As loss looms, Cathay Pacific needs to woo China's leisure tourists

HONG KONG • It is time for Cathay Pacific boss Rupert Hogg to go to the back of the plane.

With the company expected to announce another loss this week, Cathay Pacific Airways needs to shift strategy from being the region's top airline for premium fliers and make a bigger effort to woo some of the millions of mainland leisure travellers who have enriched its state-owned rivals in China, analysts say.

Tomorrow, chief executive officer Hogg may report a loss of HK$1.2 billion (S$209 million) for the six months to June, the median in a Bloomberg survey of three analysts showed. That would potentially put Cathay on course for the first back-to-back annual losses in its 70-year history. The Hong Kong company last month warned of a "disappointing" first half.

Cathay is caught between budget carriers luring regional tourists and deep-pocketed, state-owned competitors in China which offer cheaper long-haul flights from cities like Shanghai, Guangzhou and Shenzhen, without the need to fly via Hong Kong. The airline's fortunes are entwined with the former British colony's declining prominence relative to the burgeoning wealth of the surrounding cities in southern China.

Key to winning back a bigger slice of the market from state-owned China Eastern Airlines and China Southern Airlines is Cathay's partnership with flag carrier Air China, said Mr John Hu, an analyst at Morningstar Investment Services in Shenzhen. "Cathay is begging with a golden bowl," Mr Hu said. "It has Air China on its back in the mainland but it has yet to fully exploit that tie-up."

Air China is Cathay's second-largest shareholder with a 30 per cent stake but, said Ms Corrine Png, chief executive officer of Crucial Perspective which focuses on equity research in Asia's transport sector, cooperation is hampered by the fact that they belong to rival aviation alliances, limiting codeshare agreements. Cathay is part of Oneworld, while Air China is a member of Star Alliance.

Cathay's shares have risen 1 per cent since the announcement, compared with a 7.3 per cent gain in Hong Kong's benchmark index. Yesterday, the stock fell 0.9 per cent to its lowest close in more than two months.

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A version of this article appeared in the print edition of The Straits Times on August 15, 2017, with the headline 'As loss looms, Cathay Pacific needs to woo China's leisure tourists'. Print Edition | Subscribe