Cathay Pacific

IATA notes contracting premium travel demand while Cathay Pacific outlines premium economy product

The share of premium seats as a portion of total travel is contracting, with premium seat share falling back towards the lows of early 2009 when it touched 7.5% of total traffic, according to airline industry body IATA. Given the continued growth in economy travel, IATA believes it is probable there has been a degree of substitution away from premium travel to economy, as businesses seek to cut cost in difficult economic conditions.

This changing seat class mix will undermine yields, and hence profitability, with IATA also warning that stagnant international trade and declining business confidence points to further weakness in business travel and a challenging profitability environment for airlines in 4Q2011. IATA has previously commented on the increasing movement towards premium economy travel, which IATA includes as part of the ‘economy’ category. “In recent months, that structural downshift has been joined by the start of a new cyclical downturn,” IATA said last month.

Malaysia Airlines new business plan targets premium sector, following strategies of Cathay and SIA

Malaysia Airlines (MAS) has unveiled a new business plan aiming to restore profitability by significantly cutting capacity and increasing focus on the premium sector, which includes the launch of a new regional premium carrier in 1H2012. Several business units including maintenance, cargo and ground handling are to be spun-off, most likely in 2012, as part of a bid to free up capital required to fund rapid fleet renewal and the reinvigoration of MAS’ core business. MAS will swiftly phase out its B747-400 and A330-200 fleets over the next year, leading to a 12% reduction in total capacity.

The decision to draft yet another new business plan at MAS, which has made multiple turnaround attempts over the years, hardly comes as a surprise following the landmark partnership agreement forged in Aug-2011 with long-time rival AirAsia. The agreement, which included an equity swap and the appointment of AirAsia Group CEO Tony Fernandes to the MAS board, inevitably required MAS to downsize and abandon its attempt to compete with AirAsia at the low end of the market.

Airlines and airports feeling impact of global economic weakness with continued freight pressures

Airlines and airports are feeling the impact of the current global economic weakness and declining consumer spending in Europe, which is having a noticeable impact on air cargo volumes. Cargo traffic, which generated USD66 billion in revenue in 2010, has declined every month since May-2011, according to IATA upon the release of its Oct-2011 traffic results, with a 4.7% year-on-year reduction in cargo demand in Oct-2011 amid reduced manufacturing confidence and businesses switching to slower modes of transport.

“Cargo is the story of the month. Since mid-year the market has shrunk by almost 5% and this is far greater than the 1% fall in world trade. Air freight is among the first sectors to suffer when businesses confidence declines,” IATA director general and CEO Tony Tyler said. Meanwhile, Boeing CEO Jim McNerney separately stated the company has seen a softening of freight demand in recent months, describing the freight market as a “watch item”.

Qantas' Hong Kong capacity increase underscores city's importance to pan-Asian strategies

Qantas will increase capacity from Jan-2012 on its Sydney-Hong Kong service despite the route soon losing traffic as onward passengers to London are forced to transit through Singapore after the Hong Kong-London service ends in Mar-2012. The increase shows the emerging relevance Hong Kong, and its access to mainland China, has to Australia as Cathay Pacific increases competition and Hong Kong Airlines looks to enter the market. Hong Kong also has strategic relevance as a low-cost carrier hub for Jetstar or any other pan-Asian airline – if local incumbent Cathay Pacific loses its fight to keep LCCs out from its home turf.

Cathay explains why it will not follow other Asian carriers in launching an LCC subsidiary or brand

Cathay Pacific Airways remains unconvinced there is value in establishing low-cost carrier subsidiaries or brands even as most of its peers start to follow pioneer Qantas in launching LCCs.

Singapore Airlines’ decision to expand into the long-haul budget sector with Scoot has other full-service carriers throughout Asia and beyond wondering if they should follow the emerging long-haul LCC trend. But while Cathay CEO John Slosar calls Scoot “a very interesting development” he believes SIA may find that it has its hands full as it already owns regional carrier SilkAir and has just increased its stake in short-haul LCC Tiger Airways. “To have that many [brands] will be an issue,” Mr Slosar predicts.