australian airlines in establishing reciprocal hub opportunities in Hong Kong."
Ironically, the principal place of business test was established to circumvent the fact that Cathay was actually a foreign owned airline operating under a local AOC; consequently it could not be accommodated under typical bilateral air services agreements which required "substantial ownership and effective control" to reside in Hong Kong. For decades, the world made a special exception for Cathay. Today, even though it is based in Hong Kong, nearly two thirds of Cathay's voting rights reside in London with the Swire Group. And 30% of the airline is owned by Air China. It is also a common assertion that Hong Kong Airlines, another opponent to Jetstar's entry, is controlled by mainland-based HNA.
But, in the arcane world of international aviation regulation, logic and good sense is frequently a scarce commodity. The result here, as Alice in Wonderland's delightfully illogical Queen of Hearts would have said, is "Off with their heads!".