Declining demand for corporate travel hits Cathay Pacific hard
Thursday, March 14, 2013
The global business travel sector is in various stages of growth and decline around the world. In some regions, such as South America, demand for corporate travel services is high, with many experts predicting strong growth throughout 2013. In the Asia-Pacific market, business travel conditions remain relatively unpredictable. For some airlines, such as Cathay Pacific, this represents a major area of concern, as the BBC reports that the Hong Kong-based carrier recently announced an annual loss of 83 percent in net profits.
Challenging markets
According to the carrier's annual earnings report, a variety of factors impacted Cathay Pacific's bottom line in 2012. Leisure travel from Hong Kong remained a reasonably strong market for the airline, but increasing pressure from last-minute ticket bookings and heightened interest in package deals meant yields were consistently under pressure last year.
In terms of corporate travel, ongoing economic pressure in key markets such as Europe and North America resulted in smaller gains, and in the Asia-Pacific market, competition from mainland Chinese carriers narrowed Cathay Pacific's market share. Increased pressure for corporate clients to source more cost-effective fares also affected yields in this traditionally strong market sector. In addition, companies that maintained existing levels of corporate travel placed much greater emphasis on cost-saving measures, resulting in significant declines in business travel revenues for the airline.
As well as the reduced demand for business travel in Southeast Asia and mainland China, global fluctuations in fuel prices also contributed to the significantly lower profits reported by the company.
"In 2012 the group's core business was adversely affected by the high price of jet fuel, pressure on passenger yields and weak air cargo demand," said Christopher Pratt, chairman of Cathay Pacific. "Economic uncertainty, particularly in the Eurozone countries, and an increasingly competitive environment added to the difficulties. It was a challenging year for the aviation industry generally."
Optimism in the face of adversity
As evidenced by Cathay Pacific's substantial drop in profits, it is easy to see that 2012 was indeed a tough year for many major commercial carriers. However, despite the financial setbacks experienced by the carrier, its top executive remains confident that the gradual stabilization of global economic conditions represents a significant growth opportunity.
Bloomberg reports John Slosar, CEO of Cathay Pacific, believes signs of economic strength in key markets such as the U.S. could prove to be the early stages of worldwide financial recovery. Speaking in an interview with Susan Li on Bloomberg TV's "First Up," Slosar said that conditions looked favorable for the airline in the coming months.
"The world economy is starting to look better, especially North America," said Slosar. "Corporate travel was hanging reasonably well last year and all indications are that this year will be even better than that."
However, despite Slosar's optimism that the corporate travel market will improve throughout 2013, he said that the outlook for the carrier's cargo business seemed less certain. Bloomberg reports that Cathay Pacific carried 1.56 million tons of cargo and mail last year, a decrease of 5.3 percent from 2011. The airline operates a fleet of 22 dedicated cargo aircraft and also utilizes space in the bellies of passenger planes to handle its cargo operations.
Whether 2013 will be a stronger year for Cathay Pacific remains to be seen, but there can be little doubt that the global business travel and hospitality markets will continue to be competitive. Executives and organizations will likely face additional pressure to reduce expenditure. As a result, alternatives to corporate suites at chain hotels, such as serviced apartments and corporate housing, could become increasingly popular options for budget-conscious travel management professionals.