Jetstar Hong Kong

Cathay Pacific promotes cheap 'Fanfares' as quasi answer to LCCs, but structural change is needed

As Jetstar Hong Kong prepares to launch, Hong Kong Airlines weighs transforming Hong Kong Express into an LCC, Spring Airlines moots a Hong Kong base and other LCCs evaluate Hong Kong as a hub, the market has been left wondering about Cathay Pacific's response. Cathay and its Dragonair subsidiary account for about half of Hong Kong's capacity.

Cathay effectively has no public response. While deep down it is watching the market and undoubtedly weighing possible reactions, from a business perspective it says LCCs will not impact its business while to the general public its push has been to offer a limited number of discounted web-only tickets, "Fanfares", as a reminder that it can offer fares on par with LCCs.

Any airline can cut fares, but few can do so profitably. Fanfares account for less than 1% of seats, relatively isolating Cathay from any pricing detriments, but reminding the carrier this is no response to LCCs either taking existing traffic or creating new demand Cathay will be unable to tap. Structural change is needed.

Hong Kong's low-cost airline presence could triple to 15% of seats in 2015

Hong Kong is no Singapore for low-cost carriers – in early 2013 LCCs account for 5% of all seats at Hong Kong, compared with 27% of seats in Singapore. But Hong Kong is on the verge of a possible rapid structural change that could see LCCs account for approximately 15% of seats in Hong Kong in 2015.

The spike in LCC presence is predicated on a number of factors, including the successful launch of Jetstar Hong Kong, the continued expansion of mainland China’s Spring Airlines and the mooted re-launch of Hong Kong Express into an LCC. The fast ascent of LCCs will level off around the middle or latter part of the decade when almost all slots at Hong Kong airport will likely become utilised, leading to the possibility of a period of almost no growth until the completion of a much-needed third runway, which will not open until around the turn of the decade. Singapore in contrast has enjoyed many years of rampant LCC growth.

As the Hong Kong slot shortage comes closer into view, airlines are participating in an effective slot grab, growing routes or maintaining unprofitable capacity in order to secure slots and hope the services will later be sustainable.

Cathay Pacific, posting 84% drop in profits, seeks consistency but offers no brave new strategies

Cathay Pacific has lost its ability to move faster than the changing North Asian market, and this is reflected in an 84% drop in 2012 profits to HKD916 million (USD118 million). Although this is a profit, unlike global peers, it was achieved with a paltry 1.8% operating margin.

Cathay’s solution is to offer consistency in what it has done, rather than focus on what it can do differently. When the market rebounds, it will do so with a new competitive landscape that gives no guarantee past traffic can be regained. Even Cathay management seems unconvinced by its own explanation for why it does not have a low-cost carrier subsidiary. But LCCs are just part of the changing environment: Cathay needs strategic partners and a wider long-haul network, neither of which show signs of eventuating in the short-term.

Cathay is a cautious and conservative airline; it has relied on delivering benchmark quality to distinguish it. While this has advantages, the quickening pace of North Asian aviation will demand that Cathay break out of its shell. At the least, this will let Cathay counter competition while a more enduring effort will let it overtake the competition.

Qantas profits on track to recovery as long haul changes take effect

A much improved financial performance from Qantas’ international operation along with strong results from Jetstar and Qantas Loyalty has allowed the airline to return to the black, reporting a profit after tax of AUD111 million (USD113.6 million) for the first six months to 31-Dec-2012, a 164% turnaround from the same period in 2011.

All operating segments in the group were profitable with the exception of the Qantas International segment. However losses in this segment reduced to AUD91 million (USD93 million) million from AUD262 million (USD268 million).

In a generally unexciting result – not a bad thing these days – Qantas continued to show a profitable streak, with its virtuous frequent flyer programme continuing to stand out as a cash cow.

Hong Kong Airlines continues expansion; Jetstar HK appoints CEO & Dragonair to grow closer to Cathay

The previous one-size-fits-all regional market from Hong Kong continues to go through rapid segmentation as competition diversifies. Fast-growing Hong Kong Airlines will significantly expand its frequency over early 2013, especially into mainland China, allowing it to match or surpass full-service peer Dragonair on overlapping cities.

The additional frequency will also elevate its expansion ahead of LCC Spring Airlines, although this is in terms of schedule and not price, where Spring retains the edge.

Further competition at the low end of the market is set to come from Jetstar Hong Kong, which has appointed its first CFO and CEO and formally received Beijing’s blessing, indicating the rejection from Hong Kong authorities that Cathay Pacific hoped for is increasingly unlikely.

Cathay meanwhile is seeking to present a unified premium experience between itself and subsidiary Dragonair, which may grow even closer to Cathay with a re-branding exercise; a proposed “Cathay Dragon” name could be a possibility to have a stronger positioning in a changing market.

Quiet achiever Dragonair aligns with owner Cathay Pacific in recognition of its growing stature

Dragonair has taken a backseat in the public limelight since Cathay Pacific acquired the carrier in 2006, despite Dragonair accounting for about a quarter of the group's passengers and its network into mainland China – the largest of any foreign carrier – being a key asset driver.

Dragonair had been allowed to be the less sophisticated brand in a bid to preserve the status of Cathay, but Dragonair will now grow the closest it has ever been to Cathay as it embarks on what will likely be another record year of passenger growth and destinations served.

A new aircraft interiors programme, its first in a decade, will see Dragonair adopt Cathay's interior and service elements while a new staff uniform will be more similar to Cathay's than previous iterations. Driving the change and multi-million dollar investment is a series of messages that Dragonair needs to piggyback off Cathay's high-end premium reputation.