HONG KONG – Cathay Pacific Airways Ltd. warned that the airline may have to park aircraft and reduce flights if weakening demand and high fuel costs persist, underscoring the troubles faced by the global airline industry.
The Hong Kong-based carrier, which already warned of a very challenging 2012, said its business has worsened over the last month with passenger yields–a key measure of passenger profitability–continuing to fall in economy-class products, while it also sees signs of weakness in its first- and business-class cabins, which have traditionally been its most profitable business segment.
The airline said that revenue growth in recent weeks has been falling “well short of target” and failing to keep pace with capacity growth. It noted the recent development isn’t a sustainable situation.
“Fuel prices remain at crippling highs and our cargo business still shows no sign of any sustained pick-up,” Cathay Pacific Chief Executive John Slosar said in a newsletter for the airline’s employees, published Friday. “The recent turmoil in the euro zone reinforces the fact that the world is still balancing on a knife edge,” Slosar said.
While Slosar noted that conditions haven’t reached the challenges seen during the global financial crisis in 2008-2009, the airline will need to take action to contain costs if the situation persists, noting that it will have to consider more ways to further pare back spending.
Last month, the Hong Kong-based airline reported a 61% decline in net profit for 2011 due to rising fuel costs as well as softer demand for its freight services, and expects continued weakness for its cargo operations in 2012. For last year, Cathay Pacific’s fuel costs, which accounted for over 40% of its total operating costs, rose 38% to HK$38.9 billion from HK$28.28 billion in 2010.
At the height of global financial crisis, Cathay Pacific trimmed its flights, initiated no-pay leave for some of its staff, and delayed capital spending to cope with a reduction in revenues.
In March 2011, Cathay Pacific announced cuts on flights it operates to three cities in Japan — Tokyo, Osaka and Nagoya — over the first two weeks of April due to the weakness in demand for flights to the country. In December, the airline also said it would scale back plans to expand cargo flying this year and defer the arrival of two new Boeing Co. aircraft in the sign that the slowdown in air freight is deeper and more pronounced than many expected.