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Cathay Pacific's Existential Crisis
Thursday, February 15, 2018 -- When Cathay Pacific Airways rolled out a price-slashing promotion over Thanksgiving weekend, dozens of JoeSentMe members wisely snapped up business class seats to Hong Kong for as little as $3,200 roundtrip. Why wouldn't you grab tickets at that price for a ride on one of the best business classes in the sky flown by one of the best airlines on the planet?
A few weeks later, however, there was some carping when Cathay announced it would fly from Washington/Dulles and set the introductory business class sale fare for the 8,153-mile nonstops at $4,805 roundtrip. Forty-eight hundred bucks seemed a little steep, more than a few JoeSentMe members suggested to me.
"Did you ever imagine we'd be in a pricing environment where $4,800 roundtrip would be controversial for an [ultra-long-haul] premium class flight on a premium airline?" a bemused Philippe Lacamp, Cathay's top man in North America, asked when I caught up with him just before Christmas. "This is truly challenging when you are a genuinely premium carrier."
I'll go further than Lacamp. How can airlines offer world-class service when they are selling coach seats to Asia for around $650 roundtrip, a fare Cathay is promoting on its home page? How do you do a great premium economy cabin when fares consistently hang around $1,500 roundtrip from the West Coast and about $2,000 from the East, prices considered cheap for basic coach just a few years ago? What should business class--a high-quality business class--actually cost? And whither first class, once the signature service offered by world-class carriers such as Cathay?
These are existential questions both for us business travelers in general and Cathay Pacific in specific. Cathay is struggling with all of them as it battles the new wave of low-priced competitors serving the Chinese mainland, the flashy Gulf carriers at the high end and traditional long-haul competitors such as ANA of Japan, Korean Air, EVA of Taiwan and Singapore Airlines. Cathay now even has transpacific competition at home: Hong Kong Airlines, a carrier owned by the massive Chinese conglomerate HNA, launched nonstops to Los Angeles and Vancouver last year and this year plans to begin New York flights.
The questions aren't academic, either. Despite its reputation for top-notch service to, from and beyond its Hong Kong hub, Cathay Pacific has been racking up its highest losses in decades. It has struggled to cut its high costs, a relic of the days when its sprawling parent company, Swire, was the toast of British-controlled Hong Kong. And it must keep a wary eye on Hong Kong's position in Greater China, where Shanghai or even Shenzhen just across the Hong Kong border are often the Communist Party's focus of aviation development.
I won't claim to be a neutral observer. Cathay Pacific is one of the few airlines that I look forward to flying. I've never had a bad experience. It's long been my go-to airline for Asia/Pacific travel and I even use its "secret flight"--New York/Kennedy to Vancouver--whenever possible. In fact, I've never heard a JoeSentMe member report anything unpleasant about Cathay. And as the carrier has methodically expanded its North American gateways--Cathay now operates 115 weekly flights from Los Angeles, San Francisco, Chicago/O'Hare, Boston, Newark, JFK, Vancouver and Toronto--its reputation grows.
"All the legendary propaganda about Cathay is true. It's a great trip," says JoeSentMe member Stephen Shore. "One does travel like a king in first. Business class is very functional in terms of space and what one needs in the air."
Cathay Pacific, I think, is the very model of a rational, premium-quality airline. If nothing else, that's an advantage Cathay can build on in these peculiar times. It knows what it is and what it wants to defend without skimping on the quality of the service.
"We're a premium carrier. That is our DNA," says Lacamp. "And not premium in the way some carriers claim to be premium while they've obviously cut service and quality to the bone. We know what it takes to be good and we do it."
The challenge, of course, is convincing travelers to pay for premium quality across all four cabins every day and every flight.
But there is some good news. Cathay Pacific has deployed the first generation of Airbus A350-900s on its flights from Vancouver, San Francisco and Newark and the plane has been a huge success from the cost-control side.
"The performance is excellent," says Lacamp. "It operates about 20 percent more efficiently than our other long-haul aircraft. That's a big deal in a thin-margin business."
Second-generation A350-1000s will be deployed on the new Dulles-Hong Kong route, which launches September 16. It'll be configured with 46 business class seatbeds, 32 premium economy seats and 256 coach chairs. Lacamp says the A350s also have been a hit with passengers because the increased cabin humidity leaves you feeling better after long flights.
Yet Dulles will be the third North American route after Newark and Toronto without first class, a notable absence for an airline such as Cathay Pacific. Although it never installed ostentatious private suites used by some competitors, Cathay's first class (above) is frequently refreshed (most recently last year) and ranks high on the list of outstanding pointy-end-of-the-plane experiences.
Still, first class won't be growing at Cathay. The bulk of the carrier's new aircraft orders are A350s without first cabins and even Lacamp is circumspect.
"We'll keep first on the [key] routes," he says. "But even for us, it is a niche. It's hard to argue with the guys who run the numbers."
Thankfully, Cathay Pacific's business class is as good as you'll find. It was upgraded again in 2016 when the A350s were introduced. The beds are comfortable--and they're comfortable as seats, too, something you can't say about the freakishly wide and awkward Singapore Airlines business class chair. Meals are fine, if not wildly creative or showy. The top-notch flight attendants respect your privacy and come when you call rather than make a spectacle of their omnipresence. Cathay on the ground is solid, too. Proprietary clubs are refreshing and comfortable. It even fixed its most glaring weakness--the awful British Airlines facilities at JFK Terminal 7--by moving into the American Airlines terminal.
Which is not to say Cathay Pacific is always first with the most or even timely with some obvious amenities. Although there is WiFi on the A350s, equipping the other long-haul aircraft won't start until the summer. It'll take until 2020 for all planes to be wired. That is unacceptably slow for an airline flying nonstops in the 15+-hour range from North America.
Cathay also hasn't implemented "dine on demand" service in business class, something prized by flyers on ultra-long runs. The concept was tested last spring, but Cathay hasn't committed (partially due to resistance from flight attendants). That, too, is a tactical mistake since many Cathay flights operate at odd hours and flyers should have the flexibility to eat what they want when they want it. However, I have always found Cathay flight attendants more than accommodating of any request that I've made.
All things considered, though, Cathay works. And works well. Whether it can make money doing what it does in the current environment will be interesting to watch.
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