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Sat 17 Sep 2011 02:07 PM

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Staying ahead of the pack

Meet Cathay Pacific's COO Ivan Chu - the man tasked with delivering double-digit growth in the Middle East in the face of rising oil prices, political unrest and traffic-hungry Gulf carriers

Staying ahead of the pack
Staying ahead of the pack

Ivan Chu, chief operating officer of Hong Kong-based carrier Cathay Pacific, sounds in surprisingly good form as his voice comes down the line for our phone chat.

On the interview circuit all day to promote the airline’s latest route to the Middle East, he could be forgiven for being annoyed. And then, of course, there is what happened the last time Arabian Business spoke to one of the Asian carrier’s executives.

Last year, the former CEO of Cathay Pacific, Tony Tyler, claimed it would take Gulf carriers at least a “generation” to catch up with the levels of in-flight service offered by his airline.

A few issues later, Maurice Flanagan, the founding managing director and executive vice chairman of Dubai’s Emirates Airline, which is the largest carrier in the Gulf region, quickly retaliated.

“We are ahead of Cathay. There is no way in which Cathay is ahead. It is nonsense,” Flanagan said.

So has much changed in the eighteen months since? Unsurprisingly, Chu is reluctant to reopen the wounds and decides to pick his words a bit more carefully than his former boss.

“We have a healthy respect for our competitors here in the region and I personally believe they have made a major improvement in the last 20 years but in Cathay Pacific we tend to focus on ourselves and continue to do a good job and I’m sure we will continue to have that lead over all competitors, not just the Middle East carriers,” he says, diplomatically.

Chu joined Cathay Pacific in 1984 and was appointed chief operating officer in March, following the reshuffle resulting from Tyler’s departure. It's his job is to oversee the planning and execution of the airline’s worldwide operations outside its Asian hub in Hong Kong and he is confident the Middle East will be one of its major growth regions this year for the airline.

Overall, the Hong Kong airline said earlier this year it is aiming for ten percent growth in passenger numbers in 2011, but Chu expects the Gulf to be well above average.

“We are on track for double-digit growth. Some of the markets have been down, like Japan and Bahrain, but all-in-all we see good growth in corporate and premium market, although there is some softening in the air freight business.

“With Abu Dhabi we would like to see close to double-digit growth in this part of the world. Our daily services to Dubai, Jeddah and Riyadh we hope will continue to be a success,” he says. “It will be close to 20 percent,” he adds when pushed for a concrete figure.

Asia’s fourth largest carrier by market value, Cathay, flies to 141 destinations in 39 countries and in June Abu Dhabi became its fifth Gulf route. Its first entry into the Middle East was with Bahrain in November 1976, followed by Dubai the following year and Riyadh and Jeddah in 2001 and 2009.

“We have been operating in this part of the world for over 30 years already and operating a really substantial service. Abu Dhabi is the fifth destination in the Middle East.

“It is part of our continuous investment in this part of the world and we believe that Abu Dhabi itself will be good for business travel and corporate travel and a tourist hub between the two places.

“Beyond Hong Kong we have a big network to North Asia and Southeast Asia, North America and the Southwest Pacific, such as Australia, and we believe we can bring non-stop service via Hong Kong, which will be a fabulous success,” he says.

Two of the biggest talking points in the aviation sector in the Middle East this year have been the impact of the Arab Spring and the rising price of oil. Unlike other carriers, Chu says Cathay did not reduce capacity on its routes to the Gulf during the earlier part of the year when anti-government protests spread to the region from North Africa.

“We are here for the long haul so we are executing this long-term strategy. On June 2 we started non-stop to Abu Dhabi and we are the only airline operating non-stop between Abu Dhabi and Hong Kong so we look at expansion in this part of the world in the long-term. We are bullish about the Gulf and we want to continue to be part of this successful story.”

However, the carrier was left in a tighter squeeze as a result of the surging price of fuel. Cathay’s fuel bill is the group’s biggest single cost and during the first half of the year its fuel costs rose by 49.5 percent, compared to the same period in 2010, and added an extra HK$6.461bn ($828.15m) to its overall operating costs.

As a result of the rising fuel bill, Cathay’s latest results show that while its turnover for between January and June rose 13.2 percent to HK$46.791bn ($5.997bn), it reported a profit of HK$2.808bn ($359.9m). This compares to a profit of HK$6.840bn ($876.7m) in the first half of 2010 and represents a decline of 58.9 percent. This is compared to a profit rise of nearly 200 percent in 2010.

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“We are naturally concerned about the oil price, it is our single biggest cost. Last year it was 36 percent of our costs, so it's an obvious source of worry. A high oil price will also impact on the worldwide economy and growth so it is something we are watching very closely and at the same time we are trying to mitigate some of the negative cost impact,” says Chu.

While oil has dented Cathay’s profit results it still performed better than its regional rival Singapore Airlines, which reported an 82 percent drop in net profit in the second quarter of 2011.

Looking towards the end of the year, Chu said he is still forecasting a “great year” for the airline, but was concerned about growth levels in the cargo sector. Cathay is the world’s biggest international air cargo carrier and in June it said it was forecasting growth of five to six percent year-on-year in the second half of 2011.

“Load factor has come down a few percent so the number of passengers is less,” Chu says. “But yields are up and growing strongly. Air freight, which is a major contributor of our performance and 30 percent of our revenue, is softening in the second and third quarter as well, so we worry about that.”

Another concern which may impede the Asian carrier’s performance in 2012 is carbon emissions.

“We notice that the EU is planning to impose emission trading and we are looking into it and we will comply with it,” says Chu.

Beginning in 2012, all airlines landing within the EU will have their carbon dioxide emissions capped at 97 percent of their average 2004-06 levels and 95 percent in 2013.

The European ruling will cost the Asian airlines, including Cathay, around $400m in order to continue flying into Europe, which would mean an extra $8 per passenger on average - a bill that is likely to be passed onto the passenger.

After the environment, security has also become a major issue for cargo aviation operators, especially in the decade that has passed since the September 11 attacks in the US. Chu believes it is time the issue of security is addressed at an industry level to determine how effective some of the measures introduced have been and whether a review is necessary.

“Security is always very important and Cathay Pacific takes it very seriously… We need to differentiate between security procedures which work and which are effective and security provisions which do not work very well and impact on convenience of travel and cost and operation of air services,” he believes.

Cathay and its sister unit Dragonair carried 13.2 million passengers between January and June 2011, a rise of 1.7 percent and it plans to increase that number in 2012 by developing further routes and markets.

“China is growing very fast and the premium service to North America is going very well. Europe is softening and Australia has been affected by the high currency. In Asia we are seeing reasonable growth,” says Chu.

In its bid to increase its global stretch, Cathay does have one thing in common with its Gulf competitors: restrictions on landing rights. While UAE carriers Etihad Airways and Emirates Airline face obstacles in Canada and some European countries, Cathay is hoping to increase its capacity into India but is also facing obstacles in its bid to secure a bigger share of the Indian market. At present, Cathay flies to four Indian cities: Bangalore, Chennai, Delhi and Mumbai.

“We do want to operate more service to India for example. We hope we will get more landing rights and we are working on it… [but] in general, we are quite happy with the situation we have,” says Chu.

Glance across Cathay’s global network and one major blank is evident across the African continent. While Cathay currently operates to the South African capital of Johannesburg, Chu says the continent is always on his radar.

“At the moment we have been operating to South Africa, to Johannesburg, but at the moment we don’t have any plans to operate to other parts of Africa. But we continue to review the situation as we see a lot of traffic from China to that part of the world. We will continue to monitor that and when there is sufficient freight and passenger traffic to that part of the world we will seriously and positively [look at it].”

With carbon emissions in Europe, the Arab Spring in the Middle East and an eye on China, Africa and India, Chu certainly has his work cut out for him keeping Cathay ahead of the pack.

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ross 8 years ago

Why and on what basis does he think Cathay are ahead of the likes of Qatar, Etihad and Emirates?

All have certain elements that are streets ahead of their competition - therefore I'm interested in where Cathay think they are ahead.

samuel 8 years ago

For sure, it's got to be service. Qatar, Etihad and Emirates are all about growth only and service onboard is highly inconsistent. In addition, they are all state-owned carriers whereas Cathay is private, so CX itself is already pretty impressive.

Shahid 8 years ago

I plan to Travel to Japan from Dubai 1st week ,last year flown by Emirates ,this time Emirates cost is quite high so planing for Cathay.

Nirmal 8 years ago

Cathy Pacific is certainly thinks that they have unparalleled in-flight service.

I have not flown them recently but few years back they were good.