Cathay Pacific shift urged

Cathay Pacific is being urged by analysts to widen its customer base in a bid to return to profitability. With the company expected to announce another loss this week, Cathay Pacific needs to shift strategy from being the region’s top airline for premium fliers and make a bigger effort to woo some of the millions of mainland leisure travellers who have enriched its state-owned rivals in China, analysts say.

 

The airline is expected to report a loss of HK$1.2bn (€130m) for the six months to the end of June tomorrow.

That would potentially put Cathay on course for the first back-to-back annual losses in its 70-year history. The Hong Kong company last month warned of a disappointing first-half.

Cathay is caught between budget carriers luring regional tourists and deep-pocketed, state-owned competitors on the mainland that offer cheaper, long-haul flights from cities like Shanghai, Guangzhou and Shenzhen, without the need to fly via Hong Kong.

The airline’s fortunes are entwined with the former British colony’s declining prominence relative to the burgeoning wealth of the surrounding cities in southern China.

Key to winning back a bigger slice of the market from state-owned China Eastern Airlines and China Southern Airlines is Cathay’s partnership with flag carrier Air China, said John Hu, an analyst at Morningstar Investment Services in Shenzhen.

“Cathay is begging with a golden bowl,” Mr Hu said. “It has Air China on its back in the mainland but it has yet to fully exploit that tie-up.”

Air China is Cathay’s second-largest shareholder with a 30% stake, but co-operation is hampered by the fact that they belong to rival aviation alliances, limiting codeshare agreements.

Cathay is part of Oneworld, while Air China is a member of Star Alliance.

Investors so far have been unimpressed after Cathay in May said it would cut 600 jobs as part of a three-year corporate revamp, its biggest in two decades. That’s partly because the airline has revealed little else about the transformation.

Cathay’s shares have risen 1% since the announcement, against a 7.3% gain in Hong Kong’s benchmark index. Yesterday, the stock fell 0.9% to its lowest close in more than two months.

While Cathay bet on its hub in Hong Kong to build a clientele of wealthy business passengers prepared to pay premium fares, the mainland players became rich tapping into the boom in tourists and first-time fliers spawned by China’s economic boom.
n Bloomberg


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