Joint venture in smooth air

Cathay Pacific's Rupert Hogg says modernising the fleet is a key part of the airline's strategy. Photo / Greg Bowker

As Cathay Pacific modernises its fleet, it reports alliance with Air NZ is going well.

Cathay Pacific's joint-venture agreement with Air New Zealand is working well, says the Hong Kong-based airline's chief operating officer, Rupert Hogg.

Air New Zealand last year started a revenue-sharing deal with Cathay Pacific on the carriers' Auckland-Hong Kong route.

"The logic of that joint venture between points in New Zealand and Hong Kong is that it is a long, thin route, where a combination of the carriers working together means that you can get connectivity at both ends for two flights rather than one," Hogg told a news briefing in Hong Kong.

"We are trying to build that route and build that connectivity quicker than either of us can do individually," he said. "So far it has worked well."

Cathay Pacific is in the process of modernising its fleet - in part because of high fuel bills. This September the last of its ageing Boeing 747s will be taken off long-haul routes. By the end of this year, it will have only seven 747s in the fleet. The airline expects to take delivery of 97 new planes over the next 10 years.

Hogg said modernising the fleet was a key part of Cathay Pacific's strategy because it would reduce fuel costs and improve the flying experience for customers.

Cathay Pacific is also in the process of refurbishing its existing fleet. By the end of this year, all the company's wide-bodied jets will have new seats and a new entertainment offering in each class.

Like some other airlines, Cathay Pacific has introduced a new class between business and economy.

Cathay's "premium economy" offers bigger seats and a bigger pitch between the seats. The new product was added to Cathay's New Zealand service last October.

"There are a lot of people who cannot afford lie-flat business class but who are prepared to upgrade and pay a bit more for premium economy," Hogg said.

"We are a long haul and ultra-long haul carrier and we believe the market was ripe for it and that it has given us a big competitive differentiation."

Cathay Pacific is one of the world's biggest cargo and combination cargo/passenger carriers and Hogg said conditions in this part of the market were still difficult as the industry grappled with overcapacity and flat demand in many of the world's big economies.

But he said that the airline was well-placed in Hong Kong, which is the world's biggest air cargo hub, particularly asChina moves to rebalance its economy with more imports.

Weak cargo demand was behind a big drop in Cathay Pacific's earnings to just HK$862 million ($128 million) in 2012. The airline recovered ground in 2013 - off a low base - by reporting a HK$2.6 billion net profit.

Asked about the airline's outlook for 2014, Hogg said the company was experiencing 7 per cent growth in available seat kilometres (ASKs) - a measure of a flight's carrying capacity - relative to a flat performance last year.

"We are seeing a lot of growth across the Pacific, partly because the American economy, we think, is very flexible and obviously very large," he said. Hogg also said there were "huge volumes of traffic" from China, Hong Kong and India.

In the big picture, he was not overly optimistic about market conditions as many parts of the world - Europe in particular - remained depressed. "It's not a disaster but we don't see big signs of rapid recovery," Hogg said.

Jamie Gray travelled to Hong Kong courtesy of Cathay Pacific.

Widebody fleets

Cathay Pacific
• Airbus A330 - 36
• Airbus A340 - 11
• Boeing 747 - 34
• Boeing 777 - 55

Air NZ
• Boeing 7472
• Boeing 777 13
• Boeing 767 5.