Cathay Pacific Is Getting A New CEO Next Month

Hong Kong-based Cathay Pacific has been struggling financially the past few years, due to their inability to adapt their business model to reflect the times (this is compounded by them having lost a lot on fuel hedges). They’ve continued running a full service airline, though haven’t been able to really command a price premium for that, at least in economy.

The airline has finally decided to add an additional seat to each row of their 777 economy cabin, which should give the airline an additional 1.4 million seats per year. As much as it’s a shame to see them follow the competition in this regard, there’s just no way they can justify the roomier configuration. Of course that’s one of many areas where they haven’t kept up with the competition, which has contributed to them losing 575 million HKD last year.

This shouldn’t come as much of a surprise, but there will shortly be a management shake-up at Cathay Pacific. They seem to change up their CEOs every three to four years, so this isn’t that unusual for the airline (though in this case it presumably reflects Cathay Pacific’s poor performance). The always awesome Danny Lee at the South China Morning Post is reporting that Ivan Chu is stepping down as of Cathay Pacific’s CEO as of May 1, 2017. At that point he’ll be replaced by Rupert Hogg, who is presently Cathay Pacific’s chief operating officer.

Hogg has been chief operating officer since March 2014, which is the same time that Chu became CEO. Hogg has been with the Swire group (Cathay Pacific’s parent company) since 1986, so he’s an industry veteran. Presumably his focus will be on cutting costs while improving revenue, though it remains to be seen how that will be implemented.

cathay-pacific-777

Bottom line

While I don’t think Ivan Chu was a bad guy, he seemed pretty passive, and the airline didn’t evolve much under his leadership. We’ll soon see how Rupert Hogg’s approach differs. As much as we probably won’t like these changes, Cathay Pacific’s path to success probably involves competing somewhat with low cost carriers in economy, while investing in their premium cabin product.

It seems they’re starting to head in that direction, though at a snail’s pace…

Comments

  1. @Lucky

    I can’t remember if it was here on this blog by another commenter or elsewhere where someone actually said that it wasn’t the case that Cathay’s operations weren’t profitable, they were highly profitable in fact. Rather after the person reviewed Cathay’s financial statements it was their Fuel/Oil hedging that lost massive amounts of money resulting in significant losses for the firm. Bloomberg ran with this story back in August last year, but I’m not surprised the fallout resulted in change in upper management.

    https://www.bloomberg.com/news/articles/2016-08-17/cathay-pacific-first-half-profit-slumps-lags-behind-estimates

  2. How is it that JL and KE can continue to offer spacious Y seats with long pitch legroom while other carriers continue to shrink the space they offer?

    And why can DL stay at 9-across (2-3-2 on 767s) and rake in profits while AA and UA go to 10 or 11 across?

  3. Labor relations are near rock bottom too. Multiple CX crew friends of mine tell me their favorite past-time, both themselves and their colleagues, is browsing this primarily chinese online forum where crews take turn to bash leadership.

    It’s no surprise that the popular derog slang for CX is “因航” (http://evchk.wikia.com/wiki/%E5%9C%8B%E6%B3%B0%E8%88%AA%E7%A9%BA – you can try pasting that into Google Translate, but a lot is lost in the translation)

  4. @ Owen — Well Korean Air hasn’t been performing well financially, so that might explain how they’re able to have such sparse configurations. 😉 As far as JAL goes, Japan is a high yield and protected market. I don’t think they’re specifically commanding a price premium because they have a more spacious configuration on their 777s, but rather they’re doing well because of the market out of which they’re operating, and they just happen to have nine seats per row in 777 economy.

    Adding more seats to an economy cabin isn’t the only way to profitability. However, for airlines that are struggling, it’s certainly a step in the right direction.

  5. JL might not be able to for much longer. The last JL financial report was a 25% drop in profits and a 4.7% drop in revenue for the last 9 months of 2016. Apparently international passenger income was down 10% over the period. That’s not sustainable.

    No idea how KE is thriving though.

  6. @TVD& Lucky

    Sorry to hear KE and JL aren’t prospering as much as I thought.

    JL at least is advertising Sky Wider II as a selling point, especially with the even bigger seats on 787-9s. Maybe be it’s just another “more space throughout coach,” but they’re trying. And I always thought AA was mistaken and more pitch is wasted; what I always wish for in Y, especially after the first hour, is more width. Next time I head to Asia (which will be the first) I expect to remember JL’s value proposition.

  7. If we dig deeper in the financials of CX, the only way they are performing badly financially is because of the losses suffered from the fuel hedges. Without the fuel hedge losses, the Company would still be very profitable and sound (for now anyway).

    So it was fundamentally the wrong decision when they try to make the customers and their own staff pay for the fuel hedge losses. Cutting services and sacking people probably isn’t the right thing to do when someone has made totally the wrong call in gambling on those long term fuel hedges contract. But I guess they still got a couple of years on those massive loss making contracts and something would need to give to try “turn around” the numbers. But fundamentally their business weren’t that bad.

    Having looked at the Swire Group organisation chart, it is fair to say he has basically been fired and put on gardening leave as a CEO of a Company within the group that… doesn’t do anything. 😉

  8. CX was an Asian industry leader for many years, with superior service and a fantastic hard product starting more than a decade ago. However, in the last few years, as you note, service has declined dramatically, and their hard product isn’t as unique anymore. I can only look at the leadership in place during this period and that means Ivan Chu. Frankly speaking, as a 2 mil mile CX flyer I am happy to see him go. The issue was he WAS focused on pinching pennies and wasting money on rebranding both CX and KA. Even eliminating salt and pepper shakers in J! Seriously..I’m sure that saved $100,000 per year but in the grand scheme of things, it make CX look cheap!

    While I’m fortunate to fly in J or F most of the time, their economy product was always pretty good (service wise), I even remember basic amenity kits years ago, It’s those little things like salt shakers in J and a touch more room in Y. If they continue down this road they will be just another airline and many I know will continue their move to other carriers.

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