Cathay Pacific says strong growth in competitors' direct services out of mainland China, as well as the aggressive expansion of airlines and airports in the Pearl River Delta region, have had a “big impact” on its business.

In the November issue of the airline’s monthly magazine CX World, general manager revenue management Patricia Hwang says there has been a global trend of airlines ramping up capacity, in part driven by lower fuel prices. This has in turn led to overcapacity, with airlines slashing fares to fill seats.

Although Hong Kong’s capacity growth has been modest at 3-4% due to a shortage of slots at the city’s airport, the airline not only competes on point-to-point traffic but also on connecting traffic through Hong Kong or other hubs, says Hwang.

“Strong growth in direct services out of mainland China is having a big impact on our business. For example, the capacity for China-USA traffic flows for the year to September increased by 19%, but passenger volumes grew at just 10%,” she adds.

In the Pearl River Delta region, airports and airlines have also been aggressively expanding. Out of Shenzhen for example, direct services to Sydney, Frankfurt and Seattle were launched this year, with services to Auckland starting in December.

Hwang’s comments follow Cathay’s warning in October that it has scrapped its profit forecast for the second half of the fiscal year, and is conducting a “critical review” of its business as overcapacity and poor yields have put pressure on revenue.

Cathay says the growth in new capacity, particularly in Asia, is running at “historically unprecedented rates”, and that competitors have also “dramatically improved” products and business model to “efficiently compete” against legacy operators such as itself.

Hwang says the airline will need to continue expanding its network as well as maintain its strategy of having “superior products and exceptional services” to stay ahead.

The rebranding of regional carrier Dragonair into Cathay Dragon will also provide a consistent brand that it believes will urge travelers to connect through Hong Kong.

“From a commercial perspective, increasing revenue from long-haul premium cabins will be a key focus next year, and we’ll continue to review our fare products to ensure we’re offering deals that remain relevant to our customers,” adds Hwang.

Source: Cirium Dashboard