But Cathay Pacific is fast becoming one of the region’s highest-profile casualties.
Certainly, its issues run far deeper than the online firestorm created by a female passenger throwing a temper tantrum on YouTube.
For 2008, Cathay Pacific finished the year with a total loss of HK$8.5 billion (US$1.09 billion), its biggest annual loss in its 63-year history and its first yearly loss in the past decade. In the first quarter of 2009, it posted a 22 per cent slump in revenue In response, Cathay Pacific has, say sources close to the account, begun cutbacks to its marketing. McCann Erickson’s dedicated Cathay Pacific team was recently forced to make a number of redundancies, though the agency insists its relationship with the client is “as strong as ever”.
The airline has also announced painful measures to reduce passenger capacity. It is making ad hoc cancellations of 17 round trips to London this month, with more likely in June, and has cut its twice-daily service to Paris to one flight a day from September. It will also reduce flights or capacity to Paris, Frankfurt, Sydney, Singapore, Bangkok, Seoul, Taipei, Tokyo, Mumbai and Dubai.
Meanwhile, its China-focused unit Dragonair will suspend flights to Fukuoka, Dalian, Shenyang, Guilin and Xian while reducing other regional services.
Tony Tyler, Cathay Pacific’s chief executive officer, admitted: “We anticipate an extremely challenging year in 2009, and a toxic combination of low fares, a big drop in premium travel, weak cargo loads, poor yields and a negative currency impact is making it more important than ever to preserve cash. In the first quarter of 2009 we saw a marked deterioration in our business compared to the same period last year.”
The question Cathay Pacific, which positions and sells itself as a premium airline, faces, is whether the latest crop of cost-cutting measures will end up damaging its brand in the long term.
Certainly, its issues run far deeper than the online firestorm created by a female passenger throwing a temper tantrum on YouTube.
For 2008, Cathay Pacific finished the year with a total loss of HK$8.5 billion (US$1.09 billion), its biggest annual loss in its 63-year history and its first yearly loss in the past decade. In the first quarter of 2009, it posted a 22 per cent slump in revenue In response, Cathay Pacific has, say sources close to the account, begun cutbacks to its marketing. McCann Erickson’s dedicated Cathay Pacific team was recently forced to make a number of redundancies, though the agency insists its relationship with the client is “as strong as ever”.
The airline has also announced painful measures to reduce passenger capacity. It is making ad hoc cancellations of 17 round trips to London this month, with more likely in June, and has cut its twice-daily service to Paris to one flight a day from September. It will also reduce flights or capacity to Paris, Frankfurt, Sydney, Singapore, Bangkok, Seoul, Taipei, Tokyo, Mumbai and Dubai.
Meanwhile, its China-focused unit Dragonair will suspend flights to Fukuoka, Dalian, Shenyang, Guilin and Xian while reducing other regional services.
Tony Tyler, Cathay Pacific’s chief executive officer, admitted: “We anticipate an extremely challenging year in 2009, and a toxic combination of low fares, a big drop in premium travel, weak cargo loads, poor yields and a negative currency impact is making it more important than ever to preserve cash. In the first quarter of 2009 we saw a marked deterioration in our business compared to the same period last year.”
The question Cathay Pacific, which positions and sells itself as a premium airline, faces, is whether the latest crop of cost-cutting measures will end up damaging its brand in the long term.
| FACT BOX |
| - Cathay Pacific’s turnover for the first three months of 2009 was 22.4 per cent down from the same quarter in 2008. - The airline finished 2008 with a total loss of HKD$8.5 billion (US$1.09 billion), its biggest annual loss in its 63-year history and its first yearly loss in the past decade. - Cathay Pacific has announced it will reduce passenger capacity by eight per cent from this month. - It has also asked its 17,000 staff, including 13,600 in Hong Kong, to take unpaid leave of between one to four weeks over a 12-month period until next April. |
Arthur Chan, strategic planning manager, Bates141 Hong Kong
It’s no surprise that the downturn hurt Cathay Pacific’s balance sheet. What seems more worrying is that, while Cathay’s reaction-compulsory no-paid leave, cancellation of air flights and a cutback in new aircraft investments - may help to rectify the bottom line in the short term, it may have a long-term undesirable impact on the bottom line drivers. These include employee commitment, service quality and customer experience.
Recent Cathay brand campaigns have consistently used customer-centric messages. The expectation of a high-quality service is entrenched in the customer’s mind. It would be dangerous to the brand if there was any compromise in the customer experience. In a service industry, customer satisfaction is a mirror image of employee satisfaction. Nurturing an internal positive, happy and passionate service culture is an essential prelude to a desirable customer experience. The current reactions announced in the press aren’t consistent with the well - established Cathay culture. Cathay needs to find ways to demonstrate that, no matter what happens in the market, it is continuing with the same service culture internally and externally.
Francois de-Riviere, head of strategic planning, Euro RSCG Singapore, Malaysia
When I was nine, my father cut my pocket money in half and said that I needed to wait for my new bicycle. He didn’t do this to save a few dollars; he did it to teach me responsibility.
Cathay is doing what most of the airlines either have done or will do. It’s necessary to cut costs to survive the crisis, airline or not. The difference is the way that it’s done. For brands whose reputation relies on customer experience, cutting costs must never alter emotional engagement.
Importantly, emotional engagement happens through customers’ interaction with people; so if your internal communication makes staff angry or frustrated, then this is a message you are sending customers too. Cathay needs to plan its path out of the crisis carefully by communicating to its main stakeholders: its people. Identifying the right staff and involving them to solve the crisis will diffuse resentment and create solutions. Empower them as recession heroes. By engaging staff and creating personal responsibility and participation, by showing compassion in tough times and bending the rules, by making management take a bigger share of the pain, Cathay’s brand reputation can survive.
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