Cathay Pacific Airways expects to make a decision on a strategic alliance within months, as the carrier continues to struggle to increase revenue and cut costs further to extract itself from financial difficulties.

A massive drop in international traffic since July 1997 is causing the Hong Kong carrier to revise its traditionally cautious approach to airline alliances. The question increasingly appears to be no longer a matter of whether to join, but rather a case of which one to join.

Cathay Pacific managing director David Turnbull, speaking exclusively to Flight International, says: "Our thoughts are certainly progressing-we're talking to some parties and I suspect we will have to make our mind up one way or another within the year what to do."

According to internal sources, the leading candidate is the British Airways/American Airlines/ Qantas grouping, which is also likely to include Japan Airlines. Others in discussion with Cathay include the KLM/Northwest partnership and the Star Alliance. The latter, however, already has a heavy Asian presence, with Thai Airways International on board and Singapore Airlines and All Nippon Airways set to join.

Turnbull remains non-committal on Cathay Pacific's preferred partner, adding only that "each of them have their pluses and minuses. These alliances are forever changing-I don't think we can assume today's make-up will be the same in two to three years' time."

Aside from the attractions of Cathay Pacific's South-East and North-East Asian networks and Hong Kong's soon-to-open airport at Chek Lap Kok, the addition of associate carrier Dragonair as an alliance member would offer access to China. "We would like them to be in, but that is for them to decide. It would be mutually beneficial," suggests Turnbull.

Cathay, in return, is looking to an international tie-up to boost revenue, which fell 25% below budget in March. Load factors have fallen to between 60% and 65% for March and April and show no sign of improving in May and June. "We can do things on the cost front ourselves, but we've got to do something on the revenue side. We're not going to win by tackling just one side," warns Turnbull.

The company says it needs to cut 1997 available tonne kilometre costs of HK$2.57 by a further 20% "-to survive". Measures include an across-the-board review of all departmental activities and trimming the carrier's 15,000-strong workforce by another 5-7%. Says Turnbull: "I'm hoping to do it through natural wastage-we'll certainly have to have fewer people doing what we do."

Source: Flight International