Airlines living on the edge: CEO

Tony Tyler, Chief Executive, of Cathay Pacific Airways. Photo / Supplied

Airlines talk business in billions but the difference between big profits or large losses is small, says Cathay Pacific Airways chief executive Tony Tyler.

Airlines went through a desperately bad time during 2008 and 2009, with high fuel prices and then a collapse in demand, particularly for premium fares and cargo, Tyler says.

Revenue at Cathay Pacific Airways, which includes Asia regional airline Dragonair, fell 22.6 per cent last year to HK$66.98 billion ($11.95 billion) - although the company turned an HK$8.7 billion loss into a HK$4.69 billion profit.

The airline industry is a rollercoaster ride when it comes to profit and loss, Tyler says.

"This business is all about the tight balance between capacity and demand and you only need demand to sink a little bit and suddenly you're losing lots of money."

The International Air Transport Association forecast industry profit for this year of US$2.3 billion ($3.2 billion), he says.

"That sounds a big number but when you think that IATA's got 200 members, the amount of capital employed by the IATA airlines is in the many hundreds of billions, it's a pathetically small profit margin."

The picture of the industry after the global economic crisis is patchy.

"The European carriers are still struggling quite a bit because the economies in Europe are still quite weak, the premium traffic hasn't rebounded anything like the extent it has in Asia, they're less robust and the competitive environment there is pretty tough for them with all the new-generation carriers."

American carriers have come back quite strongly after being in desperate straits for years, he says.

"What we're seeing now in this region, and Cathay Pacific is certainly seeing this, is a pretty strong recovery, particularly those key markets of premium and cargo."

Hong Kong-based Cathay's traffic figures have rebounded and the company will publish its interim results next week, he says.

The number of passengers carried by the airline was up 8.5 per cent to 13 million in the first half of this year.

"We're blessed by geography, we're part of China which didn't really have a recession, in fact, it accelerated while everybody else was slowing down."

Cathay will look to grow its China and India business significantly, Tyler says.

"Every airline's piling into China as fast as they can but we're very well positioned to play the revenue management game in China, being part of the country."

Cathay recently implemented codeshare agreements with oneworld partners LAN and Mexicana Airlines and Tyler expects to see more co-operation within alliances.

However, co-operation does not necessarily mean mergers and acquisitions.

"Whenever there's a recession people say, 'Well, this is going to finally force the industry to behave like other industries and have consolidation'," he says.

"I take a contrary view to that because the reason why there isn't consolidation is that traffic rights belong to sovereign states and sovereign states basically allow their own airlines to operate those traffic rights and, generally speaking, not other airlines."

If anything governments become more protective during recessions, he says. The environment was a perennial big issue.

The industry has proposed targets it would like governments and other bodies to impose, including an efficiency improvement of 1.5 per cent a year to 2020, no carbon growth after that date and an aspirational goal to cut emissions to half the 2005 level by 2050.

Cathay Pacific funds a wind farm near Shanghai to offset carbon emissions for all corporate travel through a scheme that can also be used by passengers.

"I have to say, while there's a lot of consumer pressure and political pressure to be environmentally responsible, when you give consumers the opportunity to put their money where their month is you don't get killed in the rush," Tyler says.

Cathay Pacific offers a premium service but needs to compete in every area of the market and will always have cheap fares, he says.

"You can't afford to say to yourself we don't need to fish in that particular pond of the low fares.

"If you do that someone is going to get big in that area and hollow you out and that's what happened to the European carriers between 20 years ago and 10 years ago and, really, they've struggled ever since."

Cathay Pacific will always have tough competition and some difficult issues to deal with, but Tyler is confident with the company's base, team and composition of its fleet.

"We're in very good shape, we're going to emerge as one of the winners, for sure."

TONY TYLER
Chief executive, Cathay Pacific Airways
* Age: 55.

* Born: England.

* Education: Oxford University.

* Career: Joined John Swire & Sons in 1977 and moved to Cathay Pacific in 1978. Appointed chief executive in 2007 after roles as chief operating officer and director of corporate development.

* Family: Three children - two sons, one daughter.

* Hobbies: Playing guitar and harmonica and singing.