Source: Bloomberg News Author: Wendy Leung, Bernard Lo 03/13/2009
Subject Concerned: Aircraft Opinion Airlines Cargo
Cathay Pacific Airways Ltd., Hong Kong's biggest carrier, is selling economy-class tickets at "unsustainable" prices to lure travelers as demand plunged the most in more than three years last month.
"The market has collapsed," Chief Executive Officer Tony Tyler said in a Bloomberg TV interview in Hong Kong. "We can fill flights, but we're filling them at very low fares, fares that are frankly not sustainable in the long run."
Cathay Pacific had its first loss in ten years as the financial crisis cut demand for flights to London and New York among business class and first class travelers. A drop in passengers also prompted Singapore Airlines Ltd., Asia's most profitable carrier, to cut its fleet by 17 planes in the year beginning in April.
"A lot of companies have been cutting down on travel," said Jim Wong, an analyst at Nomura International Ltd. in Hong Kong. "The situation is deteriorating very rapidly."
Cathay Pacific and its Hong Kong Dragon Airlines Ltd. (Dragonair) unit carried 1.8 million passengers last month, a decline of 7.4 percent from a year earlier, it said on Mar. 12. Freight volume dropped 17 percent.
The shares fell 1 percent in Hong Kong trading to HK$7.36. They have declined 16 percent this year, extending last year's 57 percent slump.
Cathay has suffered a "big falloff" among premium travelers from the global financial crisis. Banks and insurers have cut more than 280,000 jobs since the crisis began. Rising unemployment in the U.S., Europe and Asia has also cut tourism demand.
"The impact of the financial services industry crash had a pretty immediate effect on Cathay Pacific," said Tyler.
Global Losses
Deutsche Lufthansa AG, Europe's largest carrier, expects profit to drop this year as traffic declines. The Cologne-based airline will reconfigure some planes to cut the number of premium seats. American Airlines, the world's second-biggest carrier, will lay off 323 flight attendants in April, adding to about 6,800 job cuts since July.
Airlines worldwide lost as much as US$8 billion last year because of the recession and fuel-hedging losses, the International Air Transport Association (IATA) said on Mar. 2. The industry may lose as much US$2.5 billion this year as traffic declines, with carriers in the Asia-Pacific region accounting for almost half of the losses, it added.
Cost-Cutting
Cathay Pacific has curbed capacity growth, offered staff unpaid leave and delayed a new cargo terminal in Hong Kong by two years to mid-2013 on waning demand. It also scrapped its final dividend. Cathay Pacific shares have fallen 15 percent this year compared with an 11 percent decline at Singapore Air.
Cathay Pacific plans to delay more new planes and review all routes after posting its first loss in 10 years. It had 10 planes due for delivery this year, including one to be leased by the Dragonair unit.
The delivery of two aircraft due last year was delayed after a strike at Boeing Co. Two 747-8 freighters previously due to arrive this year have been pushed back to next year amid delays at the planemaker. The airline had 46 aircraft on firm order in total, including 21 Boeing 777-300ERs at the end of last year.
The group fleet, including both passenger units and Air Hong Kong Ltd., a cargo-venture with DHL, comprised 162 planes as of Dec. 31.