Cathay Pacific to be a smarter & leaner airline in 2013

2012 has been a tumultuous year for Hong Kong-based Cathay Pacific Airways, with the “triple whammy” – a toxic mix of softening corporate travel demand owing to ensuing global economic uncertainties, stubbornly high oil prices and a cargo conundrum, pushing Asia’s largest international airline into a HK$935 million (US$120.6 million) first-half loss (“Gleam of hope for Cathay Pacific in stormy skies“, 13th Aug, 12). Notwithstanding this, Cathay Pacific has stayed the course in bucking the trend in continuously investing in product upgrades, including the ongoing roll-out of its award-winning New Business Class and the introduction of the premium economy class, as well as the unveiling of a new Regional Business Class.

With its cargo business showing an uptick towards the end of 2012 following a swathe of high-technology product launches such as Apple Inc.’s iPad Mini tablet computer of which the cargo market is hopefully stabilising at last before an eventual recovery in 2014, in addition to the faster decommissioning of fuel-guzzling Boeing 747-400 aircraft, 2013 looks poised to be a slightly improved, albeit still challenging year for the oneworld alliance carrier.

“Cargo had a really weak year. In the last few weeks, finally we started to see growth. But really for almost 18 months consecutively before that, every month was negative growth year-on-year. In every industry you get some upturns. We have started to see some upturns. That’s a good thing. [But] that does not mean the business is fixed,” Cathay Pacific chief executive John Slosar cautioned in a South China Morning Post interview.

In the first 11 months of 2012, cargo traffic, measured in freight tonnage kilometres (FTKs), fell 8.1% year-over-year to 8.09 billion, outpacing a 3.5% year-over-year reduction in cargo capacity, measured in available cargo and mail tonnage kilometres, to 12.67 billion, thus leading to a 3.2% decrease in cargo load factor to 63.9%.

At its passenger business, Cathay Pacific plans to cut passenger capacity, measured in available seat kilometres (ASKs), by 1.6% in 2013, which is in sharp contrast to the 3.3% increase in ASK to 118.79 billion recorded in the first 11 months of 2012 and the first such passenger capacity trimming since 2009. Meanwhile, passenger traffic, measured in revenue passenger kilometres (RPKs) rose by 2.8% to 95.11 billion in the same period, leading to a 0.3% drop in passenger load factor to 80.1%.

Image Courtesy of Cathay Pacific

Image Courtesy of Cathay Pacific

Growing regional focus
While the aforementioned figures paint of a somewhat bleak picture, it is misconstrued for one to think that the airline is shrinking and bleeding alongside other legacy full-service carriers such as Australia’s Qantas Airways of which its international unit lost A$450 million in FY2011/12 or Air France-KLM which will axe 5,000 jobs by the end of 2013 in a bid to return to profitability.

Quite frankly, the decrease in available seat kilometres (ASKs) in 2013 reflects more of the “smart deployment” of capacity and the “smart growth” in the Asia/Pacific region that are going to be the main theme for Cathay Pacific in the foreseeable future.

First of all, the gradual replacement of the Boeing 747-400s on European and United States routes with the significantly more fuel efficient Boeing 777-300ERs will lead to a considerable reduction in long-haul capacity.

For example, as Cathay Pacific eventually phases out the fuel-guzzling jumbo jet on the trunk Hong Kong-London Heathrow route where the airline operates 4 daily non-stop flights between the two global financial hubs, there is likely to be an 8% reduction in weekly one-way seats on the route. The airline currently operates 2 four-class 777-300ERs and 2 four-class 747-400s on the route or an offering of 8,876 weekly one-way seats in total, after which the airline will switch to 2 four-class 777-300ER, 1 three-class 777-300ER plus 1 four-class 747-400 on the route in the first quarter of 2013. This will lead to a 1.5% decrease in available weekly seats to 8,743 seats whereas the complete withdrawal of the 747-400 on the route, a highly likely prospect in later 2013, this is going to result in a significant 6.7% drop in available weekly seats to 8,155 seats.

This 8% reduction in weekly available one-way seats is going to lead to a considerable cost saving, not only because the 777-300ER burns 22% less fuel than the 747-400 per payload tonne, but also because of the fact airplanes burn fuel to carry fuel, a deadweight from which airline could not derive revenues instead of revenue payload.

“The increase in the price of fuel since 2010 has had a big impact on the operating cost of our routes. On a 747-400 flight to London, fuel today represents 62.5% of the total cost of the flight. In 2010, when fuel was substantially lower, it represented only 47.9%. Taken over a year, on that one flight pair alone, the fuel bill will have increased by HK$110 million – again, on just this one flight pair,” Cathay Pacific chief executive John Slosar explained in the November 2012 issue of the CX World company magazine.

Furthermore, the revenue performance of the route is going to benefit, firstly from recent game-changing Cathay Pacific-Air New Zealand (ANZ) partnership that sees the Kiwi carrier suspending the Hong Kong-London Heathrow route from 4 March, 2013 onwards and start code-sharing on the Hong Kong-Auckland route. While the partnership opens up the Mainland China market for Air New Zealand (ANZ) via the network of Cathay’s wholly-owned subsidiary Dragonair, the co-ordination of flight schedules between the carriers is likely to help further increase the feed on Cathay’s Hong Kong to London flights, coupled with a 17% decrease in weekly one-way seat from 20,000 seats to 17,000 seats, thereby resulting in higher load factors and possibly better yields.

A noteworthy point is, the traffic mix is also going to improve by phasing out the Boeing 747-400s on the Hong Kong-London route, with the proportion of premium seats on a weekly basis, including the premium economy class seats, increasing from 27.4% to 30.1% after a complete withdrawal of the jumbo jet on the route takes place. The number of premium seats will see a net increase from 2,436 one-way weekly seats to 2,457 seats whereas the number of economy seats will decline from 6,440 at present to 5,698 after the complete phase-out, or a decline from 72.6% of the weekly one-way seats to just 69.9%.

With similar effects taking place across Cathay Pacific’s long-haul network such as in San Francisco, Vancouver, Paris, Frankfurt – to name just a few, the reduction in long-haul capacity accounts for much, if not all, of the proposed 1.6% passenger capacity trimming.

However, with global economic uncertainties abound and no end in sight to the de-leveraging activities taking place in Europe following the sovereign debt crisis nearly resulted in the disintegration of the economic union, let alone an economic recovery, Cathay Pacific is seeking “smart growth” with an increasing regional focus on the Asia/Pacific region, especially on the world’s second-largest economy – China.

For instance, Dragonair has launched a four-times-weekly service to Yangon, Myanmar beginning 9 January, Zhengzhou on 8 January, Wenzhou on 25 January, Kolkata as well as Cathay Pacific’s new service to Hyderabad, India. Dragonair also resumed services to Guilin, Xi’an and Taichung in Taiwan during the year in addition to launching flights to Haikou in the Hainan Island. Other new Dragonair destinations added this year include Clark near Manila and Jeju, South Korea in May, as well as Chiang Mai, Thailand in July.

As China’s manufacturing activities move further inland to tap into lower labour cost from coastal provinces such as from the traditional manufacturing powerhouse Guangdong province, trade links also grow between these cities and the West, thus driving business travel to the city. With Cathay Pacific Cargo already operating twice-weekly dedicated freighter service to Zhengzhou, launching new service to this city could help Dragonair secure the first-mover advantage on the route where it is the only operator.

Looking ahead, Chengdu, capital of the Sichuan province in Southwest China, with a combined catchment area of a 28 million population, is likely to see mainline Cathay Pacific service sooner or later, particularly so since Chengdu is an Air China hub with flights to Mumbai, etc. In doing so, Cathay Pacific could forge a closer relationship with its Star Alliance and offer high-quality signature Cathay Pacific service to the increasingly important city, in addition to providing a seamless onward connection for international business travellers to a dozen secondary cities in Western and Northwestern China such as Lhasa in Tibet and Urumqi.

Dragonair could also further expand into China by launching flights to Lanzhou, Guiyang, Shenyang and resuming flights to Harbin, where many of these destinations are underserved by Hong Kong Airlines alone and where Dragonair’s superior service and combined with Cathay Pacific’s broad international network could help it further win business traffic as China nevertheless grows at a brisk 7.4% in the third-quarter of 2012 and its manufacturing sector is beginning to show green shoots of recovery as the official purchasing managers’ index (PMI) matched November’s 7-month high figure.

All in all, with the replacement of 747-400s on long-haul routes being replaced by the Boeing 777-300ER, coupled with a growing regional focus, it is likely that ASKs will be under further pressure in 2013. Nonetheless it is the profitability derived from the pursuit of smart growth that counts, not declining available seat kilometre (ASK) as this measure is being distorted by the average sector length, of which an emphasis on regional growth will lower the average sector length.


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New products
As the regional focus of Cathay Pacific grows, the carrier is investing in regional products that aligns them well with its regionalisation strategy. Cathay Pacific has unveiled its New Regional Business Class with 47-inch seat pitch and 21-inch seat width, improved from the current product’s 45-inch and 21-inch, respectively. The largest recline angle has been increased to 60 degrees from 38-55 degrees and features a 12.1-inch private television screen with audio/video on demand (AVOD) in-flight entertainment system (IFE), in addition to featuring power port and iPad/iPod/iPhone USB port at each individual seat.

“Our new Regional Business Class seat was developed after listening to our customers’ feedback and it underlines our commitment to excellence in innovation and providing an exceptional travel experience. Our continued investment in products and services is a key element of our ongoing commitment to the development of Hong Kong as one of the world’s leading international aviation hubs,” Cathay Pacific chief executive John Slosar said.

The first Boeing 777 aircraft is already undergoing refurbishment since 1 December last year and will enter into service later this month, whereas the first retrofitted Airbus A330-300 will enter into service in the fourth-quarter of this year, with all regional aircraft featuring the New Regional Business Class product at the end of 2014.

Make no mistake, while the New Regional Business Class does not feature a fully lie-flat bed, business travellers nevertheless have plenty of opportunities to have a taste of Cathay Pacific’s long-haul New Business Class through what the company’s management dubbed as the “intelligent misuse of long-haul aircraft” on regional routes to destinations such as Singapore, Kuala Lumpur, Tokyo Haneda, Bangkok, etc. This balances the diminished need for a fully lie-flat bed on short-hauls well with the economics of featuring relatively more business class seats on regional flights, all the while featuring the world’s best New Business Class on select aircraft.

With Cathay Pacific having 48 aircraft installed with the new Premium Economy Class and 87 by the end of 2013, primarily on long-haul aircraft, the “intelligent misuse of long-haul aircraft” will also ensure that passengers could enjoy the new intermediate product on regional flights.

Moreover, Dragonair is set to unveil its new regional business class and new economy class “within days”, according to Aspire Aviation‘s sources at its parent airline. This is the centrepiece of a major revamp of Dragonair’s products, which will also include the adoption of a new flight attendant uniform and may go as far as a brand revamp.

All these symbolise the airline’s regionalisation strategy and its pursuit of smart growth, which will put a heavy emphasis on Asia/Pacific growth until Western economies improve materially before Cathay expands its secondary European and United States network. This is evidenced by the passenger traffic figures in recent months, where the revenue passenger kilometres (RPKs) have slumped while its number of passengers continue to grow solidly.

Image Courtesy of Cathay Pacific

Image Courtesy of Cathay Pacific

Fleet strategy
Meanwhile, decisions on Cathay Pacific’s future fleet strategy will come under the focus in the airline industry in 2013 as it evaluates whether or not to order very large airplane (VLA) with either the Airbus A380 superjumbo or the Boeing 747-8I Intercontinental.

“[We] get an update on the very large aircraft as both manufacturers are trying to improve efficiency. There could be a need for a bigger aircraft for places with slot constraints, where you have run out of scheduled windows and need a bigger aircraft with the capacity. When we dig into these things, we don’t dawdle on them. We get on with it. By the middle of next year, we would have done whatever sums we wanted to do. If anything comes out of it, we would be in a position of acting on it,” Cathay Pacific chief executive John Slosar said in an Airline Business interview.

Interestingly, Aspire Aviation believes Cathay Pacific will not order nor does it need any very large airplane (VLA) at all, with its fleet at a sweet spot featuring the fuel-efficient Boeing 777-300ER that will eventually total 50 units and later the 350-seat Airbus A350-1000s on which the airline has an order of 26, before ultimately migrating and up-gauging to the proposed 407-seat Boeing 777-9X late this decade or early next decade.

At first glance, the Boeing 747-8I Intercontinental seems to have an edge in this VLA competition, with the airline already operating 8 747-8F freighters on North American routes as commonality, training, maintenance cost savings and its early availability favour the -8I over the A380. Further taking into account the -8I’s larger revenue cargo volume than the A380 and its consistency with Cathay’s frequency-based business model, the -8I looks likely to be its rational choice should the airline ever order a VLA.

However, there are several factors that weigh on its decision which make ordering VLA unnecessary. First of all, Cathay Pacific currently carries 70% of all its cargo in underbelly capacity on passenger aircraft with a sky-high profit margin understood to be topping 60%-70% as the fixed cost is shared by a large number of passengers. Neither the A380 nor the 747-8I Intercontinental has a revenue cargo volume, the saleable belly cargo space after fully loading passengers’ luggage which the airline could sell and make profits on, comparable to the Boeing 777-300ER, or the upcoming 350-seat Airbus A350-1000 or even the 407-seat 777-9X.

The A380 has a total cargo volume of 5,875 cubic feet and a revenue cargo volume of 2,995 cu. ft., whereas the 747-8I has 6,345 cu. ft. and 3,895 cu. ft., respectively. In stark contrast, the 777-300ER has a total cargo volume and a revenue cargo volume of 7,120 cu. ft. and 5,200 cu. ft. and the A350-1000 will provide a similar cargo space, let alone the stretched 777-9X will provide even larger revenue cargo volume for Cathay Pacific, where as high as 30% of its total revenue comes from its cargo business in good times.

Secondly, Cathay Pacific is a premium airline squarely focused on high-yield business travellers whose price elasticity of demand is low and are often last-minute walk-up passengers that pay full price of a ticket. As economic theories state that closer the actual departure time is to the desired departure time, the more likely this potential demand will be converted into an actual demand, substituting multiple 777 flights with an A380 or 747-8I Intercontinental such as Singapore Airlines substituting 10 times weekly one-way Singapore-Paris 777-300ER services with daily one-way A380 flight and Air France substituting 2 Paris Charles de Gaulle (CDG)-New York John F. Kennedy double-daily flights with 1 A380 daily flight, will lead to unintended spill-over demand. This spill-over demand could be captured from competitors where Cathay Pacific operates multiple daily flights whereas its competitors trim frequencies to fill their A380s.

In ordering any VLA such as the A380 and to a lesser extent the 747-8I Intercontinental, the aforementioned improved traffic mix and hence improved yields demonstrated on the complete withdrawal of the 747-400s on the Hong Kong-London Heathrow route will threaten to disappear. Therefore the preferred way to grow is one which grows organically through the addition of frequencies with Airbus A350-900 and -1000 as well as up-gauging modestly to the 407-seat 777-9X when it enters into service without putting any downward pressure on yields.

For instance, Boeing is likely to launch a performance improvement package (PIP) which will reduce block fuel burn of the 777-300ER by a further 4%-5% with a recontoured belly fairing before the 350-seat A350-1000 is delivered to Cathay Pacific in 2018 that will burn 25% less fuel than the -300ER and become the most fuel efficient 300-400 seat aircraft. Next Cathay Pacific could order the 407-seat 777-9X that will be 21% more fuel efficient than the 777-300ER and a 16% lower cash operating cost (COC) per seat (“Launch of Boeing 787-10X has implications on 777X programme“, 22nd Oct, 12).

“[Boeing is] working hard to bring out something that offers real value to its customers. The 777X needs to have the sweet spot. It’s got to have the big twin efficiency, with each step more engine efficiency, better aerodynamics, and better maintenance so that you have lower operating costs continually over time. That is probably the most important thing,” Cathay Pacific chief executive John Slosar told Airline Business.

“It must also have the range and payload, which means around 300 seats in the Cathay configuration. It has got to be able to carry cargo as that is a big part of our business. Put that all together, and we think you end up with a winner.”



747-8 Intercontinental

Pallets (415 cu.ft)




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LD-3 (160 cu.ft)




LD-1 (175 cu.ft)




Container volume (cu.ft)




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Passenger bag volume (cu. ft.)




LD containers for bags




Revenue cargo volume (cu. ft.)




Source: Boeing

On its regional fleet front, the airline is in no rush to order the proposed 323-seat Boeing 787-10X whose “Gate 4” official launch is scheduled in June 2013 and block fuel burn per seat will be 25% lower than the Airbus A330-300 (“Boeing in no rush to fast-track future widebody strategy“, 27th Nov, 12) as the airline focuses on improving its profitability for the time being.

Unlike its rival Singapore Airlines (SIA) which has issued a request for proposal (RFP) for the Boeing 787-10X and another one for 20 Airbus A350-900s to formally firm up its commitments for the Airbus aircraft in November last year, there is no active 787-10X procurement effort underway at Cathay Pacific at press time, Aspire Aviation‘s multiple sources at the oneworld carrier confirmed.

The Hong Kong flag carrier is arguably preoccupied with its long-haul fleet renewal programme, with a faster retirement schedule over its Boeing 747-400 fleet than originally laid out. It originally called for the decommissioning of 3 747-400s in 2012, 5 in 2013 and 1 in 2014, which is now being sped up to 3 in 2012, 6 in 2013, 3 in 2014, 2 in 2015 and the final 7 in 2017. The first examples to be retired, which bore the registrations B-HUD and B-HOT, were retired in September 2012 whereas B-HOX was retired in November last year.

The retirement schedule of its 747-400 fleet is timed to avoid expensive engine shop visits and costly D-checks which have resulted in a HK$881 million spike in the airline’s maintenance cost in 2012 first-half.

“The age of the aircraft is not the driving factor for retirement – instead it is the avoidance of expenditure on major maintenance checks, such as ‘D’ checks that are due every six years,” Cathay Pacific manager aircraft projects Bob Taylor commented.

The airline is due to retire another 3 examples in March 2013, 1 each in June, September and November this year with yet another one in January 2014, at which time its 747-400 fleet will be reduced to 11 from a strong 24 merely a year ago.

Having said that, Aspire Aviation believes it is only a matter of time, not a question of ‘if’, as the airline, the world’s largest A330-300 operator with 35 examples in its mainline fleet and 17 at its Dragonair unit, plus another 15 on order, as its A330-300 fleet ages over time and needs replacement by the time the 787-10X enters into service in 2018 or 2019 whose 6,700nm (nautical mile) or 6,750nm range is a perfect fit for Cathay Pacific’s intra-Asia as well as Australia and New Zealand flights.

“We use the A330s on a lot of regional routes and they are fantastic for us, and there really is still a market for the A330s and possibly even the older 777s,” Slosar said in an Airline Business interview.

“But the 787-10 could be interesting. In a way, it will depend on where Boeing go with it. It will be something that will not have the range of the 787-9, but it would be an A330 plus with range and really superior economics. And we would consider the aircraft if we thought that it would fit,” Slosar elaborated.

Image Courtesy of Bloomberg

Image Courtesy of Bloomberg

As 2013 sets in, the airline industry in Hong Kong and Asia will watch closely on the development of Jetstar Hong Kong in addition to the intensifying low-cost competition at the lower end of the market segment following the launch of new flights at Spring Airlines from Hong Kong to Hangzhou, Chongqing, Xiamen and Nanjing.

Jetstar Hong Kong is supposed to start operations in mid-2013 with 3 Airbus A320 aircraft and aims to grow to 18 aircraft within 3 years of operation which accounts for 6%-7% capacity share at Hong Kong International Airport. This prompted a speculation that Cathay Pacific may study the formation of a wholly-owned low-cost subsidiary to compete with these low-cost carriers (LCCs).

However, Aspire Aviation is against the idea of forming a wholly-owned low-cost subsidiary and believes Cathay Pacific is heading in the right direction in continuously improving its products and hence consistently differentiating itself from its competitors. After all, Hong Kong is a decidedly different marketplace with a high cost base which Cathay Pacific understands perfectly well since its inception on 24 September, 1946.

While sceptics may argue that low-cost carrier (LCC) has revolutionised air travel elsewhere in Asia successfully in places where costs such as landing, parking and handling fees are high such as Japan where Jetstar Japan, Peach Aviation and AirAsia Japan have taken flight despite the high airport cost involved where a dedicated low-cost terminal is not going to open until 2015, revenue premium counts as the cost advantage these LCCs hold at Hong Kong International Airport is relatively small.

For instance, Hong Kong is a premium hub where premium seats account for 11.1% of all seats in Hong Kong being versus a global average of 4.6% and while low-cost carriers (LCCs) have grown at the airport, LCCs just account for 6% of seat capacity at Hong Kong International Airport and its penetration rate is just 6%, compared to 38.1% for Southeast Asia, 50.1% for Australia and 56% for Malaysia. The slow growth of LCC at Hong Kong took place over the same period when LCCs grew from 0% of seat capacity in Southeast Asia in 2000 to around 20% or so in 2011. It is the low-fare, high-cost airlines such as Hong Kong Airlines and Hong Kong Express, both 46% owned by the HNA Group, that have proved to be more successful.

Furthermore, Cathay Pacific and Dragonair could compete effectively through heavy discounting in the back-end of the aircraft such as the recently launched rounds of fanfares with full-service airfares to Shanghai Pudong comparable to Spring Airlines’ at HK$790 (US$101), without the complexities involved in running 3 separate airlines with different business models, as well as the dilution of yields and market share as highlighted by the Singapore Airlines Group. The capacity share held by the mainline Singapore Airlines unit at Singapore Changi Airport has slumped from 2007′s 52% to just 33% in 2012, according to the Centre for Aviation (CAPA). SilkAir and Tiger Airways hold another 8% and 7% capacity shares, respectively, whereas its wholly-owned low-cost subsidiary Scoot Airlines holds a 1% share.

In comparison, Cathay Pacific has a 34.7% capacity share and its Dragonair subsidiary holds another 15.6% share in 2012.

Besides all the smokescreen, Jetstar Hong Kong must still secure local regulatory approval first before commencing its operation in mid-2013 and the clock is ticking before it runs out of options and postpones its launch.

“Everybody would like to have a base everywhere he could, but it doesn’t really work that way. Maybe it will in the future, but it doesn’t yet,” Cathay Pacific chief executive John Slosar lamented.

And there is no absolute guarantee that an approval will be secured as Air China, in which Cathay Pacific holds 19.75% shares, is a powerful lobbying force in Beijing, as shown in the botched acquisition of a 24% stake in the country’s third-largest carrier China Eastern Airlines (CEA) by Singapore Airlines (SIA) in 2007, let alone the incorporation and principal place of business (IPPB) clause issue.

Even if a regulatory approval is secured, intensifying low-cost competition may actually bode advantageous for Cathay Pacific as Jetstar Hong Kong, Spring Airlines and Hong Kong Airlines with its supposedly low-cost carrier (LCC) Hong Kong Express whose business model remains unclear, are locked in a cut-throat price competition on commoditised products whereas Cathay Pacific extracts a revenue premium with differentiated products that give passengers a reason to fly it.

With a growing middle class which is expected to hit 600 million by 2020, according to a Chinese government think tank, soaring personal disposable income and the expanding affluent population are going to bode well for Hong Kong-based Cathay Pacific which is at the doorstep of China and is well-positioned over its ties with Chinese flag carrier Air China.

Image Courtesy of ABC

Image Courtesy of ABC

While there are challenges in 2013, there are also smart growth opportunities for Cathay Pacific in the year as the airline ended 2012 on an upbeat note with hopes to stay in the black for the year. Barclays currently predicts a HK$563 million (US$72.2 million) full-year profit for the carrier with a HK$1.49 billion net profit in the second-half of 2012. Revenue, however, will decline to HK$87.2 billion in 2012 from HK$98.4 billion in 2011.

“The last few weeks have looked a little bit better than the prior 10 months. People didn’t do much travelling during the year,” Cathay Pacific chief executive John Slosar said in a Bloomberg interview, while noting he sees strong demand from North America.

The highlights of 2013 centre on the ongoing roll-out of new products and streamlining its operations through the retirement of ageing Boeing 747-400 passenger aircraft as well as the opening of its sprawling HK$5.9 billion cargo terminal that will significantly reduce the cargo processing time from 8 hours currently to just 3 hours and hence significantly trimming cargo handling cost.

On its product side, Cathay Pacific will roll out the new Regional Business Class on the first Boeing 777 aircraft in late January 2013 and continue to roll out its award-winning New Business Class and Premium Economy Class on more aircraft, the former of which is installed on 47 aircraft and the latter on 48 aircraft, the airline said in an e-mailed statement to Aspire Aviation. The carrier will also retrofit its regional fleet with the existing Economy shell seats that become available as the long-haul fleet is being fitted with New Long-haul Economy Class that features a considerably thicker cushioning, a touchscreen and a small storage space beneath the screen.

The oneworld carrier is well positioned to tap into the regional growth spurred by burgeoning economies in Southeast Asia and China, in addition to an eventual cargo recovery towards late 2013. The carrier currently has a targeted growth in cargo capacity by 11.9% while its passenger available seat kilometre (ASK) will slump by 1.6%.

Looking ahead, not only could Cathay Pacific forge an even closer tie with Air China, it could also enter into more strategic partnerships, such as with Virgin Australia which is firstly proposed by Aspire Aviation in August last year (“Qantas should refocus on Asia from Emirates codeshare distraction“, 7th Aug, 12). It is mutually beneficial as Virgin Australia customers could travel to multiple European ports via Hong Kong or Mainland China destinations which are not covered in Silk Air’s network or even North Asia network such as to Busan, Jeju, Taichung, Seoul, etc. For Cathay Pacific, a partnership with Virgin Australia could offer many new regional destinations in Australia and provide more feed on Cathay flights between Hong Kong and Australia, Mainland China and Europe (“Virgin Australia’s acquisition spree strengthens foundation for growth“, 12th Nov, 12).

In addition, Cathay Pacific could tap into the growing African air travel market through entering into a partnership with oneworld alliance member-elect Qatar Airways. Through code-sharing, Cathay Pacific should launch flights to Doha which will enable Cathay Pacific passengers to reach a range of new African and Middle Eastern destinations such as Lagos in Nigeria, Algiers in Algeria, Cairo in Egypt, Seychelles, Baghdad and Erbil in Iraq, etc.

In conclusion, while flying through turbulences is undoubtedly a bumpy ride and a rodeo, Cathay Pacific is going to be a smarter and leaner airline, well-prepared to prosper and fly high when a true global economic recovery, after all the toils and perennial economic crises, comes. Those sceptics who bet against the airline may yet be surprised when Cathay Pacific’s business eventually blossoms.

View Cathay Pacific’s analysts briefing presentation slides in November 2012 >>

Cathay Pacific Airbus A350-1000

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  2. I looked at cargo load for the 747-8i and A380 HKG-LAX, HKG-LAX is about 6300NM

    Looking at payload range:

    it becomes clear that if both aircraft carry 450 passengers (100kg/pax+luggage), the 747-8 can carry about 30t of cargo and the A380 can carry about 46t of cargo.

    About 50% more then the 747-8, not something I would expect looking at Boeings ad, claiming “30% more cargo”. Smart spinning, focussing on cargo volume only..

    On this HKG-LAX flight the 747-8 would have more cargo volume, but it would be empty volume. If we take more realistic seatcount for 747-8i (400) and A380 (525) the A380 still has a cargo advantage, but at that stage we have started comparing apples to oranges (different passenger payloads)

    For reference a 777-300ER will be seriously payload restricted on this flight and carry less then 20t. Again lot of volme but lack of power/range to fill them.

    Anyway, as I said before, its hard to compete with the large fleet of old, stuffed, cheap cargo 747s making a fuel stop at Anchorage, flying to the right cargo places, at the right times. So cargo volume probably won't decisive in selecting a VLA.

    Re: commonality, I wonder what commonality advantages a 747-8i has, 15 yrs from now..

    1. Hi Keesje. That is very interesting especially since that is not what we are lead to believe. Thanks for running those numbers!

    2. @Keesje: With 450 passenger, it is physically not possible for an A380 to carry 46 tons of cargo, if the A380 can carry 46 tons of typical Argo with about 80% load factor, then CX will have at least 20 of them in their fleet by now... But in reality, the A380 belly is volume restricted. This is exactly the reason why airline like Cathay is having a hard time to justify the A380. With a full load of around 500 passenger for the A380, after the passenger baggage (which takes up a lot of the belly space), it will have less cargo capacity than even the 747-400, let alone the 747-8. So therefore there is something wrong with your reference cargo density calculations.

  3. [...] See on [...] Reply
  4. [...] according to chief executive John Slosar. It aims to retrofit its entire fleet by end-2014 (“Cathay Pacific to be a smarter & leaner airline in 2013“, 3rd Jan, [...] Reply
  5. [...] Worth a read if you have time: [...] Reply
  6. Great article. I really admire CX. They are sophisticated and elegant in appearance and there management style seems very cautious, intelligent and rational. I wish more airlines could be like that, especially my home airline, South African Airways...

  7. [...] Kaloo on Cathay Pacific to be a smarter & leaner airline in 2013Great article. I really admire CX. They are sophisticated and elegant [...] Reply
  8. [...] a year-end pickup in cargo business at its arch-rival Cathay Pacific (“Cathay Pacific to be a smarter & leaner airline in 2013“, 3rd Jan, 13), Singapore Airlines Cargo was not as fortunate, with freight traffic [...] Reply
  9. [...] Wenzhou in China, Kolkata and Cathay Pacific’s new flights to Hyderabad, India (“Cathay Pacific to be a smarter & leaner airline in 2013“, 3rd Jan, [...] Reply
  10. […] of 4.6% ensures a significant and profitable share of the market for Cathay and Dragonair (“Cathay Pacific to be a smarter & leaner airline in 2013“, 3rd Jan, 13). As Hong Kong airport’s two runways are going to hit their maximum […] Reply
  11. […] tonne than the 747-400 while improving traffic mix with close to 3% more premium seats (“Cathay Pacific to be a smarter & leaner airline in 2013“, 3rd Jan, 13), whose deliveries will commence in 2015, unquestionably speaks to the […] Reply

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