Home » Cathay Pacific CEO counts on China travel demand for recovery
Asia Business China Global News Travel

Cathay Pacific CEO counts on China travel demand for recovery

Hong Kong-based Cathay Pacific Airways has set its sights on rebuilding mainland Chinese routes and adding new ones to Japan as it strives for a post-pandemic comeback.

CEO Ronald Lam told Nikkei Asia the company will invest more in the Greater Bay Area, a megalopolis of 11 cities in southern China, as Hong Kong increasingly becomes a gateway for travel into and out of the mainland.

The airline has over 110 round-trip flights per week to mainland China, more than double what it had the week before Beijing resumed quarantine-free travel on Jan. 8. These flights cater to what Lam described as “the most important market outside Hong Kong.”

“Increasingly we are seeing more people traveling by Hong Kong to go overseas, and vice versa, overseas people traveling via Hong Kong to go into the Greater Bay Area to go into the Chinese mainland,” Lam said in one of his first interviews with foreign media since becoming CEO in January.

“We will fly more flights into the Chinese mainland in the coming months,” he added.

China announced it will start reissuing tourist visas this week.

Direct flights between the U.S. and mainland China have been restricted amid the COVID-19 pandemic and rising geopolitical tensions. Bilateral negotiations to increase flight frequency have been stalled, but Lam said he is still optimistic the airline can play a role in developing Hong Kong as a hub connecting customers between the two countries.

Cathay Pacific competes with the newcomer Greater Bay Airlines on regional routes, including popular destinations in Japan. (Photo by Kenji Kawase)

Hong Kong International Airport plummeted to 33rd globally, according to Skytrax’s World Airport 2023 ranking, down from fifth in pre-pandemic 2019. Its main regional rival, Singapore Changi Airport came in at No. 1, while three other East Asian airports made the top 10.

Cathay hopes its flights are running at 70% passenger capacity, overall, by the year end as it seeks to hire 3,000 new staff this year and more in 2024, when it aims to return to pre-pandemic flight operations. It also has 48 aircraft orders scheduled for delivery over the next two years, including several Airbus A350s and A321s, along with a Boeing 777-9 flagship aircraft in 2025.

Staffing shortages are not unique to Cathay, Lam said, but the airline faces unique hurdles. For example, the airline had to retrain its pilots, many of whom were unable to fly when Hong Kong closed its borders and grounded international travel.

Looking back at the last three years, Lam said that he “would not regret anything we’ve done,” as it allowed the company to “refresh” its strategy. The company slashed 8,500 jobs and scrapped its Cathay Dragon brand as it faced pandemic headwinds in October 2020.

Cathay is now positioning budget carrier HK Express, which it acquired in June 2019, to capture the region’s growing demand for low-cost travel.

A major focus for HK Express is Japan, where it serves seven cities and operates 74 round-trip flights per week, the most for a single country in the carrier’s network. Passenger capacity for HK Express is expected to return to the pre-COVID level by the end of March, Lam said, adding that the company is working closely with Japanese authorities and local governments eager to establish international flights.

“We would like to continue to expand into more cities in Japan, when the economics allows,” he said. The airline plans to expand the number of round-trip flights to 116 per week, and the cities it serves to nine in August.

However, Japan is a competitive destination. Greater Bay Airlines, a Hong Kong-based newcomer, announced on Thursday it will start flying three times a week to Osaka from April 28, their second direct Japan destination after Tokyo. Stanley Hui, the airline’s CEO, told Nikkei Asia earlier in the month that he is looking to expand to other destinations in Japan and elsewhere in Asia.

Cathay’s Lam said his company is “very used to competition,” and maintained the best way to cope with it “is to focus on its own strategy.”

After Hong Kong scrapped COVID travel restrictions, Cathay last year posted its first full-year operating profit since 2019. However, the group extended its net loss to 6.5 billion Hong Kong dollars ($828 million), mainly attributable to its associate Air China, in which it holds a 18.13% stake.

Lam said the company’s relationship with Air China, which owns 29.9% of Cathay, is “very good.” The mainland airline took part in the $5 billion bailout package led by the Hong Kong government to rescue Cathay from the initial impact of COVID in June 2020.

“We’ll keep it that way,” he said, describing the relationship as mutually supportive.

Air China’s recovery is out of Cathay’s control, but Lam said he is “hopeful” the company can move to a net profit this year. He also said was “fairly confident” Cathay will pay HK$1.5 billion in outstanding dividends for government-owned preference shares this year, after five deferrals.

Analysts, however, are critical of the airline’s trajectory. Paresh Jain, Asian transport sector analyst at HSBC, downgraded the bank’s stock rating for Cathay to “hold” from “buy” following the announcement of the annual results last week, based on the greater-than-expected loss, its intention to pay out preference share dividends and capacity constraints at a time when demand is swiftly returning.

Source : NIKKEI Asia