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2 Fundraising efforts awarded Cathay Pacific was among the recipients of the Hong Kong Red Cross Annual Big Donors – Diamond Award on 18 October. The CX Group’s donation of more than HK$10 million to various relief projects in 2011 was the highest among all the corporations in Hong Kong. “Through CX’s corporate social responsibility activities we encourage staff to help out via direct donations or volunteer work,” said Employee Services Manager Bob Nipperess, who represented CX at the awards ceremony. Malaysia’s joining date confirmed Malaysia Airlines will become a full member of oneworld with effect from Friday 1 February 2013, offering the alliance’s full range of services and benefits. The national airline of Malaysia received clearance to board oneworld after successfully completing a thorough review of its readiness conducted by Qantas, which is sponsoring its entry into the alliance, with the oneworld central team. Malaysia Airlines will substantially expand the alliance’s network in Southeast Asia, where it will add 14 destinations and one country – Brunei – to the oneworld map and strengthen the alliance’s connectivity between many key business cities in Asia and other parts of the world. Best pyjamas in the sky! The Australian Financial Review has named CX’s Shanghai Tang pyjamas as the best in the air. The article in the Sophisticated Traveller section compared pyjamas from five leading carriers to find out which deliver “true comfort and style in the air”. CX’s First Class offering was a clear winner with a 4-star rating for comfort and five stars for design and the “at home” feeling. Celebrating 50 years of Bond To celebrate 50 years of James Bond on film, passengers can now view some of the best-known Bond movies, watch documentaries, listen to Bond soundtracks and even sip on the secret agent’s favourite drink. On Studio CX , passengers can choose from six classic films featuring the celebrated spy: Dr. No, On Her Majesty’s Secret Service, The Spy Who Loved Me, The Living Daylights, GoldenEye and Casino Royale. The selection encompasses the full range of the 23 Bond movies made since 1962 and feature all the different actors who have portrayed 007 over the years. Two television programmes will be featured in the Lifestyle/Documentary section – The Cars of James Bond and a biography of James Bond creator Ian Fleming. Even before boarding, eligible passengers can celebrate the 50th anniversary by sipping on James Bond’s favourite martini which is being offered to - passengers at The Pier (First and Business Class sections), The Wing (Business Class) and The Cabin (Business Class) lounges in Hong Kong. Sandy wreaks havoc Great effort from teams gets New York operation back on track Teams around the network pulled together when Hurricane Sandy assailed the north-east coast of the USA and led to 20 CX passenger sectors being cancelled and four freighter services diverted. Sandy’s passage forced the closure of John F Kennedy International Airport, with extensive areas being inundated with water and littered with storm debris. Flights from Hong Kong to New York were suspended on 29 and 30 October. Coaches were arranged for passengers who departed on 28 October only to arrive in New York and find the city’s pub- lic transport network closed down. Services resumed on 1 November with CX888 departing at 1am. An extra sector – CX2846 and CX2845 – was arranged on 3 November to get stranded passengers away. Senior Vice President Americas Tom Owen says that the planning done in advance of Sandy’s arrival and the reaction to the events of the storm showed the CX teams at their very best, with close cooperation between Hong Kong and the USA to minimise disruption. “The Airport team at JFK, led by Airport Services Manager James Groark, coordinated its plans SHAKEN, NOT STIRRED: REV’s Ed Higgs roadtests the Long Bar martinis. through daily conference calls with the Customer and Commercial Control team and key Head Office departments,” Tom says. “A CX flight was the last one to leave JFK before the storm swept in, and we were one of the first to return with a full complement of staff braving the commute to receive and dispatch flights,” he adds. The North American Reservations call centre, based in Vancouver, collected phone and email enquiries from passengers and prioritised callbacks for rebooking and protection. “There was a tremendous effort here to reply to each and every passenger enquiry. Hong Kong was equally busy and the Marco Polo Club Service Centre assisted by taking care of our elite flyers,” Tom says. Back in Hong Kong, the Reservations & Ticketing teams were in full force to handle the disruption with thousands of phone calls being made to passengers trying to get to JFK. “With more than 4,000 passengers affected, the teams ended up making about 2,000 calls to ensure passengers were kept updated,” says Worldwide Reservations & Ticketing Manager Mary Chan. “They assisted with changes to travel plans and help to make protection arrangements,” she added. Mary says that a lot of operations decisions were made at odd hours with short notice, “but the teams simply took that as a challenge and delivered their usual excellent customer service,” she adds. In the end, despite the large scale disruption, Tom says he has not heard of a single complaint from passengers. “So many of the US and Head Office staff played a role in this major disruption and pulled together magnificently to overcome the problems and expedite the recovery,” he says. Produced by CX’s Corporate Communication Department 7/F North Tower, Cathay Pacific City, Lantau, HK Publisher: Cecilia Leung Managing Editor: Mark Tindall Editor: Joyce Wong Enquiries: 2747-5293 GalaCXy ID: CCD#SCT Email: ccd#sct@cathaypacific.com
Recently, I was asked – with flights seemingly so full why did we lose money in the first half and are we doing better now? It’s a sensible question – one that I expect many of you wonder about as well – so I wanted to use this opportunity to share with everyone my answer. In the simplest terms, there are cost and revenue factors which have combined to make 2012 a difficult year. Let me explain further. On the cost side, the biggest issue is fuel. Fuel is our single largest cost. We planned for fuel to be expensive this year, but it has been even more expensive than we anticipated. The actual cost of fuel into plane - because we have to pay more for aviation fuel than the cost of the crude oil you see reported in the newspaper – has exceeded budget by about 6%. Now, 6% may not seem like much but, looking at all our flights together on an annual basis, if we had done nothing, this higher fuel price would have meant our total fuel bill this year would have exceeded the high budget we had planned by HK$2.5 billion! 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%. That is a big jump! Let me try to put that into perspective. 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. To directly address the fuel situation, we have limited options. We can and do hedge, but hedging is not a miracle solution, particularly when fuel prices have been stubbornly high for so long. Hedging is like an insurance policy – which like every other insurance policy costs money to buy – and so it offers some protection, but it doesn’t remove all of the risk. We can try to raise ticket prices, but this is extremely difficult to do in the current weak economic environment. We are allowed to collect fuel surcharges, but these require regulatory approval and help us recover only about 50% of the extra fuel cost we pay. So this also helps, but cannot fill the gap. Finally, we can take steps to reduce fuel consumption and this is where we have been most aggressive. Retiring the 747-400s from our fleet more quickly and replacing them with fuel efficient 777- 300ERs will help us tremendously. The 777s are overall more than 20% more fuel efficient than the 747-400s. As we move into 2013 and take delivery of more 777- 300ERs, we’ll see an even bigger benefit but the full benefit will not be realized until 2014. The cost issue, however, encompasses more than just fuel. There is significant cost pressure all around us. We are seeing increases in airport charges, overflight charges, catering charges, landing and parking charges, handling charges and passenger costs to name a few. So we must tackle our cost base where we can. Our Chief Operating Officer Ivan Chu is leading these efforts. Turning to the revenue side, cargo has been a huge challenge. Not just in 2012, but for most of 2011 as well. Cargo has always been important to CX. In good years, cargo can be almost 30% of our total revenue although the result for 2012 will be well below that. 2010 was a boom year for cargo, but a weaker world economy changed all that and not for the better. Cargo volumes track the health of the world economy – a weak economy means lower cargo demand. Faced with this situation in 2012, we have cancelled freighter flights and we have also parked some of our freighters. But cargo doesn’t only travel on freighters. Invisible to most customers, but not to our bottom line, cargo also travels in the bellies of our passenger aircraft. Cargo volumes in our passenger aircraft year-todate are below budget and overall cargo revenue this year is lower than 2011 by around 13%. Inside our passenger cabins, loads have been good. Not as good as in 2010 when the load factor averaged 83.4% or even in 2011 when it was 80.4%, but certainly quite good at 80.2% through October. Still, you can see that we have a lost a little bit here. While load factor is important, yield is equally important. Yield basically means average ticket prices. To understand this, we have to talk about both premium traffic (First and Business Class) and Economy Class traffic. This year, premium traffic has been soft also due to the world economic situation. Our top corporate customers in the financial industry are travelling more than 15% less than they did the previous two years. As a result, load factors in the premium cabins are slightly below where they were in 2010 and 2011 and average fares are also lower. In our Economy Class cabins, load factors are also slightly down over where they were in 2011. But the real problem has been a decline in average ticket prices, which are below budget and below last year by about 4%. Many airlines are facing similar challenges and thus the competition for passengers is even more intense than usual. Put all that together – high fuel prices, cost pressure on all fronts, some less fuel efficient aircraft, lower cargo revenues, weaker premium revenues, lower average ticket prices in Economy Class due to competition – all at the same time and the result is a very challenging year. We know that aviation has its ups and downs. We have lived through both ups and downs over the past five years. What is important now is that we continue to pull together as one team, that we continue to provide our passengers and shippers with great products and services so that they keep choosing to fly and to ship with us, and that we work hard to make Cathay Pacific more productive and more efficient. As we have before, we will get through these difficult times and we will be well-positioned to take advantage of the improvement in the world economy when it comes. More cost-cutting measures introduced to preserve cash, boost revenue With the end of 2012 fast approaching, Chief Operating Officer Ivan Chu has called on the team to push to reduce costs further as business continues to stall. Despite a small pick-up in the cargo market, driven by shipments of high-tech products out of the Mainland, the overall situation is still worrying, Ivan told staff in the Friday Telex. “The cost-management initiatives we announced back in May have been making a positive impact. Unfortunately, we haven’t seen much improvement in the underlying business trends,” he said. “Compared to the same time last year, we are a bigger airline with more staff, more passengers and more assets – yet our revenues are in decline. That’s obviously not a sustainable situation, especially in a continued high-fuel-price environment. “We cannot allow costs to rise faster than capacity or revenue, so we must look very carefully at how to do things more efficiently and more economically,” he said. In a memo to department heads, the COO stressed that more needs to be done on the cost side. “If you have had any doubts on the need to contain costs, let me lay those to rest here and now. This is proving to be an extremely difficult year,” he wrote. He told the senior management team that a number of “difficult, but necessary” decisions had been made, including: • • • Not holding the management conference this year Further restrictions on duty travel in place, with a recommendation for “minimum or no cost” to the company Not using company funds for festive gatherings • • Entertainment expenditure reduced to a bare minimum, even if already budgeted Stricter enforcement of the current headcount freeze “It is never pleasant to have to resort to such restrictive measures, but they reflect the negative operating climate in which we find ourselves,” Ivan said. He urged the team to look for new sources of revenue and ways to further manage costs that don’t impact safety or our customer proposition. 3
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