Cathay Pacific Airways Ltd. is slipping in its efforts to get passengers to pay more for its premium services in a test for new Chief Executive Officer Rupert Hogg as the company reported back-to-back losses.

The carrier, undergoing its biggest revamp in two decades, on Wednesday reported passenger yields declined 5.2 percent to 51.5 Hong Kong cents in the first half of the year. That’s hovering around the lowest level since 2009 for the measure, a key metric of an airline’s profitability.

Buffeted by budget carriers and deep-pocketed competitors on the mainland, Cathay is at the crossroads. It risks being eclipsed by Chinese airlines that offer cheaper, direct long-haul flights from cities like Shanghai, Guangzhou and Shenzhen, bypassing Hong Kong, whose prominence as a hub has declined relative to the burgeoning wealth of the surrounding cities in southern China.

peterinlisbon wrote:

Hong Kong is still one of the world's greatest cities, but it is not so much the gateway to China anymore now that China has opened up and you can now easily fly direct and do business there without having to go through HK.

TC957 wrote:

So it seems disposing of the 4-engined A340's and 744's hasn't helped them much overall then.

So it seems disposing of the 4-engined A340's and 744's hasn't helped them much overall then.

Both SQ and CX are not doing well, this shows how cruel is the industry. For SQ, at least they have MI and TR recording profit, this helps to cushion the loss at SQ mainline and SQ Cargo. Could a low cost carrier have helped CX now if they launched it pre- Ivan Chu era? I think to certain extent it would have. They, with some others, blocked Jetstar HK from starting up, it seems it was futile.

the China Big 3 or 4 if you include HNA Group are eating into CX's lunch because the latter failed to respond effectively and efficiently.

juliuswong wrote:

Both SQ and CX are not doing well, this shows how cruel is the industry.

TC957 wrote:

So it seems disposing of the 4-engined A340's and 744's hasn't helped them much overall then.
CX clearly needs to downsize a bit if the loss of southern China traffic is hurting them.
They can cut LHR down to 4 a day from 5 to start with. A quick check on availability in the next few days shows good availability on every fight I checked.

Noshow wrote:

So how long are their hedging contracts running please?

RL777 wrote:

There's a lot of negativity and fear mongering going around these days when CX profitability is discussed. The root cause is fuel hedging and everybody knows that by now, I don't follow those who think that aspect is irrelevant and the business model is broken. The fact is that their operating profits are good, if they hadn't been caught with a terrible hedging decision the comments in this thread would be a lot different.

lightsaber wrote:

RL777 wrote:

There's a lot of negativity and fear mongering going around these days when CX profitability is discussed. The root cause is fuel hedging and everybody knows that by now, I don't follow those who think that aspect is irrelevant and the business model is broken. The fact is that their operating profits are good, if they hadn't been caught with a terrible hedging decision the comments in this thread would be a lot different.

Agreed. But some airlines saw the increasing oil supplies and backed off hedging as fuel was predicted to go to $60 to $80 and instead crashed and now is long term below $60.

Hedges are a double bladed weapon.

But CX has issues as too much of the growth is low cost.

Getting rid of the 4 holers helps.

Lightsaber

Canuck600 wrote:

Is there anyway they can get out of that hedging contract early? Pay a penalty and write that off as a one time loss?

We introduced a four-times-weekly services to Tel Aviv in March. The service, which is operated by Airbus A350-900 aircraft, has been very well received in all classes. We will put on extra flights to meet seasonal demand on this route from September to November 2017. We introduced seasonal services to Barcelona (July to October 2017) and will introduce seasonal services to Christchurch (December 2017 to February 2018). These services will be operated by Airbus A350-900 aircraft.

We sold premium class tickets on a promotional basis to non-corporate customers.

Our weekly “fanfares” promotions in Hong Kong demonstrate our commitment to offering good-value fares in our home market.

Demand over the Chinese New Year holiday was strong, but yield was under pressure.

The performance of our Southwest Pacific routes was below expectations. Demand on Southwest Pacific routes was weak. Increased capacity from Mainland China, Hong Kong and Australian carriers put pressure on yield and the number of transit passengers.

Yield on routes between Hong Kong and Mainland China and Southeast Asia was under pressure because of increased competition, particularly from low-cost carriers.

Demand on European routes grew, but from a low base, reflecting security concerns in the early part of 2016.

Demand for travel to and from Madrid grew. Bookings for our seasonal summer services to Barcelona have been strong.

Demand for travel to the United States was weak.

Increased competition on routes to Canada is putting increased pressure on yield, especially during seasonally weak periods.

In March 2017, we increased the frequency of our services to Boston (from four flights per week to daily) and Vancouver (from 14 to 17 flights per week).

To meet seasonal demand, we increased the frequency of our service to Toronto by four flights per week between June and August 2017 (making this a twice-daily service).

From October 2017, we will increase the frequency of our service to San Francisco to three-times-daily (by adding four flights per week) and will reduce the frequency of our service to Los Angeles from 28 to 21 flights
per week.

The load factor on the route to London Gatwick, introduced in 2016, was high, but revenue was adversely affected by the weakness of sterling.

In June 2017, we increased the frequency of our services to London Gatwick (from four flights per week to daily) and Manchester (from four to five flights per week). The Manchester service is now operated by Airbus A350-900 aircraft. From December 2017, the frequency of the Manchester service will be increased to daily.

From October 2017, the frequency of our service to Madrid will be increased from four to five flights per week.

From December 2017, the frequency of our service to Paris will be increased from 10 to 11 flights per week.

From July 2017, our service to Adelaide became five flights per week year-round.

From October 2017 to March 2018, we will replace our current four-times-weekly one-stop service to Brisbane via Cairns with direct flights to both cities. The Brisbane frequency will be 11 flights per week. The Cairns frequency will be three flights per week.

In March 2017, we increased capacity on our daily non-stop flight to Brisbane by using Airbus A350-900 aircraft.

In March 2017, we increased capacity on our route to Melbourne. The route used to be operated only by Airbus A330-300 aircraft. One of the three daily flights is now operated by Boeing 777-300ER aircraft, one
by Airbus A350-900 aircraft and one by Airbus A330-300 aircraft.

The performance of our routes to Thailand was satisfactory.

In July 2017, we increased the frequency of our services to Hanoi (from 10 to 12 flights per week) and Ho Chi Minh City (from 18 to 19 flights per week).

Demand for travel to Northeast Asia was strong in the early part of 2017, but political tensions between Mainland China and South Korea in the second quarter affected demand for travel to South Korea.

We stopped flying to Riyadh in March 2017.

In October 2017, we will suspend services between Taipei and Fukuoka and will introduce a second daily flight between Taipei and Tokyo Narita.

Cathay Dragon now operates the four daily flights to Kuala Lumpur which were previously operated by Cathay Pacific.

Cathay Dragon’s service to Tokyo Haneda will be suspended from October 2017.

RL777 wrote:

There's a lot of negativity and fear mongering going around these days when CX profitability is discussed. The root cause is fuel hedging and everybody knows that by now, I don't follow those who think that aspect is irrelevant and the business model is broken. The fact is that their operating profits are good, if they hadn't been caught with a terrible hedging decision the comments in this thread would be a lot different.

winginit wrote:

RL777 wrote:

There's a lot of negativity and fear mongering going around these days when CX profitability is discussed. The root cause is fuel hedging and everybody knows that by now, I don't follow those who think that aspect is irrelevant and the business model is broken. The fact is that their operating profits are good, if they hadn't been caught with a terrible hedging decision the comments in this thread would be a lot different.

You say that, and yet Cathay Pacific themselves admitted this was a revenue problem even before they spoke to the hedge losses. When you're running an 85% system load factor and passenger yields are down 5.2% YoY, that speaks to a fundamental issue with the core business, which is indeed a firm pressure on account of the competitive landscape in HKG. That's not going to change, and as a result it's possible that CX need to rethink their restructuring as they approach what will be the first sequence of back to back annual loss years in their history.

qf789 wrote:

CX CEO says they will focus and service and not to go down the LCC road, services include better lounges, WIFI, more food options, self service check in

eamondzhang wrote:

While I knew it's minor issue, but from what I observed: only during last week I bought a ticket last-min (bought on Tuesday and flew the day after) from MEL to TAO and back at AU$635. That's not expensive at all and it tells about their yields. The F&B onboard also came from various sources - I've had water from the UK, Malaysia and Hong Kong on one flight, and ice creams from three countries on four flights that I took. That doesn't sound like trying to reduce costs at all.

jupiter2 wrote:

eamondzhang wrote:

While I knew it's minor issue, but from what I observed: only during last week I bought a ticket last-min (bought on Tuesday and flew the day after) from MEL to TAO and back at AU$635. That's not expensive at all and it tells about their yields. The F&B onboard also came from various sources - I've had water from the UK, Malaysia and Hong Kong on one flight, and ice creams from three countries on four flights that I took. That doesn't sound like trying to reduce costs at all.

The fare is cheap, but then again, at the last minute any revenue is better than an empty seat. As for the products offered, they may well just indicate that instead of dumping unused product after a flight, that they are consolidating unused left overs, which are still as new and then serving them later. If it is the case, it would just be an efficient use of resources.

TC957 wrote:

So it seems disposing of the 4-engined A340's and 744's hasn't helped them much overall then.
CX clearly needs to downsize a bit if the loss of southern China traffic is hurting them.
They can cut LHR down to 4 a day from 5 to start with. A quick check on availability in the next few days shows good availability on every fight I checked.