Cathay Pacific

Outlook for Asia's full-service sector dims as Singapore Airlines reports rare quarterly loss

The outlook for the normally buoyant Asian market has further dimmed following a rare quarterly loss for Singapore Airlines (SIA). The SIA Group’s first net loss since the global economic crisis of 2008 could be seen partially as an indication of its weakening market position. But in reality it is probably more indicative of the broader challengers facing Asia’s full-service airline sector.

SIA has reported for the three months ending 31-Mar-2011 (4QFY2012) a group operating loss of SGD5 million (USD4 million) compared to an operating profit of SGD166 million (USD132 million) for the same period last year. The group’s net loss for 4QFY2012 came in at SGD38 million (USD30 million), compared to a profit of SGD171 million (USD136 million) the previous year. SIA was widely expected to report a decline in profits for the sixth consecutive quarter, but the small loss – the first since 2QFY2010 – came as an unpleasant surprise.

Jetstar Japan plans more aggressive launch than competitor Peach, reflecting Japanese LCC market

The launch schedule of Jetstar Japan, the LCC to commence services on 03-Jul-2012, is more aggressive than the Mar-2012 launch of competitor Peach, reflecting not only a market that will see tremendous and competitive growth in a very short period of time, but also the greater freedom enjoyed by the country's second wave of LCCs like Jetstar Japan.

While Jetstar in its first week will operate up to six daily return flights, one less than Peach launched with, the carrier will quickly ramp up operations, ending its first two months with 14 daily flights, more than the 11 daily flights Peach will have at the end of its first 3.5 months.

Jetstar Japan's launch will see four more of the world's 20 most populous routes have competition from LCCs, leaving only three routes served exclusively by full-service carriers in a reminder of greatly shifting tides. While LCC presence in China is the next objective, so too is domination: the world's most populous route is already controlled by LCCs. 

Taiwan's EVA Air confirmed as new Star member, considers converting UNI Air subsidiary to an LCC

Taiwan’s EVA Air formally signed on 29-Mar-2012 with Star Alliance to join the grouping after Star’s Chief Executive Board unanimously accepted the carrier's membership application. Wholly owned regional subsidiary UNI Air, however, will not be joining Star and EVA President KW Chang has instead revealed is was a possibility that UNI may be converted to a low-cost carrier.

As Asia’s network airlines quickly establish their own LCC subsidiaries, the pressure mounts on others to follow suit and EVA is apparently no exception. In a clear sign that the flurry of LCC subsidiary announcements by other airline groups in Asia was influencing EVA management thinking, Mr Chang Kuo-wei said “it is one thing we are thinking of, but it is only a possibility this stage”. While it ponders a possible new short-haul LCC strategy, EVA hopes to leverage its Star Alliance membership to expand on long-haul routes.

Qantas expands Asian strategy with Jetstar Hong Kong venture with China Eastern

Qantas has announced a bold initiative to set up a new low-cost carrier joint venture in Hong Kong with its long-time Chinese partner, China Eastern Airlines. Jetstar Hong Kong will operate short-haul routes within Asia – including to mainland China, Japan, South Korea and Southeast Asia – from 2013 with an initial fleet of three A320s, growing to 18 A320s by 2015.

It is a key stepping-stone for the Qantas Group as it grows its Jetstar brand across the region. Jetstar currently has entities in Singapore with Jetstar Asia/Valuair and in Vietnam with Jetstar Pacific. Jetstar Hong Kong will be the group's fourth Asian affiliate as Jetstar Japan, a new joint venture with Japan Airlines that was announced last year, will be launching services in Jul-2012.

The Jetstar group will bring considerable low-cost experience to the new venture, which will become the first short-haul low fares airline to be based in Hong Kong. The LCC model is, however, a new concept for China Eastern, which is following the pattern of several of its full service counterparts in Asia in working with an experienced partner in the establishment of a LCC offshoot.

airberlin joins oneworld alliance, but its full potential will not be immediately realised

The oneworld alliance on 20-Mar-2012 is welcoming airberlin as its 11th member, but the carrier's full potential will not be immediately realised.

airberlin's advantage is a continental European base, which oneworld lacks and barely had prior to the Feb-2012 collapse of Hungary's Malev. But the hub can only be utilised if oneworld carriers serve it, and so far they have been coy about adding services, preferring instead the country's –  and one of the world's – leading financial centres, Frankfurt, much to the disappointment of airberlin.

From airberlin's accession, oneworld will gain market share, but not only are SkyTeam and Star Alliance expanding as well, they are adding members in key growth markets. airberlin this week brings 38 new destinations to oneworld's network, although they are primarily leisure points and not the corporate destinations that bolster airline yields. The airline has evolved, with additional costs, from a low-cost carrier to a hybrid one targeting the corporate sector, but has yet to see a yield uptick.

Cathay Pacific profit falls, but from a record level as it manages very well in a tough environment

Cathay Pacific’s financials in 2011 were never going to compare well to a fantastic 2010. Headline revenue were up 9.9%, but net profits fell 60.8% and profit margin dived 10.1 ppts to 5.6% from the previous year’s record 15.7%. Cathay cited the the instability of the global economy, the weakness of the air cargo market, the reduction of yields in economy class, the impact of natural disasters in Japan and Thailand, unrest in the Middle East and continued high jet fuel prices for the result – and predicted tougher times in 2012.

But in the circumstances, and relative to its peers, Cathay is performing well and is an extremely well managed airline. Over the past three years, management has reduced unit costs per ATK by 9.2%. Singapore Airlines has seen a 0.5% increase over the same period.