CX°/KA°/LD | Swire Group: Cathay Pacific/Dragonair/Air Hong Kong

[ddes]

Originally Posted by caelus

Those chinese mainlanders are crazy, to put it lightly. As if they don't know they suck at airlines management, or management in general....... This whole transaction reminds me a chinese phrase: 要死一齊死! how do you translate it into english? It seems to me that if the chinese mainlanders failed at certain aspects, they have to drag you along too, they want to take over CX just so they could choke it to death with their own bare hands.

Didn't Air China just report profits?

I don't understand, it takes 2 hands to clap and if CX is going down, there's definitely some part of the company that is willing to let Air China increase shareholding.

[hkskyline]

Air China seeks HK$5.25 billion loan

HONG KONG, Aug 27 (Reuters) - Air China Ltd is seeking a HK$5.25 billion ($677 million) loan to help fund an $808 million deal to raise its stake in Cathay Pacific Airways , banking sources said on Thursday.

Air China, the world's most valuable airline and the largest of China's trio of major carriers, sent a request for proposals to banks in Hong Kong last week, asking potential lenders to submit responses by the end of August 28, the sources said.

Price talk for the all-in three-year term loan is in the 100s in basis points.

Last year, Air China got a $40 million three-year term loan from Mizuho Corporate Bank, BayernLB and Svenska Handelsbanken. That deal has a 1.5-year put option, which gives banks an 80 basis points extension fee if exercised. Based on the put not being exercised, banks get a top-level all-in of 150 basis points via a margin of 100 basis points over Libor.

Air China agreed to buy a 12.5 percent stake in Cathay from conglomerate CITIC Pacific Ltd for HK$6.3 billion ($808 million) earlier this month, lifting its stake in the Hong Kong-based airline to 29.99 percent.

Air China's request comes amid increasing tailwinds for Hong Kong's syndicated loan market, where sentiment has been improving and banks are looking for new deals to join, bankers said.

"Liquidity is available in Hong Kong, it's just that there has not been sufficient deal flow to cater to all the pent-up demand," said a Hong Kong-based loan banker.

Air China's upcoming deal can also serve as a test to see if momentum can be sustained for the rest of 2009 in Hong Kong's loan market, after the market saw a slump in the first half.

Due to a lack of primary loans, Hong Kong's syndicated loan market volume plunged 32 percent year-on-year to $6.8 billion with just 19 deals in the first half of the year.

In March, Air China mandated BNP Paribas and SG for a $300 million 10-year aircraft financing.

($1 = HK$7.750)

[EricIsHim]

So, does it mean Air China hasn't completed the buy out from CITIC?

Air China's Growth Strategy: One Dragon, Two Nests

There has been some buzz about Air China (AIRYY.PK) spending US$812.8 million to buy an additional 12.5% stake in Cathay Pacific Airways, Ltd. (CPCAY) from CITIC Pacific, another state-owned enterprise. That's a lot of greenbacks to lay down at a time when the world economy, rising fuel prices, and the spectre of an influenza pandemic hover over the airline business.

Of course, as both a government-owned business and the national flag carrier, Air China doesn't need to worry as much about empty coffers as, say, EasyJet (EJETF.PK) or Southwest Airlines (LUV). So the cash issue is a bit of a red herring.

The Hong Kong Squeeze Theory

The Wall Street Journal piece about it raises an interesting issue. As UBS analyst Damien Horth noted, Air China is most concerned in the near term about "promoting its base in Beijing as a major travel hub. 'Anything [Air China] can do to reinforce the position of that hub is critical, by limiting competition from Hong Kong.'"

No conspiracy theorist or long-term China resident could resist the speculation Mr. Horth's remarks seem designed to arouse. "Hmm," one might think: "could it be that Air China wants to control Cathay Pacific in order to restrict its growth, and by extension, the growth of Hong Kong International Airport as a regional or global hub?"

Living but a stone's throw from Air China's opulent new headquarters just west of Beijing Airport, not only would I not be surprised if this were so, I might even be inclined to be sympathetic.

Sadly, I doubt this is the case. Instead, I think Air China has wisely made other plans for Hong Kong.

The Second Hub Theory

First, Air China still sees the heart of its long-term opportunity as leadership in PRC domestic air travel, where demand looks set to grow for the foreseeable future. Armed with leadership at home, it can then fill planes to overseas destinations with Chinese who are starting to travel with increasing frequency.

With that in mind, you can understand why Air China sees its nearest rivals not as Cathay Pacific or Dragonair, but Shanghai-based China Eastern Airlines (CEA) and, especially, Guangzhou-based China Southern Airlines (ZNH).

As the Journal points out, Air China was rebuffed last year in its attempt to buy its way into a hub in Shanghai. The idea behind that was to either secure Shanghai as a second hub for itself, or deny it to a rival.

Unable to take on one of its domestic rivals directly, Air China is now pursuing the indirect approach, this time taking on not China Eastern in Shanghai, but China Southern. If Air China can lock down control of a Hong Kong hub either directly (by dominating the airport with its own flights) or indirectly (through its ownership/influence/control over Cathay), it effectively "flanks" China Southern with a south China hub for outbound international traffic.

And for such a large country, that is going to be essential. While Beijing makes for an excellent hub feeding into Europe, Russia, and North America, it does not make sense for over two-thirds of China's population to fly through Beijing to get to the Middle East, Africa, South Asia, Southeast Asia, Australia, Hong Kong, Taiwan, and the South Pacific.

Other Fish

Air China is better off letting Cathay worry about Hong Kong for now. The flag carrier needs to turn its attention elsewhere, optimizing its domestic route structure to feed into its international hubs, improving the efficiency of its fleet and it operations, and continuing to improve service on the routes it has.

A partnership with Cathay leaves China free to concentrate on the areas that will make it the most money in the long run, while building the route system and the know-how to compete against global carriers. Even better, Cathay remains the competitive foil to sustain pressure on the other premium Asian carriers while Air China matures.

None of which is to say that at some point in the future, keeping Air China, Dragonair, and Cathay running as independent airlines will stop making sense. But for now, each of these three operations - and their attendant brands - are doing well in their own space.

Which is exactly why any concern about Air China putting the squeeze on Hong Kong is overblown. For now.

Source: http://seekingalpha.com/article/1585...agon-two-nests

[hkskyline]

I think upon announcement they should have some sort of funding arrangement in place, or well in progress.

[EricIsHim]

[Bon Vivant]

Great Airline! . . . any news about future destinations? there were some rumours about Mexico City . . .

[ddes]

Originally Posted by Bon Vivant

Great Airline! . . . any news about future destinations? there were some rumours about Mexico City . . .

Highly doubt so. Cathay Pacific's a very conservative airline, and the current economic environment is not the time to launch new routes.

[hkskyline]

Sino-Mexican relations haven't been doing too well lately. I wonder whether direct flights have resumed between China and Mexico following the swine flu tensions?

[hkskyline]

By funghkkc from HKADB :

image hosted on flickr


image hosted on flickr


image hosted on flickr


image hosted on flickr

[Bon Vivant]

[QUOTE=hkskyline;42007622]Sino-Mexican relations haven't been doing too well lately. I wonder whether direct flights have resumed between China and Mexico following the swine flu tensions?[/QUOTE]




Yeah . . you now : politicians!

But imo, not longer than a couple of years - and even now - a direct flight Mexico-China- Mexico will be demanded by international passengers and bussines mans . .

[hkskyline]

By nwfb1001 from HKADB :

[Minna]

Originally Posted by ddes

Highly doubt so. Cathay Pacific's a very conservative airline, and the current economic environment is not the time to launch new routes.

Does Cathay Pacific focus mainly on O & D destinations to/from Hong Kong?

Do you think they'll order 787s or 350s down the line?

[EricIsHim]

Originally Posted by Minna

Does Cathay Pacific focus mainly on O & D destinations to/from Hong Kong?

Do you think they'll order 787s or 350s down the line?

Routes are all OD to/from HK as HK is the main hub; but passengers aren't.
A lot of the travelers are OD outside HK, but transit there.

CX has ordered numbers of the 787, but since Boeing has delayed the delivery, and the down turn of economy, CX has pushed back the order.

[aznichiro115]

Originally Posted by EricIsHim

Routes are all OD to/from HK as HK is the main hub; but passengers aren't.
A lot of the travelers are OD outside HK, but transit there.

CX has ordered numbers of the 787, but since Boeing has delayed the delivery, and the down turn of economy, CX has pushed back the order.

Cathay is ordering 787? that is news to me! this thread seems to prove otherwise

http://www.airliners.net/aviation-fo....main/3679577/

[siamu maharaj]

Originally Posted by Minna

Does Cathay Pacific focus mainly on O & D destinations to/from Hong Kong?

Do you think they'll order 787s or 350s down the line?

CX also has a hub in Bangkok, so no, CX is more than just HK.

[wise_zech]

this is one my favorite airline Cathay Pacific.....i love this airline coz the customer service is good...when im going home vacation to Bahrain to Hong Kong then Hong Kong to Cebu (Philippines)....

[hkskyline]

Cathay working on new strategy for Thailand
3 September 2009
The Nation

Cathay Pacific Airways and its |subsidiary Dragonair are preparing a marketing strategy for Thailand, as the airlines believe tourism here will return to normal in the remaining months of this year.

"Thailand is a challenging market as things are so uncertain, same for global and regional economies," Maggie Yeung, the new country manager for Cathay Pacific, said yesterday.

She oversees all aspects of the business and operations for Cathay Pacific and Dragonair in Thailand.

"We can't be sure what's coming in the near future, but we hope that the Thai economy will improve in the second half of the year," she said.

However, the group sees a new beginning in the second half of this year, so it will continue its progressive marketing strategy of providing premium products, services and promotional travel packages to meet its customers' requirements in response to the increasing demand.

Cathay Pacific and Dragonair will also emphasise special air-fares and promotional packages to meet the wider range of customer needs.

One example is the Hong Kong Disney Land Package, starting at Bt15,400 per person per trip. The special deal is set to sell for travel between September 18 and December 19.

Cathay Pacific runs 31 flights |per week between Bangkok and Hong Kong, down from 35. Its load factor is 75-85 per cent, lower |than projected. However, it will resume flights if market demand revives.

Dragonair flies between Phuket and Hong Kong nine times per week with |a load factor of 85 per cent.

Thailand is still a major gateway to Asia for trade and tourism, and has been chosen by the Hong Kong-based carrier as its largest hub in Southeast Asia, Yeung said.

Thailand's connections with Hong Kong and China have resulted in consistent |numbers of passengers and |cargo shipments, and these are expected to increase further in the future.

"This is one of the greatest opportunities for Cathay Pacific and Dragonair to grow," she said.

Yeung was general manager |for in-flight services and international affairs for Hong Kong Dragon Airlines, operating as Dragonair, before coming to Thailand.

[hkskyline]

Asia's 200 Most-Admired Companies
Reader survey: Cathay Pacific, braving tests, tops Hong Kong list --- CEO says customer feedback shows airline is still committed to quality; company identifies 35 areas ripe for improvement
4 September 2009
The Wall Street Journal Asia

HONG KONG -- A busy typhoon season. A fall-off in cargo shipping volumes. The worst consumer recession in recent memory.

Cathay Pacific Airways Ltd. faced it all this year, but Hong Kong's flagship airline again emerged as the most-admired company in Hong Kong in the Asia 200 survey of subscribers of The Wall Street Journal Asia and other businesspeople.

The airline, which has now taken top honors in four consecutive surveys, did it by coming in No. 1 in the category "high-quality products and services."

Though Hong Kong's dominant carrier has seen its share price plunge amid a sharp fall in cargo and premium passenger traffic, the airline has continued to impress with its service. That comes even as the recession has forced it to conserve cash by suspending unprofitable routes and asking airline employees to take unpaid leave. Despite corporate cost-cutting, Cathay Pacific has worked hard to not let those cost-saving measures affect the traveling public, according to Cathay's chief executive, Tony Tyler.

"We haven't cut the product," Mr. Tyler says. Instead, customers have emailed him in recent months to say that while they're flying less frequently, they've noticed an extra touch from cabin-crew members.

"We don't tell our staff to do that specifically, but we spend a lot of time explaining to the team what's going on, and that we have just ourselves to rely on," Mr. Tyler says. The positive response from customers, he says, "shows that our cabin crew really gets it. They understand we're in a competitive game."

Even as the economy batters the airline, Mr. Tyler says Cathay Pacific has continued to seek improvements, with a recent strategic review unearthing 35 areas for the airline to address, from improving online ticketing services to dealing with typhoon-induced service disruptions.

Typhoons have been a particular headache for Cathay Pacific, which Mr. Tyler admits have caught the airline off-guard in the past. So during a storm in August that hit Taiwan particularly hard, the airline decided to cancel all flights to and from Taipei and Kaohsiung. It offered extra planes out of Taiwan ahead of the storm and stopped those flying into Taiwan via Hong Kong at their original departure cities, so they wouldn't get stranded in transit.

"We got out ahead of the curve and communicated to all passengers booked on those flights," Mr. Tyler says. The airline was rewarded with only one complaint, about the late hour of the airline's phone call: 10 p.m. "If that's the worst complaint we get, then we're doing all right," he says.

In a difficult year that tripped up many of the corporate world's most trusted names, companies that could highlight their stability and reliability found themselves doing well in the survey.

Hang Seng Bank Ltd., majority-owned by HSBC Holdings PLC, was one such bank. Hang Seng scored better than it did in 2007 and bolstered its No. 3 overall ranking by claiming the top position in two critical categories: "financial reputation" and "good company reputation."

Margaret Leung, Hang Seng's new CEO, calls it "a great privilege" to lead the bank, but notes that "with the honor also comes the obligation and responsibility to do it even better." The key to that, she says: an unrelenting focus on customer needs.

Ms. Leung, Hang Seng's first female leader, understands the duty. She was born and raised in Hong Kong, and opened her first bank account in the late 1950s with Hang Seng. Since then, the bank has enjoyed a sterling reputation in the city, lending its name to Hong Kong's benchmark stock-market index and operating ATMs in all of the city's subway stations.

In some ways, Hang Seng distinguished itself this year by what it didn't do: sell complex and ultimately dangerous financial products to its clients, especially so-called minibonds that were tied to failed U.S. investment bank Lehman Brothers Holdings Ltd. Many Hong Kong banks suffered blows to their reputations and embarrassing protests for having sold those products.

"Last year, everyone was trying to sell high-yield, high-risk products to their customers," Ms. Leung says. "We were trying to understand the products ourselves, and the benchmark we had set was, if we can't explain it in 15 minutes, then it's too complex. We'd rather sell our customers something that they can understand."

That decision probably meant less business for Hang Seng. But now, she says, customers have been complimenting the bank.

Hang Seng didn't just benefit from pats on the back. Ms. Leung says the bank has been able to grab a larger slice of Hong Kong's deposits in recent months. "People vote with their feet, and if they don't like you, they'll take their deposits elsewhere," Ms. Leung says, though she couldn't offer specific numbers on how much their market share in bank deposits had grown by.

At the same time, the bank is quickly expanding in the important growth market of mainland China. Hang Seng, which now has 34 branches and sub-branches in 11 cities, closed an 800 million yuan ($117 million) deal late last year for a 20% stake in northeastern Shandong province's Yantai Bank.

Fourth-ranked MTR Corp., Hong Kong's highly respected subway operator, is another company looking beyond its home market for growth opportunities.

Three years ago, MTR was a very local operation that seemed to have perfected the art of efficiently moving Hong Kong's traveling millions. That's changed quickly: the company now has a deal to operate a commuter-rail franchise in London and metro systems in Stockholm and Melbourne. Closer to home, MTR has won deals to build subway lines in Beijing, Shenzhen, Shenyang and Hangzhou.

"One of the things that we have really instilled well is the desire to seek improvement," says MTR's operations director, Andrew McCusker. But that left an obvious question: with service performance virtually flawless, how could MTR improve?

"If you're like me, running a highly intense network of railways, you're simply focused on nothing going wrong," Mr. McCusker says. But after conducting studies with focus groups and speaking with passengers, MTR emerged with a clear picture of how Hong Kong people saw the company: "highly professional, but a little bit stiff," he says. So MTR launched a campaign to get its staff to smile more.

The effort has paid off. Mr. McCusker recounts one memorable example, of a schoolteacher who got off an MTR train, only to realize he had lost his students' exam papers. The teacher called the station manager, who then contacted the control room to check any trains he may have been on. No luck. But the manager helped the teacher retrace his footsteps to the park where he had been grading papers earlier in the day, and eventually emerged from a garbage truck parked nearby with the papers intact.

[hkskyline]

Cathay chief lashes out at aircraft makers' high prices
8 September 2009
Agence France Presse

The head of Hong Kong carrier Cathay Pacific on Tuesday lashed out at aircraft and parts suppliers such as Boeing and Airbus for charging airlines more for their products despite the economic downturn.

In a rare outburst against suppliers, Cathay chief executive Tony Tyler said aircraft and parts manufacturers continued to hike prices and called for closer alignment between the interests of airlines and suppliers.

"I am always astonished when I hear how much what you sell us costs. Big things, small things, seats, engines, parts of all kinds -- how can they be so expensive?" Tyler told a room packed with suppliers at the Asian Aerospace International Expo and Congress in Hong Kong, the region's largest air show.

"The result is that a premium seat and its furniture costs more than a top-quality sports car. If our passengers only knew what some of our costs were, there would be no complaints about the costs of premium fares."

Pricing negotiations between airlines and suppliers are typically kept confidential.

The airline industry has been severely hit by the downturn amid slowing cargo trade as families defer holiday plans and companies cut spending on business travel.

Escalating fuel prices and the global outbreak of human swine flu have exacerbated the issue.

The International Air Transport Association (IATA) had earlier forecast that full-year losses for the airline industry would reach about 9.0 billion US dollars.

"It's absurd to expect an industry which is estimated to be going to lose around nine billion dollars this year to keep paying higher costs for the same thing," the Cathay chief said.

Airbus' senior vice president of market and product strategy, Laurent Rouaud, told the forum that the price increase was necessary "to ensure that we are going to provide a better type of aircraft" to meet future challenges.

For example, he said the latest Airbus planes allowed for more efficient use of fuel than others in the market.

Cathay's Tyler also criticised the global aircraft giants Boeing and Airbus for their order delivery delays.

"I'd have more sympathy for suppliers if they provided the sort of on-time performance our customers expect from us. But they don't even do that," he said.

"I'll try to be even-handed: the world's two leading aircraft manufacturers have had well-publicised problems with aircraft delays."

He said although the latest delays did not affect Cathay, the carrier had "all sorts of unpublicised problems with delays from suppliers of all kinds over the years."

Cathay Pacific reported last month that its first-half revenue plummeted 27.1 percent year-on-year to 30.92 billion Hong Kong dollars (3.96 billion US) due to weak demand.

[hkskyline]

Boeing defends industry on claims of overcharging
10 September 2009
SCMP

Boeing yesterday hit back at claims by Cathay Pacific Airways chief executive Tony Tyler that the world's biggest aircraft makers and parts manufacturers were overcharging on everything from seats to engines.

In a rare attack on Boeing, Airbus and parts suppliers, Tyler told an aviation conference on Tuesday that escalating prices were adding to the industry's financial woes in a year it was expected to lose US$9 billion.

The lead time between an airline ordering a plane and taking possession is at least five years so prices for airframes, engines, parts and interior fixtures are subject to a so-called "escalation clause" to protect suppliers from rising raw material and labour costs.

But that can mean a big hit to a struggling airline's bottom line. If an escalation clause is fixed at 4 per cent a year, after five years of compound growth, the final price of the aircraft would be 25 per cent higher than the original contracted price.

"That's the way these guys make a lot of money," Tyler told the Asian Aerospace International Expo and Congress in Hong Kong. "When the contracts for airframes or engines are signed, they only start with a marginal profit but later on it becomes a huge profit for them."

Citing a premium-class seat that costs as much as a top-of-the-range sports car, Tyler said he was astonished at what carriers were charged. "If you walk in and order an Airbus or Boeing without a clue on the pricing, you will be hit in a very painful way," he said.

Chicago-based Boeing, however, argued that its profit margin was more or less the same as the airlines, about 5 per cent.

"The escalation formula reflects the material costs and labour costs," said Randy Tinseth, a vice-president of sales and marketing at Boeing Commercial Airplanes. "It has been part of our business ever since we started building airplanes and all the suppliers are using it."

While airlines may find the rising sticker prices of planes bearable when business is robust, the economic downturn has pushed many to the edge.

Tyler's comments reflect frustration that escalation clauses are still an industry standard at a time carriers are attempting to stay afloat.

Manufacturers are also doing it tough. Boeing has deferred the building of hundreds of aircraft and slowed production of B777s to five a month from seven. It has also received 91 cancellations this year.

Boeing predicted that traffic volume would continue to recover next year and would have positive growth in 2011, followed by an increase in demand for aircraft in 2012.

Asia-Pacific will account for one-third of the global aviation market value in 20 years, ordering almost 9,000 aircraft valued at US$1.1 trillion. Of that, 40 per cent will come from Greater China.

Tyler and other airline executives are frustrated that airframe and engine builders never pass on the benefit of cost savings from advancing technology and production to the airlines.

Boeing, for example, has cut down the time taken to assemble a B737 to eight to 10 days from 24 days after the production line was streamlined. But the price of the aircraft has not fallen.

"What we deliver is more reliable and efficient than what it was 10 years ago," said Tinseth.

He said the catalogue price for the B787, the so-called Dreamliner, is the same as the previous B767 while the efficiency and performance are much better in the B787.

The first flight of the B787 has been delayed for more than a year.