Cathay Pacific in fighting trim

By DANIEL RIORDAN aviation writer

He's been called a crystal ball gazer, but Cathay Pacific Airways' strategy guru Tony Tyler dismisses that moniker with raised eyebrows.

"Any airline that tells you it can forecast the future more than three months out has got a better crystal ball than we have."

Interviewed at Cathay's headquarters at Hong Kong airport, Mr Tyler (official title: corporate development manager) is cautious about the outlook for Asia's aviation industry, but adamant that Cathay is in better shape to weather any downturn than most of its competitors.

After losing money for the first time in 1998 as the Asian crisis hit, Cathay drastically tightened its belt.

Some 2000 staff were laid off. As many again lost their jobs at subsidiaries.

Staff numbers have since recovered to 14,200, with 1100 added last year and more hirings this year. But they are still below pre-cut levels.

The result: a record profit of $HK5 billion* ($1.5 billion) last year, more than double that of the previous year, with record passenger and cargo numbers.

Mr Tyler says Cathay could cash in because it took the hard options while many others airlines in Asia sat back and waited for things to get better.

"Our unit costs of a few years ago were about in line with our unit revenues of last year. So if we hadn't got our unit costs down, we wouldn't have made any money."

But aviation analysts say major Asian airlines, such as Cathay, Qantas and Singapore Airlines, enjoyed a record run last year because of a shortage of capacity as Asian economies recovered more quickly than expected from the 1997-98 crisis.

Most had deferred jet deliveries, and with demand exceeding supply, load factors and profit margins were higher than normal.

Mr Tyler acknowledges matching last year's performance won't be easy. Markets are noticeably weaker, particularly for the cargo business that makes up 30 per cent of Cathay's turnover.

Passenger trends are better, and the company has gambled by committing to add 11 aircraft to bring its fleet to 78 by the end of the year.

How well those extra aircraft are used will largely determine what sort of year Cathay has.

"We think that's going to give us an opportunity to capture market share, but if hard times are coming, they're going to hit our competitors harder than they're going to hit us."

Mr Tyler's concerns for the Asian market centre on the slowdown in the United States economy, stalling the demand for imports from Asia, and the shape of itssubsequent recovery.

"We hope its a V but we've got to be prepared for a U."



Among Asian carriers, Qantas has warned its profit will be drastically lower, Air New Zealand/Ansett has its much-publicised woes, and Singapore Airlines reported a 29 per cent lower March half-year profit, analysts citing slowing passenger and cargo demand.

Cathay's revenue of $HK34.5 billion ($NZ10.3b) last year compared with Air NZ/Ansett's June 2000-year figure of $7.9 billion. Cathay's revenue passenger kilometres (RPKs) of 47 million compared with Air NZ/Ansett's 39 million. Mr Tyler has been with Cathay - off and on - since 1977, joining from the airline's 45 per cent shareholder, British investment company Swire Group. A Chinese Government investment vehicle, Citic Pacific, owns 25 per cent and the balance of shares are traded on the Hong Kong stock exchange.



He says bilateral agreements and restrictions on foreign ownership will continue for two reasons.



First, safety issues. Governments don't like forgoing the right to oversee the safety of their airlines.

"Banks, phone companies and the like have all globalised and maybe it's time airlines did the same. But you can't kill yourself making a phone call, so there is a difference."

Secondly, no nation wants to lose a national carrier.

"Rightly or wrongly there is still a lot of national rivalry and pride bound up in the national airline."

The airline industry is also debating whether airlines should concentrate on moving their passengers through hubs, or to try to fly passengers point to point.

Of the two major plane makers, Airbus is gearing its strategy to hubs and Boeing to direct flights.

"That's two extremes, and the answer lies somewhere in the middle. But so far as Asia is concerned, I think Airbus is probably more right than Boeing."

Mr Tyler says Asia's size means the costs of operating across it are so high and achieving economies of scale so crucial that running a hub system makes more sense. Asia's concentration of wealth and population in major cities is another factor.

"I think we'll see a concentration of traffic around major cities for some time in Asia - Hong Kong, Taipei, Singapore and Bangkok."

As for which manufacturer Cathay Pacific will choose for its future big-plane needs, Cathay is sitting on the fence.

Airbus is promoting its Airbus 380 - the world's biggest passenger plane - and Boeing, having forgone its stretch jumbo, is promoting its high-speed sonic cruiser.

"We've had a good look at the sonic cruiser. Provided it doesn't cost the earth, we think passengers will be very interested in trimming three hours off a trans-Pacific flight."

Cathay has a daily return flight between Hong Kong and New Zealand. Mr Tyler would like two flights a day from Hong Kong, flown by Boeing 747s, but this is unlikely because other routes take priority.

* Daniel Riordan went to Hong Kong as a guest of Cathay Pacific.

* CORRECTION: The original version of this story stated incorrectly that Cathay Pacific had a profit of HK$5 million.

www.nzherald.co.nz/travel