High fuel costs spell turbulent times for Cathay
Over the past 14 years, the DHL/SCMP Hong Kong Business Awards have recognised excellence under the categories: Business Person of the Year, Executive Award, Owner-Operator Award, Young Entrepreneur Award, International Award and Enterprise Award. Ahead of the presentation for this year's winners on December 2, every Monday we will speak to one of last year's winners and see how each has fared in the past 12 months.
For Cathay Pacific Airways - which won the International Award last year - the past year has been dominated by the high oil prices.
Fuel costs are about $2.7 billion above the budgeted level for this year, leading the airline to impose fuel surcharges.
'The fuel price is a killer at the moment,' Cathay Pacific chief executive David Turnbull said.
In the first half Cathay made a profit of $1.8 billion on turnover of $18.2 billion. Last year the company spent $5.2 billion on fuel.
Asked if any expansion plans had been put on the back-burner because of high oil prices, Mr Turnbull said: 'Not yet but it's bound to happen.
'There's bound to be more nervousness if it stays up where it is. We're bound to sort of say to ourselves 'Just be a bit cautious'.'
Cathay is focused on expanding in China. The airline resumed passenger flights to Beijing last December and plans to take a 9.9 per cent stake in Air China when the mainland carrier lists.
Cathay will increase the frequency of its flights to Beijing to a daily service next month but the firm wants more.
'We thought about two years ago, here we are on the edge of China and there's one big hole in our network and that's China. And we've got to fill it one way or another. Now we may do it ourselves or we may do it with Air China,' he said. 'Daily Beijing is nothing. If we want to have a real sort of presence we have to be five times a day to Beijing.'
Cathay expects to build a strong partnership with Air China but Mr Turnbull gave few details about how they would work together.
'We want to make it a sort of very strong Cathay-Air China relationship. You don't just buy 10 per cent of a company and then sit there and that's it. You want to do more in terms of product and staff and management and route networks and code shares - you can imagine,' he said.
Cathay is steadily increasing the number of mainland flights but some analysts believed the airline had done badly out of this year's air-services agreement between Hong Kong and the mainland.
Mainland carriers will be allowed to pick up passengers in Hong Kong and fly to third destinations. But this is not reciprocated for Hong Kong carriers.
Asked if he thought the agreement was unfair Mr Turnbull said: 'It wasn't very good for us but it was pretty good for Dragonair and to be fair the Hong Kong government has to take care of not just Cathay but all airlines in Hong Kong ... so I have to sympathise with that.' He then went on to describe the agreement as 'a pretty reasonable deal'.
Over the longer term Cathay is closely watching the development of budget airlines. Mr Turnbull expects high operating costs at Chek Lap Kok will prevent budget airlines from setting up in Hong Kong.
Cathay's prices were much lower than those of the large European carriers before the surge in budget airlines, limiting the scope for Asian budget carriers to undercut Cathay, Mr Turnbull said.
However, Cathay still saw some competition from low-cost carriers setting up elsewhere in Asia and flying into Hong Kong.
Cathay even considered launching a low-cost subsidiary such as Cathay Lite but rejected it.
'We thought about having Cathay Lite - we thought about it long and hard. The problem is ... anybody who gets on Cathay Lite expects the same Cathay service.'
