Hong Kong // It has been a tough year for Cathay Pacific, the airline that once lorded it over the Pacific skies.
In October, the Hong Kong carrier spooked investors by scrapping its second-half dividend and revealing a sharp rise in fuel hedging costs. Then last month it did what was once almost unthinkable, posting a full-year net loss of HK$575 million (Dh272m). It was all the more shocking given that Cathay had only the previous year reported a profit of HK$6 billion.
Nor can the carrier promise either its 23,000 staff or its key shareholders, led by the conglomerate Swire Pacific and Air China, a swift return to form. Data for last year included a 9.4 per cent slump in sales as well as a 9.2 per cent fall in passenger yields, a key measure of profitability based on the money earned by flying a passenger a single kilometre. Cathay’s Hong Kong-listed shares skidded to the lowest level since 2009, losing 16.2 per cent in the 12 months to March 28, when they closed at HK$11.60. Since then they have slipped further, closing at HK$11.16 yesterday. Cathay has warned that the operating environment would remain “challenging” through 2017, prompting analysts at Jefferies to predict another year of losses.
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At a glance:
■ What: Once the leader in South East Asian aviation, Cathay Pacific finds itself under pressure trying to claw back its position.
■ Why: Competiton from Arabian Gulf and local carriers has seen the airline post a loss with some major challenges ahead.
■ Further reading: Major airlines are finally beating budget carriers again.
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At first, Cathay seemed not to realise the gravity of the situation, pointing the finger at a host of external causes, from overcapacity to lower demand for premium service to whipsawing foreign currencies. Announcing last year’s torrid results, the chief executive Ivan Chu promised to cut costs by 3 per cent, boost productivity, and streamline the group into seven units.
But after gauging the market’s reaction – a typical comment came from the analyst Will Horton at the aviation consultancy CAPA, who called the carrier’s supine response “shocking” – Cathay rethought its position. In March, a humbled Mr Chu pledged to slash the cost of middle and senior management roles at its head office by 30 per cent, admitting the firm needed a “simplified” head office structure that would “inevitably” lead to job losses.
In truth, he had little choice. While some of Cathay’s struggles are beyond its control, there is plenty of blame to go around. Energy prices are at multi-year lows, yet Cathay’s management team conspired to lose US$1.8bn last year by hedging its fuel needs at prices far higher than those in the prevailing spot market. It was an uncomfortable echo of 2008, when the carrier contrived to lose millions of dollars by bungling its hedging contracts. That also marked the last year Cathay posted a full-year loss.
One of Cathay’s main problems is its consummate inability to move with the times. It is still a wonderful service to fly – friendly, clean, efficient and much liked by premium and economy customers. But so what? Budget carriers, wooing punters with the promise of low prices and reliable (if not dazzling) service, are eating into its margins.
Moreover, many of Asia’s older, full-service carriers are sprucing up tired fleets and making their own push for glory. Skytrax’s latest ranking of the world’s best 100 airlines, published in 2016, contained nine Asian carriers. And while Cathay slotted in at number four, ensuring that it retained regional bragging rights, it fell a single place from third.
Cathay also finds itself squeezed by the enduring excellence of the Middle East’s big three carriers. Emirates won Skytrax’s 2016 award for best global airline, with Qatar Airways second and Etihad Airways sixth. And the challenge from across the border is no less great. Mainland China boasts 48 operators, ranging from would-be super-majors (China Eastern, Air China) down to buzzing start-ups (Colorful Guizhou Airlines), all of which routinely launch price wars with one another, further crushing prices and margins.
The Hong Kong carrier faces other challenges. It has been cosseted by local authorities, leaving it poorly equipped to compete in a more open market. And it relied for too many years, reckons Michael Beer, an aviation analyst at Citi in Hong Kong, on a single trump card: its image as a bridge between China and the outside world. “Cathay used to basically sit still and print money,” he tells The National. “They could charge whatever they wanted, as everyone had to come through Hong Kong to get to Beijing or Shanghai. In the end, they got so scared of losing their image as a China play that they forgot they were a global carrier.”
Then there is the fact that Cathay and Hong Kong are often viewed as interlocking brands, each bound by history and invested in the other’s future. As one goes, so does the other. Can it be chance that the carrier’s troubles have coincided with a slump in the number of tourists visiting the city itself? The chairman of Hong Kong’s tourism board, Peter Lam, tips inbound tourist arrivals to fall 2.2 per cent this year, after slumping 4.5 per cent in 2016. Panicked politicians reacted by forging ahead with a third runway, and waiving or cutting the cost of airport licences for travel agents, shops and restaurants. But analysts wonder if this belated act of munificence is too little, too late.
Cathay is not the only full-service carrier suffering from high costs and external competition. Singapore Airlines pipped Cathay for third place in last year’s Skytrax poll and is just as beloved by business travellers. But it is also feeling the pinch. Profits fell 36 per cent year-on-year in the three months to end-December, with South East Asia’s largest operator blaming fewer passengers, overcapacity and the cost of rebranding one of its budget carriers, Tigerair.
The carrier has warned of another tough year ahead. A spokesman tells The National that Singapore Airlines is “proactively” looking for ways to make it more flexible and nimble while generating “new engines of growth”. It is working hard to build out new airlines in India (where it co-owns Vistara with Tata Group), and in Thailand, where it part-owns another budget operator, NokScoot, in an effort to tap into new traffic flows. Cathay declined to comment when contacted by The National.
So what does the future hold for these two venerable airlines? Both have reacted sensibly to their financial woes this year, cutting costs and streamlining, and their respective stock prices have reacted positively. But it is hard to shake the feeling that Singapore Airlines is in a stronger position. It has vied with the big Arabian Gulf carriers for premium passengers flying the “Kangaroo” route between Australia and Europe for far longer, giving it time to hone its competitive edge. Singapore is also, arguably, in a better financial state. It posted a return on assets (ROA) and return on equity (ROE) of 3.3 per cent and 5.4 per cent, respectively, in 2016. Compare that with Cathay, whose ROA and ROE fell last year to 0.16 per cent and 0.11 per cent.
Analysts asked to ponder Cathay’s future are divided. One suggests that Air China, state-backed and already the second-largest shareholder in Cathay with a 19.9 per cent stake, would be the ideal long-term owner. “It would provide the perfect exit for Swire,” the analyst, who prefers to remain anonymous, tells The National. “And it’s the last vestige of a big, family-run Hong Kong firm being sold to a Chinese state enterprise, so it’s kind of inevitable in that way, too.”
Others are not so sure, pointing to Hong Kong’s uncertain future as a global aviation hub. “A sale would be in Cathay’s best interests, but not in Air China’s,” says K Ajith, an aviation analyst at UOB Kay Hian.
Cathay Pacific remains a great airline brand, but for how long? “Cathay is a very high quality, high service airline, but that’s not the way the industry is trending right now,” says Jim Corridore, a New York-based analyst at CFRA Research. “There is very little customer loyalty left any more.”
It may be painful to admit, but rising competition, high costs and last year’s sudden plunge into the red have left investors and analysts wondering if Cathay has already seen its best days as an independent airline.
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In numbers: PKK’s money network in Europe
Germany: PKK collectors typically bring in $18 million in cash a year – amount has trebled since 2010
Revolutionary tax: Investigators say about $2 million a year raised from ‘tax collection’ around Marseille
Extortion: Gunman convicted in 2023 of demanding $10,000 from Kurdish businessman in Stockholm
Drug trade: PKK income claimed by Turkish anti-drugs force in 2024 to be as high as $500 million a year
Denmark: PKK one of two terrorist groups along with Iranian separatists ASMLA to raise “two-digit million amounts”
Contributions: Hundreds of euros expected from typical Kurdish families and thousands from business owners
TV channel: Kurdish Roj TV accounts frozen and went bankrupt after Denmark fined it more than $1 million over PKK links in 2013
Mercer, the investment consulting arm of US services company Marsh & McLennan, expects its wealth division to at least double its assets under management (AUM) in the Middle East as wealth in the region continues to grow despite economic headwinds, a company official said.
Mercer Wealth, which globally has $160 billion in AUM, plans to boost its AUM in the region to $2-$3bn in the next 2-3 years from the present $1bn, said Yasir AbuShaban, a Dubai-based principal with Mercer Wealth.
“Within the next two to three years, we are looking at reaching $2 to $3 billion as a conservative estimate and we do see an opportunity to do so,” said Mr AbuShaban.
Mercer does not directly make investments, but allocates clients’ money they have discretion to, to professional asset managers. They also provide advice to clients.
“We have buying power. We can negotiate on their (client’s) behalf with asset managers to provide them lower fees than they otherwise would have to get on their own,” he added.
Mercer Wealth’s clients include sovereign wealth funds, family offices, and insurance companies among others.
From its office in Dubai, Mercer also looks after Africa, India and Turkey, where they also see opportunity for growth.
Wealth creation in Middle East and Africa (MEA) grew 8.5 per cent to $8.1 trillion last year from $7.5tn in 2015, higher than last year’s global average of 6 per cent and the second-highest growth in a region after Asia-Pacific which grew 9.9 per cent, according to consultancy Boston Consulting Group (BCG). In the region, where wealth grew just 1.9 per cent in 2015 compared with 2014, a pickup in oil prices has helped in wealth generation.
BCG is forecasting MEA wealth will rise to $12tn by 2021, growing at an annual average of 8 per cent.
Drivers of wealth generation in the region will be split evenly between new wealth creation and growth of performance of existing assets, according to BCG.
Another general trend in the region is clients’ looking for a comprehensive approach to investing, according to Mr AbuShaban.
“Institutional investors or some of the families are seeing a slowdown in the available capital they have to invest and in that sense they are looking at optimizing the way they manage their portfolios and making sure they are not investing haphazardly and different parts of their investment are working together,” said Mr AbuShaban.
Some clients also have a higher appetite for risk, given the low interest-rate environment that does not provide enough yield for some institutional investors. These clients are keen to invest in illiquid assets, such as private equity and infrastructure.
“What we have seen is a desire for higher returns in what has been a low-return environment specifically in various fixed income or bonds,” he said.
“In this environment, we have seen a de facto increase in the risk that clients are taking in things like illiquid investments, private equity investments, infrastructure and private debt, those kind of investments were higher illiquidity results in incrementally higher returns.”
The Abu Dhabi Investment Authority, one of the largest sovereign wealth funds, said in its 2016 report that has gradually increased its exposure in direct private equity and private credit transactions, mainly in Asian markets and especially in China and India. The authority’s private equity department focused on structured equities owing to “their defensive characteristics.”
Where to buy art books in the UAE
There are a number of speciality art bookshops in the UAE.
In Dubai, The Lighthouse at Dubai Design District has a wonderfully curated selection of art and design books. Alserkal Avenue runs a pop-up shop at their A4 space, and host the art-book fair Fully Booked during Art Week in March. The Third Line, also in Alserkal Avenue, has a strong book-publishing arm and sells copies at its gallery. Kinokuniya, at Dubai Mall, has some good offerings within its broad selection, and you never know what you will find at the House of Prose in Jumeirah. Finally, all of Gulf Photo Plus’s photo books are available for sale at their show.
In Abu Dhabi, Louvre Abu Dhabi has a beautiful selection of catalogues and art books, and Magrudy’s – across the Emirates, but particularly at their NYU Abu Dhabi site – has a great selection in art, fiction and cultural theory.
In Sharjah, the Sharjah Art Museum sells catalogues and art books at its museum shop, and the Sharjah Art Foundation has a bookshop that offers reads on art, theory and cultural history.
Learn more about Qasr Al Hosn
In 2013, The National's History Project went beyond the walls to see what life was like living in Abu Dhabi's fabled fort:
The National's picks
4.35pm: Tilal Al Khalediah
5.10pm: Continous
5.45pm: Raging Torrent
6.20pm: West Acre
7pm: Flood Zone
7.40pm: Straight No Chaser
8.15pm: Romantic Warrior
8.50pm: Calandogan
9.30pm: Forever Young
The bio
His favourite book - 1984 by George Orwell
His favourite quote - 'If you think education is expensive, try ignorance' by Derek Bok, Former President of Harvard
Favourite place to travel to - Peloponnese, Southern Greece
Favourite movie - The Last Emperor
Favourite personality from history - Alexander the Great
Role Model - My father, Yiannis Davos
'Gehraiyaan'
Director:Shakun Batra
Stars:Deepika Padukone, Siddhant Chaturvedi, Ananya Panday, Dhairya Karwa
Rating: 4/5
Results
5pm: UAE Martyrs Cup (TB) Conditions Dh90,000 2,200m
Winner: Mudaarab, Jim Crowley (jockey), Erwan Charpy (trainer).
5.30pm: Wathba Stallions Cup (PA) Handicap Dh70,000 1,400m
Winner: Jawal Al Reef, Richard Mullen, Hassan Al Hammadi.
6pm: UAE Matyrs Trophy (PA) Maiden Dh80,000 1,600m
Winner: Salima Al Reef, Jesus Rosales, Abdallah Al Hammadi.
6.30pm: Sheikha Fatima bint Mubarak (IFAHR) Apprentice Championship (PA) Prestige Dh100,000 1,600m
Winner: Bainoona, Ricardo Iacopini, Eric Lemartinel.
7pm: Sheikha Fatima bint Mubarak (IFAHR) Ladies World Championship (PA) Prestige Dh125,000 1,600m
Winner: Assyad, Victoria Larsen, Eric Lemartinel.
8pm: Sheikh Zayed bin Sultan Al Nahyan Jewel Crown (PA) Group 1 Dh5,000,000 1,600m
Winner: Mashhur Al Khalediah, Jean-Bernard Eyquem, Phillip Collington.
NO OTHER LAND
Director: Basel Adra, Yuval Abraham, Rachel Szor, Hamdan Ballal
Stars: Basel Adra, Yuval Abraham
Rating: 3.5/5
The rules on fostering in the UAE
A foster couple or family must:
- be Muslim, Emirati and be residing in the UAE
- not be younger than 25 years old
- not have been convicted of offences or crimes involving moral turpitude
- be free of infectious diseases or psychological and mental disorders
- have the ability to support its members and the foster child financially
- undertake to treat and raise the child in a proper manner and take care of his or her health and well-being
- A single, divorced or widowed Muslim Emirati female, residing in the UAE may apply to foster a child if she is at least 30 years old and able to support the child financially
World record transfers
1. Kylian Mbappe - to Real Madrid in 2017/18 - €180 million (Dh770.4m - if a deal goes through)
2. Paul Pogba - to Manchester United in 2016/17 - €105m
3. Gareth Bale - to Real Madrid in 2013/14 - €101m
4. Cristiano Ronaldo - to Real Madrid in 2009/10 - €94m
5. Gonzalo Higuain - to Juventus in 2016/17 - €90m
6. Neymar - to Barcelona in 2013/14 - €88.2m
7. Romelu Lukaku - to Manchester United in 2017/18 - €84.7m
8. Luis Suarez - to Barcelona in 2014/15 - €81.72m
9. Angel di Maria - to Manchester United in 2014/15 - €75m
10. James Rodriguez - to Real Madrid in 2014/15 - €75m
if you go
Getting there
Etihad (Etihad.com), Emirates (emirates.com) and Air France (www.airfrance.com) fly to Paris’ Charles de Gaulle Airport, from Abu Dhabi and Dubai respectively. Return flights cost from around Dh3,785. It takes about 40 minutes to get from Paris to Compiègne by train, with return tickets costing €19. The Glade of the Armistice is 6.6km east of the railway station.
Staying there
On a handsome, tree-lined street near the Chateau’s park, La Parenthèse du Rond Royal (laparenthesedurondroyal.com) offers spacious b&b accommodation with thoughtful design touches. Lots of natural woods, old fashioned travelling trunks as decoration and multi-nozzle showers are part of the look, while there are free bikes for those who want to cycle to the glade. Prices start at €120 a night.
More information: musee-armistice-14-18.fr ; compiegne-tourisme.fr; uk.france.fr
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