Cathay Pacific is Launching a Major Business Strategy Overhaul

Cathay Pacific was the airline that I grew up with in Hong Kong, and a part of me will always consider Cathay as my “hometown airline,” as a piece of home. The airline’s profit has been sliding, and recently completed a thorough business strategy review, after scrapping their earning forecast earlier last year.

Cathay Pacific is launching a major business overhaul, with job cuts expected.

Cathay Pacific is launching a major business overhaul, with job cuts expected.

I really don’t envy the position Cathay Pacific is in right now. They are facing fierce competitions from low cost carriers in Asia, and Cathay Pacific is one of the few “legacy carrier” that doesn’t have an LCC arm. Hong Kong’s status as the “hub of choice” is in jeopardy, with many customers choosing to fly through other Asian or even Middle Eastern cities. Long-haul premium customers, a major revenue driver of Cathay’s revenue, are also looking to other carriers as other airlines continue to improve their products.

Amidst all that, Cathay Pacific has been losing money due to fuel hedging, and some analysts are projecting 2017 to be Cathay’s first full-year loss since 2010. There were even rumors that Cathay Pacific is trying to sell itself to Air China, which already owns an almost 30% stake in the airline.

Cathay Pacific has been cutting cost in a variety of ways; late last year, the carrier announced that it will be cleaning their aircraft less frequently. The airline is looking at shifting some of its regional routes to Cathay Dragon, like it’s doing with its Kuala Lumpur flights. But all of this is clearly not enough, and the airline is launching a big business strategy overhaul that will play out in the next year or so.

Earlier this week, Cathay Pacific completed the review of their business strategy, which was e-mailed to employees and reported to about 300 managers in the company. According to The Economic Timesthe report suggests that job cuts will be coming soon:

We aim to build a faster, leaner and simpler organisational structure…there will be a big change in the way we do things across the company…In terms of specific job functions, some jobs will no longer be needed…

The company’s spokesperson also issued a statement regarding the outcome of the business strategy review. Per Bloomsberg:

The competition is here to stay and the uncertainty is the ‘new normal’ – we must simply respond. This change will create opportunities, but some jobs will no longer be needed. Some new jobs will be created and other jobs may be redefined…Something of this scale hasn’t happened in for more than 20 years.

Fortunately, the company doesn’t think the business overhaul will have any direct impact to customers. Flight attendants and pilot unions also seem optimistic that their jobs aren’t at jeopardy, since backend and management personnel will likely absorb most of the impact.

Still, uncertainly isn’t good for anybody, and I wouldn’t want to be in Cathay Pacific’s spot. The carrier has tried to position itself as a premium, full-service carrier with great reputation and reliability. However, with competition coming in virtually every direction, they are facing challenges they probably hadn’t anticipated before. I’m glad the company is overhauling their business strategy; after all, a successful airline can be good for customers, and I really do want Cathay Pacific to succeed.

Comments

  1. Cathay Pacific could have the worst return on equity of any airline in the world over the last two decades, amongst airlines which have managed to stay in business without a government bailout. Its stock is trading for roughly the same price today as it traded at in 1990. This has worked out acceptably for Cathay’s parent Swire, but has worked out poorly for minority public shareholders. One day, probably soon, Swire will realize that its capital is better deployed elsewhere, and the merger with China Air will take place . . . its all but inevitable.

  2. I too wish Cathay Pacific the very best. I enjoyed their First Class service very much. Truly wonderful given that only 2 pax were in the cabin. I am tired of the demise of established quality carriers in place of budget operators. Thank goodness – with help from the government – JAL was saved and the are on the rebound with an expanding international long-haul route network that was decimated some years ago. Let’s hope Hong Kong’s flagship carrier weathers this storm, but I’m fearful for what comes the closer 2047 gets.

    • @John: Dragon Air is not LLC, it’s positioned as a boutique airlines. It’s common to have better food on short haul flights with Dragon Air than Cathay, even though they’re “the same”.

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