The Decline and Fall of Cathay Pacific & Singapore Airlines

David Fickling of Bloomberg Gadfly describes the “new Great Power struggle” in his recent article on the fall of Cathay and Singapore Airlines. The two airlines cornered long-haul traffic beginning with the introduction of the B747 in the ’70s and continued dominating until the early 2000’s. However, today they are falling victim to excess capacity at Chinese and Gulf carriers. China Southern, China Eastern, Air China, Emirates and Qatar all exceed them in capacity and Etihad is getting close. The damage is clear – Cathay is cutting jobs and Singapore shares have not gone past $7 in over two months, the longest such stretch according to the article since 2009.

Crushed between the tectonic plates of the Chinese and Gulf carriers, the cities’ airlines are also geographically disadvantaged. Two-thirds of humanity lives within an eight-hour flight of Emirates’ base in Dubai, making it particularly well-placed to link global travelers.

With ultra-long-haul jets such as the Boeing 787 and Airbus SE’s A350 opening up unheard-of routes such as direct Perth-London flights, and Chinese airlines hitting their stride, the old roles connecting Asia to Europe and North America are disappearing. Where they still have an advantage — using the hub-and-spoke model to fill more seats on planes, thus improving profitability — the Gulf carriers’ geographic advantage means Emirates and Qatar can do it better.

Check out the full article here to see what Cathay and Singapore are doing to fight back and turn the page. Though profitability may be restored over the long-term, their business models will be forever changed.

SIA

Comments

  1. SQ is overrated for sure. CX is better than those Chinese carriers. They also said Gulf carriers are struggling, aren’t they?

  2. yes more ppl should fly with other airlines besides SQ and CX… especially award flights. good riddance. more award seat availability for me!

    thanks!

  3. Airline staff attitudes play a major role in the goodwill it enjoys since that is the only active interface a traveller has with the airline brand. SQ could do well to look to encourage its crew to work towards making a traveller want to take another SQ flight. Over the last 2 years after absolutely disastrous in-flight interpersonal interactions on 6 different flights with the crew, I have certainly abandoned the brand. Nose in the air doesn’t take any brand beyond the nose!

  4. It’s the G3+TK. SQ and CX copied the successful KLM model of creating a global airline by creating a mega-hub in a country with a small indigenous population that could not otherwise sustain a major global carrier. The vast majority of KLM flyers weren’t going to Holland, but transited beyond its borders, thus drawing its market from all corners of the world. The two Asian airlines followed the same model on the other side of the planet and upped the ante with premium quality inflight and ground services to capture the business market in that booming region during the 70s/80s/90s. The M3+TK have merely transferred the mega-hub to that region and with the advent of longer range aircraft, capitalized on being accessible way-station to travellers on five continents. (Doesn’t take much to speculate what Iran will be doing with its new fleet of Airbus and Boeing wide bodies!) Simple enough proposition, as long as the financing can be raised.

  5. SQ and CX are still top carriers. There are just too many carriers these days.
    SQ and CX are overpriced. No question about that. The B3 plus TK plus Koreans and Chinese and Indians are all taking their share away from CX and SQ. The Aussies and Indians are hard pressed. The Europeans AF, BA LH KLM are pretty much gone save, save for US and LATAM routes. This Petth to London route is all hype. Save for a few Aussies and Kiwis and Brits there are few takers for the Perth London run., unless you want to spite the Arab and Asian carriers.

    Technology will sooner or later make any two points on the planet connected. Qantas survived using protectionism and patriotism, the Indians tried the same. It just doesnt work. Times have changed. Qantas and the Europeans and Americans will survive on a few long range and mostly medium run routes.

    The long range and regional routes will be dominated by the G3 plus TK plus a gaggle of Asians. Cut prices and no frills are the way to go. Air Asia x does well in India and China.
    Legacy carriers like QF will do well regionally. The Gulf 4 are strong in Asia Europe US and Africa travel.
    We need no frills long range low cost service between asia and australia europe and the US. SQ and CX will dominate inter Asia travel. ( China India, Japan Korea Sub Continent etc.) . I suggest JETSTAR use a few modified QF A380s to fly 600 plus on a low cost basis non stop to London LAX NYC and places with heavy traffic.The Europeans and American are finished, although many white people prefer flying their airline, despite lousy service and high price.

  6. Disagree with David B partially. Perceptions matter. Singapore, Hong Kong , Dubai, Abu Dhabi and Doha all have a good image and jazzy facilities. Not sure if Iran, India and Australia. The Aussies have done precious little to take the Asia LatAm sector. The emphasis has been on price gouging.Spruce up the airports and put more planes on the Asia – OZ – LatAm sector at a reasonable fare. Asia Lat Am is expensive and mostly Korean and Chinese carriers.

    Asia Africa is G4 dominated. Africa Lat Am is non existant virtually ( Ethiopian, South African excepted ) There is traffic between Asia LatAm and Africa Lat Am. SQ, CX and QF are just not interested in developing markets, because money is tight. Not so with the G4. The airline business is tough and complex. The Arabs have decided to spend huge and stay on course. Boeing and Airbus are the arms duopoly in a war ridden ( Carriers fighting each other ) world

  7. Not a very insightful article in my opinion. To be sure, two once dominant carriers which have squandered their advantages and relevance. But these problems owe much more to self-inflicted business mistakes than to competition from the Gulf or even Chinese carriers.

    SQ squandered its advantages by failing to understand customer preferences. It thought that consumers would prefer large A380s to non stops on smaller aircraft, and they got that exactly wrong. It returned to its lessors its only planes capable of non stops to the USA, and forced all passengers from the Americas to make an intermediate stop on their way to Singapore. In doing so it ceded the entire Continent to other carriers, which could reach almost all of Asia with one less intermediate stop than SQ. Only now that it has lost most of its brand recognition, is SQ planning to take delivery of planes to fly between Singapore and the Americas without a stop — but probably much too late.

    Cathay is an even sadder story, because it had much more foresight than SQ in planning its routes between the world’s fastest growing economies, pushing manufacturers to design the 777W so that it could make it nonstop between NYC-HKG, and now flies thousands of passengers a day on routes that didn’t exist a short time ago. While CX has shown operational brilliance as an airline, its downfall has been that it has lost its shirt running a commodities hedge fund — essentially going long and betting the house that aviation fuel would continue to rise forever. The hedge fund operations are what have sunk CX and wiped out years of profits, and that stock is trading for roughly what it traded for 25 years ago. The best that long suffering shareholders can hope for is for Swire to finally throw in the towel on this disaster, and sell out to Air China, which would be a willing and resourceful buyer, which already has a large stake in the airline.

    Sure, there is more competition from the Gulf and Chinese carriers, but these problems are minuscule compared to these own-goals, which would make great Business School case studies.

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