Cathay Pacific to cut capacity as demand for Hong Kong travel falls

Cathay Pacific Group Chairman John Slosar previously announced plans last week to step down in November. (File/Reuters)
Updated 11 September 2019

Cathay Pacific to cut capacity as demand for Hong Kong travel falls

  • The airline said inbound traffic to Hong Kong in August had fallen by 38% and outbound traffic by 12% compared with the previous year
  • The weak demand and cuts to capacity will place more pressure on Cathay at a time when it is grappling with management upheaval

HONG KONG: Cathay Pacific Airways Ltd. said on Wednesday it would cut capacity for the upcoming winter season after reporting an 11.3% fall in passenger numbers for August as anti-government protests in Hong Kong hit demand.
The airline said inbound traffic to Hong Kong in August had fallen by 38% and outbound traffic by 12% compared with the previous year, and it did not anticipate September would be any less difficult.
Hong Kong’s finance secretary reported earlier this week that visitor arrivals plunged nearly 40% in August, deepening from July’s 5% fall, as sometimes violent anti-government protests took a rising toll on the city’s tourism, retail and hotel businesses.
The weak demand and cuts to capacity will place more pressure on Cathay at a time when it is grappling with management upheaval and is trying to complete a three-year financial turnaround plan driven by boosting revenue and slashing costs.
“Given the current significant decline in forward bookings for the remainder of the year, we will make some short-term tactical measures such as capacity realignments,” Cathay Chief Customer and Commercial Officer Ronald Lam said in a statement.
“Specifically, we are reducing our capacity growth such that it will be slightly down year-on-year for the 2019 winter season (from end October 2019 to end March 2020) versus our original growth plan of more than 6% for the period.”
Cathay has become the biggest corporate casualty of anti-government protests after China demanded it suspend staff involved in, or who support, demonstrations that have plunged the former British colony into a political crisis.
Chairman John Slosar announced plans last week to step down in November, less than three weeks after CEO Rupert Hogg left amid mounting regulatory scrutiny.
Cathay said on Wednesday demand for premium class travel had fallen more significantly than for leisure travel, with demand from mainland China and Northeast Asia severely hit, although Australia and New Zealand were more positive.
The carrier said lower travel demand, an increased mix of transit passengers and the negative impact of a strengthening US dollar had placed passenger yields, a measure of the average fare paid per kilometer per passenger, under further pressure.
“We expect airfares to continue to fall in coming months as Cathay struggles to maintain load factors within reasonable bounds,” BOCOM International analyst Luya You said, in reference to a measure of the percentage of seats filled. “In terms of earnings, the second half may be notably dismal considering plummeting yields across all classes.”
Transit passengers are typically less lucrative for airlines because they face competition from more rival carriers than for non-stop flights, which places pressure on pricing.
The load factor fell by 7.2 percentage points to 79.9% in August, Cathay said. The amount of cargo carried fell by 14% amid a weak global market for air freight and the effects of tropical storms and disruptions at Hong Kong airport.


Blame game as wheels come off India’s auto sector

Updated 16 September 2019

Blame game as wheels come off India’s auto sector

NEW DELHI: When India’s Finance Minister Nirmala Sitharaman claimed that a preference by millennials for ride-hailing apps was contributing to a painful slump in car sales, it sparked an online backlash from furious youngsters.

They started a campaign using ironic hashtags such as #BoycottMillennials and #SayItLikeNirmalaTai last week to push back against older generations blaming them for today’s problems in society.

While data shows firms such as Uber and Ola are popular with younger consumers more comfortable with shared mobility and digital trends, analysts say the auto industry’s problems run deeper than that — and it is facing more serious bumps in the road.

With a population of 1.3 billion people, India is the world’s fourth-largest car market and one where owning a vehicle is as much a status symbol as a means of transport.

But the country’s once-booming auto sector — seen as an important barometer of overall economic health — is in the slow lane, with sales slumping for the 10th-straight month in August.

“The minimum (priced) car that you can get nowadays starts from six to seven lakhs ($8,500 — $9,800),” university student Somya Saluja told AFP.

“So it’s much easier to pool-in rather than to buy a new car.”

Even India’s richest banker, Uday Kotak, recently said that his son was more comfortable using ride-sharing apps than owning a car.

Uber and Ola reportedly facilitate some 3.65 million daily rides.

Still, Avanteum Advisers managing partner VG Ramakrishnan told AFP the key reason for the drop in car purchases was economic.

“I think the slowdown is primarily because consumer confidence is low and income growth has really been impacted in the last couple of years,” he told AFP.

India’s economic growth slowed for the fifth-straight quarter in April-June to reach its weakest pace in five years.

Banks are also more reluctant to lend owing to a liquidity crunch caused by the near-collapse a year ago of IL&FS, one of India’s biggest shadow banks — finance houses responsible for significant consumer lending.

There are also extra production costs caused by new rules requiring cars to be compliant with emissions and safety standards, while a 28 percent goods and services tax (GST) introduced in 2017 has dampened demand, analysts said.

“Cars are increasingly becoming unaffordable now because of so many taxes,” Karvy Stock Broking auto analyst Mahesh Bendre told AFP.

“To put things in perspective, if you buy a car in India, at least 40-45 percent of costs go to the government in terms of taxes and registration charges and so on.”

A year ago, India displaced Germany to become the world’s fourth biggest car market, having clocked up annual sales growth above seven percent for several years.

But the promising growth ride is screeching to a halt, with passenger car sales tumbling this year, including a 41 percent drop last month — the worst since records began more than 20 years ago.

Aside from passenger cars, sales of commercial vehicles, motorcycles and scooters have also been hammered.

With the industry — a major employer in India — contributing more than seven percent to total GDP and almost half of manufacturing GDP, the potential fallout from an extended slowdown is sending shockwaves through the economy.

Manufacturers are reducing production and cutting jobs, which is also affecting related industries such as auto component manufacturing and at dealerships, totaling about seven percent of India’s total workforce, Bendre said.