What Singapore Airlines can teach a loss-making Cathay Pacific

By Bloomberg News, May 22 2017

What is Europe's most profitable airline?

Air France-KLM, whose premium passengers sleep in private suites with memory-foam mattresses, dine on Joël Robuchon dishes and have private jets at their disposal?

Or Ryanair, which offers flights starting at €10 ($15) and whose chief executive officer has mused about charging passengers for toilet visits?

No prizes for guessing it's Ryanair.

Trailing 12-month operating margins at the Irish budget carrier run at 23 percent, compared with 4.8 percent at Air France and 6.9 percent at Lufthansa

They have a bare-bones image, but discount airlines are where the best money is made. Of the world's 10 most profitable airlines by operating margins, only Alaska Air  and Delta Air Lines are full-service carriers.

There's a lesson in that for Asia's once-mighty full-service operators, Singapore Airlines and Cathay Pacific Airways.

Both have been relatively late to the discount-aviation party, and are now carrying out strategic reviews to address the threat from state-owned airlines in China and the Gulf.

Budget carriers were until relatively recently a smaller presence in Asia than in Europe and North America. Now they're indisputably a major part of the future. Survival may depend on embracing the concept.

Singapore Airline has been the most forthright in adopting this change. Its Tiger Airways budget offshoot was established back in 2004, with the long-haul discount carrier Scoot following in 2012. The eponymous main carrier's share of group capacity fell to 76 percent last year, from 95 percent five years earlier.

Despite missteps and a delayed integration between Tiger and Scoot, discount flying as a whole is starting to pay off: SIA's budget carriers have posted profits for six consecutive quarters. Absent earnings from them and SilkAir, the shorter-haul brand, the group as a whole would have reported a loss in its recent fourth-quarter results.

While Singapore Airlines has been running to meet the future, Cathay Pacific has been standing athwart history, yelling "Stop!".

It doesn't have a budget arm – and when Qantas Airways and China Eastern Airlines attempted to set one up in Hong Kong in 2012, the result was a two-year regulatory battle that eventually sent the foreigners packing.

While Hong Kongers constantly moan about the high cost of Cathay's tickets, the only local low-cost carrier seeking to undercut the incumbent is Hong Kong Express, ultimately controlled by mainland takeover monster HNA Group.

That conservatism worked well enough for Cathay in the past, but the tide can't be halted.

Already, travelers from Hong Kong to Southeast Asia can fly Tiger and Scoot, as well as AirAsia, Cebu Air and Qantas' Jetstar affiliates. Jetstar is competing with ANA's Peach and Vanilla Air on Japan routes, while Spring Airlines and Juneyao Airlines vie with HK Express to serve mainland China.

Cathay's newly crowned CEO Rupert Hogg would do well to learn from that comparison in addressing the carrier's predicament.

The long-haul routes where it's traditionally dominated are looking increasingly like a lost cause, given the growing muscle of Chinese and Gulf airlines.

Regional routes are the best hope for sustained profits, and low-cost carriers are inevitably going to be fierce rivals there, too. Cathay can't beat the competition – so it should take a leaf from Singapore Airlines' book, and join it instead.

Qantas - Qantas Frequent Flyer

28 Jul 2016

Total posts 108

The problem that Cathay will always face with setting up a budget airline at Hong Kong is the slot constraints. Until Hong Kong gets their third runway, it would just be a waste of money.

Qantas - Qantas Frequent Flyer

23 Oct 2013

Total posts 714

That was actually mentioned in the November 2016 edition of the Cathay staff magazine. 

(FYI you can read them all by going to the bottom of the homepage -> press releases -> the journey online)


On page 20 of the November 16 edition, the CX Director of Corporate Development & IT said they have considered it but slots and fleet are at a premium so maximize the return on what they have. 

He did finish the article by saying that once the 3rd runway is in operation they will consider it again but that date is a decade away.

This is a good piece. Maybe Cathay will have to eat some humble pie and partner with Qantas on a Jetstar HK venture (although they probably won't). 

Cathay need to realize they're a premium carrier. They need smaller jets with longer ranges and higher-yield passengers. The future, basically, is premium carriers doing nonstop flights at higher frequencies in smaller jets with less-dense LOPAs on one hand, and volume-driven/LCC carriers taking the passengers in bigger jets through megahubs and catching connecting flights on the other.

Airline groups should try to operate one of each. Some airlines manage to hybridize the business models and often successfully, but I think we'll see ultimately see more divergence. 

Qantas - Qantas Frequent Flyer

25 Sep 2013

Total posts 1137

"Maybe Cathay will have to eat some humble pie and partner with Qantas on a Jetstar HK venture (although they probably won't)."

Ain't ever gonna happen.

QFF

12 Apr 2013

Total posts 1446

Herd wanna save a dollar, so be prepared to 10 abreast in A350 worldwide. There is fundamental difference between Europe and Asia - it Europe their average flight last 1-2 hours and it easy enough to survive such time even in coffin. But fly sardine can between Australia and Asia where we have 8+ hours of flight is not fun at all. But again herd wanna fly for a dollar, so be prepared that flying became less and less comfortable - even now there are few airlines that offer acceptable flying experience in economy and IMHO it will diminish to zero. Welcome to deregulated zoo that modern aviation became!

Qantas - Qantas Frequent Flyer

18 Feb 2015

Total posts 91

Seriously, where do you work? That allows such abhorrent use of the english language!

Every post is the same.

QFF

12 Apr 2013

Total posts 1446

"Every post is the same." - sorry, mate, but I am too old to change. Yes, I am working with quite rough people who saying what they thinking using direct expressions. Is anything wrong with that?
NB. And yes, I strongly dislike what going on in aviation industry when one have a "choice" either pay someone's quarterly salary to fly Europe or ...... follow the herd that wanna save a dollar and happy to fly even in absolutely disgusting condition. And frankly neither appealing to me.

21 Apr 2017

Total posts 35

What Cathay Pacific can teach Singapore Airlines: best in class safety standards. And yes these do cost money.

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