Rough flight ahead as new CEO pilots Cathay Pacific

Cathay Pacific self check-in counters in Hong Kong International Airport. Last month, the airline reported its first loss in eight years. In recent years, Cathay has had to sell tickets below cost to keep its planes full. Chief executive Rupert Hogg
Cathay Pacific self check-in counters in Hong Kong International Airport. Last month, the airline reported its first loss in eight years. In recent years, Cathay has had to sell tickets below cost to keep its planes full. PHOTO: AGENCE FRANCE-PRESSE
Cathay Pacific self check-in counters in Hong Kong International Airport. Last month, the airline reported its first loss in eight years. In recent years, Cathay has had to sell tickets below cost to keep its planes full. Chief executive Rupert Hogg
Chief executive Rupert Hogg has a restructuring plan to help cut as much as US$514 million (S$718 million) in costs over three years - a strategy he intends to stay with now that he's the boss.PHOTO: AGENCE FRANCE-PRESSE

Intensifying competition from budget carriers and incursions from Mid-East rivals among the challenges

HONG KONG • Mr Rupert Hogg, the 55-year-old veteran executive, took on one of the toughest turnaround jobs in Asian commercial aviation when he donned the mantle of Cathay Pacific chief executive yesterday.

Once a dominant player in Asia's premium air travel market with few serious rivals, Hong Kong's marquee carrier has hit an air pocket, despite the booming travel demand in the region.

Last month, the airline reported its first loss in eight years. Far bigger challenges loom, including intensifying competition from budget carriers and deep-pocketed, state-owned Chinese carriers for cost-conscious passengers and incursions into Asia from Mid-East rivals such as Emirates Airline and Etihad Airways for the business traveller.

In recent years, Cathay has had to sell tickets below cost to keep its planes full and its operating costs are higher than most rivals.

Its stock has tumbled 25 per cent since the incumbent CEO Ivan Chu took over on March 14, 2014, while analysts tracked by Bloomberg currently have zero buy ratings on the company.

Into the breach enters Mr Hogg, who joined the Hong Kong conglomerate Swire Group, Cathay's largest shareholder, in 1986 and steadily rose through the ranks, before being tagged as Cathay's chief operating officer in 2014.

As part of the senior management team under Mr Chu, Mr Hogg helped pull together a restructuring plan announced earlier this year to help cut as much as US$514 million (S$718 million) in costs over three years - a strategy he intends to stay with now that he's boss.

"We've got a plan," Mr Hogg said on April 21. "It's the three-year business transformation programme. We'll work through this."

Mr Hogg is considered by many employees as charismatic and approachable, but some analysts wonder if Cathay might be better off with an outsider at the helm. 

Mr Hogg and three of his immediate predecessors worked as the chief operating officer of the airline just before taking up the top job.

The worry is that Swire group think contributed to the strategic mess Cathay now finds itself in.

"All the guys are from the University of Swire Group," said Maybank Investment Bank analyst Mohshin Aziz. "They... are identical to each other... It's different faces, but it's the same content."

The counter-argument is that the business cultures of Swire and Cathay are so intertwined and unique that only an insider can navigate them, according to Singapore-based independent aviation analyst Corrine Png.

Cathay is one of the nine carriers in the world with a 5-Star Airline Rating by Skytrax, which measures cabin service, staff and product offerings both at the airport and aboard the aircraft for the top grade.

Asia-Pacific is seeing robust growth in air passenger traffic, helped by a rash of budget airlines offering cheap fares and connectivity that has attracted the train and bus travellers.

Much of that booming demand bypassed Hong Kong, which has few budget airlines that call the city home. So Cathay had to rely on business travel and intercontinental traffic that fed into Chinese cities.

After years of benefiting from China's growth, Cathay is being hurt by its strong ties to the mainland. Travellers are bypassing Cathay and flying directly between Chinese cities and the United States or Europe. The city has also been slow to see the trend and a new runway aimed at easing airport congestion is still years out.

Cathay has played a role in promoting Hong Kong as a global tourism destination in the past, but the city is going through an identity crisis, said Professor John Carroll, a professor in history at the University of Hong Kong. "Between government and the industry, nobody has really figured out a good way to sell Hong Kong," he said.

The restructuring Mr Hogg will oversee will not be easy, but others have shown that a large-scale transformation is possible.

In 2008, Qantas named the then head of its discount unit Alan Joyce as the CEO of the airline and he successfully steered the carrier out of trouble.

"The global precedent suggests a tough transition period, but as Qantas showed, it can be done," said Mr Joshua Crabb, head of Asian equities at a unit of Old Mutual.

BLOOMBERG

A version of this article appeared in the print edition of The Straits Times on May 02, 2017, with the headline 'Rough flight ahead as new CEO pilots Cathay Pacific'. Print Edition | Subscribe