Cathay Pacific to cut capacity as demand for Hong Kong travel falls

Cathay Pacific Group Chairman John Slosar previously announced plans last week to step down in November. (File/Reuters)
Updated 11 September 2019

Cathay Pacific to cut capacity as demand for Hong Kong travel falls

  • The airline said inbound traffic to Hong Kong in August had fallen by 38% and outbound traffic by 12% compared with the previous year
  • The weak demand and cuts to capacity will place more pressure on Cathay at a time when it is grappling with management upheaval

HONG KONG: Cathay Pacific Airways Ltd. said on Wednesday it would cut capacity for the upcoming winter season after reporting an 11.3% fall in passenger numbers for August as anti-government protests in Hong Kong hit demand.
The airline said inbound traffic to Hong Kong in August had fallen by 38% and outbound traffic by 12% compared with the previous year, and it did not anticipate September would be any less difficult.
Hong Kong’s finance secretary reported earlier this week that visitor arrivals plunged nearly 40% in August, deepening from July’s 5% fall, as sometimes violent anti-government protests took a rising toll on the city’s tourism, retail and hotel businesses.
The weak demand and cuts to capacity will place more pressure on Cathay at a time when it is grappling with management upheaval and is trying to complete a three-year financial turnaround plan driven by boosting revenue and slashing costs.
“Given the current significant decline in forward bookings for the remainder of the year, we will make some short-term tactical measures such as capacity realignments,” Cathay Chief Customer and Commercial Officer Ronald Lam said in a statement.
“Specifically, we are reducing our capacity growth such that it will be slightly down year-on-year for the 2019 winter season (from end October 2019 to end March 2020) versus our original growth plan of more than 6% for the period.”
Cathay has become the biggest corporate casualty of anti-government protests after China demanded it suspend staff involved in, or who support, demonstrations that have plunged the former British colony into a political crisis.
Chairman John Slosar announced plans last week to step down in November, less than three weeks after CEO Rupert Hogg left amid mounting regulatory scrutiny.
Cathay said on Wednesday demand for premium class travel had fallen more significantly than for leisure travel, with demand from mainland China and Northeast Asia severely hit, although Australia and New Zealand were more positive.
The carrier said lower travel demand, an increased mix of transit passengers and the negative impact of a strengthening US dollar had placed passenger yields, a measure of the average fare paid per kilometer per passenger, under further pressure.
“We expect airfares to continue to fall in coming months as Cathay struggles to maintain load factors within reasonable bounds,” BOCOM International analyst Luya You said, in reference to a measure of the percentage of seats filled. “In terms of earnings, the second half may be notably dismal considering plummeting yields across all classes.”
Transit passengers are typically less lucrative for airlines because they face competition from more rival carriers than for non-stop flights, which places pressure on pricing.
The load factor fell by 7.2 percentage points to 79.9% in August, Cathay said. The amount of cargo carried fell by 14% amid a weak global market for air freight and the effects of tropical storms and disruptions at Hong Kong airport.


UK offers Huawei limited role in 5G networks

Updated 11 min 28 sec ago

UK offers Huawei limited role in 5G networks

  • Deal with ‘high-risk’ supplier sets up clash with US over security concerns

LONDON: Britain has decided to let Chinese tech giant Huawei have a limited role supplying new high-speed network equipment to wireless carriers, ignoring the US government’s warnings that it would sever intelligence sharing if the company was not banned.

Britain’s decision is the first by a major US ally in Europe, and follows intense lobbying from the Trump administration as the US vies with China for technological dominance.

It sets up a diplomatic clash with the Americans, who claim that British sovereignty is at risk because the company could give the Chinese government access to data, an allegation Huawei denies.

“We would never take decisions that threaten our national security or the security of our Five Eyes partners,” Foreign Secretary Dominic Raab said, referring to a security arrangement in which Britain, the US, Australia, Canada and New Zealand, share intelligence. “We know more about Huawei and the risks that it poses than any other country in the world.”

The decision was awkward for British Prime Minister Boris Johnson, who risks the fury of one of Britain’s closest allies at just the moment it needs the Trump’s administration to quickly strike a trade deal after Brexit. Britain officially leaves the EU at the end of the week, and US Secretary of State Mike Pompeo is due to pay a two-day visit to meet with Johnson and Raab to reaffirm the tran-Atlantic relationship.

A senior Trump administration official said the US is disappointed by the decision, adding that the US government would work with the UK on a “way forward” that leads to the exclusion of “untrusted vendor components” from 5G networks. The official was not authorized to comment on the sensitive diplomacy between longstanding allies and spoke on condition of anonymity.

In its decision, the British government said it was excluding “high-risk” companies from supplying the sensitive “core” parts of the new fifth-generation, or 5G, networks. The core is the brain that keeps track, among other things, of smartphones connecting to networks and helps manage data traffic.

But Britain will allow high-risk suppliers to provide up to 35 percent of a carrier’s less risky radio network, based on factors including the amount of data traffic and the number of base stations.

The announcement did not mention any companies by name but said “high-risk vendors are those who pose greater security and resilience risks to UK telecoms networks” — a clear reference to Huawei.

Huawei said it was reassured by the “evidence-based decision,” portraying it as a victory. Executives said 35 percent of a market would be a good result for most companies.

“We need to have strong competition to make sure the consumer can enjoy the best possible technologies,” Vice President Victor Zhang said on a conference call with reporters.

By giving Huawei limited access, Johnson’s government is attempting to thread a path between the US and China, analysts said.

“In truth the UK had little room to maneuver,” said Emily Taylor, CEO of Oxford Information Labs, a cyber intelligence company. The decision “seeks to carve an acceptable middle ground that will keep various contending forces happy,” she said, noting that British wireless carries have already been using Huawei gear for 15 years.

The 5G technology is expected to drive the next wave of innovation, transmitting massive amounts of data from more objects and locations. It would, for example, help make possible self-driving cars or remote surgery.

Huawei is the top global supplier of mobile networks, and it’s considered a cost-effective and high-quality alternative to its main rivals, Finland’s Nokia and Sweden’s Ericsson.

The US says that China’s communist leaders could, under a 2017 national intelligence law, compel Huawei to carry out cyberespionage. The US has threatened repeatedly to cut off intelligence sharing with allies that use Huawei.

“Here’s the sad truth: Our special relationship is less special now that the UK has embraced the surveillance state commies at Huawei,” said US Sen. Ben Sasse, a Republican on the Senate Select Committee on Intelligence. “During the Cold War, Margaret Thatcher never contracted with the KGB to save a few pennies.”

With 5G, US officials also worry that because the “core” will run extensively on software, it could be nearly impossible to spot an accidental vulnerability or a malicious “backdoor” among millions of lines of computer code. Huawei denies the allegations, saying there has never been any evidence it is responsible for a breach.

For Britain, the 5G infrastructure program is considered critical as it leaves the EU and aims to position its economy to benefit from technological innovation.

The government said Tuesday it is taking some steps that will allow it “to mitigate the potential risk posed by the supply chain and to combat the range of threats, whether cyber criminals, or state-sponsored attacks.” The plans include encouraging smaller suppliers such as South Korea’s Samsung and Japan’s NEC to enter the British market.

The government will draft legislation to make the security requirements mandatory. In the meantime, cybersecurity officials will advise wireless carriers, some of whom have already installed Huawei 5G-capable gear that exceeds the 35 percent cap, on how to comply.

Mobile phone companies said they were analyzing the decision. Vodafone, which uses Huawei for parts of its radio network but not in its core, said that using multiple suppliers “is the best way to safeguard the delivery of services to all mobile customers.”