Bloomberg: “Cathay Pacific’s Cost Crisis“ (Passenger Load Factor Should Be 124% To Be Profitable!)

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Bloomberg run a very interesting article today after the Cathay Pacific’s financial results for the 2016-fiscal year were announced.

Bloomberg Cathay Pacific

The airline has a serious cost issue. For the airline to turn profit on its’ passenger services the load factor ought to be 124% !

You can access this Bloomberg’s article here of which below is an excerpt:

There is one thing the airline is getting right: When it comes to filling up seats on its planes, it’s among the best in the business. Of the world’s top 15 carriers by revenue, only Air France-KLM and Delta Air Lines Inc. have a better load factor — passenger traffic as a percentage of available seats.

Unfortunately for Cathay Pacific, there’s another issue to consider: revenue and expenses. One easy but dangerous way to fill extra seats is to sell tickets below cost. That will certainly induce more passengers to book, but they may also come to see your unprofitable prices as normal and switch to competitors if you try to get things back on a more viable footing.

You read that right. Thanks to its stubbornly high costs and plummeting ticket prices from the overcapacity in greater China’s aviation market, Cathay needs to fill about 124 percent of its seats to break even on its passenger services. You don’t need a math Ph.D. to spot the fundamental obstacle to achieving anything above 100 percent.

Conclusion

Cathay Pacific makes some money on cargo (this usually is not very profitable), ancillary services, AsiaMiles, and profiting from airline investments. These couldn’t offset the losses on the passenger services last year.

Cathay Pacific used to shuttle people very profitably from the mainland via its’ Hong Kong hub to Americas and Europe. Now, Chinese airlines offer direct services at much lower cost compared to Cathay. The airline has been forced to sell tickets cheaply to keep the planes full.

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