Cathay Pacific has struggled financially prior to the disruptions in Hong Kong. Why doesn’t the airline turn to the US credit card market for liquidity?
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Cathay Pacific Has Been In Financial Trouble For Years
Cathay Pacific has struggled in the last few years. They recently acquired HK Express but have consistently shown losses as of late. Bad fuel hedges ended a 71-year profitable run. Then Cathay had to phase out its aging long haul fleet; once through those two hurdles, they struggled against LCC competition at Hong Kong International Airport, where they are the largest airline. Finally, they are experiencing a pinch caused by protests which have deterred non-essential business travel and tourism.
But this is nothing new. They have cut some long-haul flights and frequencies, dialing down their winter schedule to North American destinations.
Cathay Doesn’t Fully Utilize Their Bank Relationships
Cathay Pacific is an American Express Membership Rewards and Citi ThankYou Points transfer partner. They also have a credit card they sell from Synchrony Bank which has a 58,000 point bonus (30k Asia miles after $2k in spend, then 20k more when you spend $8k in the first six months.)
Asia Miles doesn’t have a great award chart. For the same annual fee ($95/year) one could sign up for a fellow member of the oneworld alliance, Alaska card which offers a 40k signup bonus. The same $8k in spending will leave applicants just $2k away from a one-way in business on Cathay Pacific with Alaska as opposed to $7-12k away on their own card. Not only could Cathay Pacific increase their signup bonus, but they could work toward emphasizing their banking relationships and driving up interest in their cards especially in North America where the Marco Polo Club struggles but affinity cards perform well.
Other Foreign Carriers Have Succeeded in This
British Airways is one of the best examples of a foreign carrier that utilizes US credit card relationships. They frequently offer transfer bonuses through both American Express Membership Rewards, Chase Ultimate Rewards and enhancing their own card offering through Chase. Additionally, British Airways promotes travel on their own metal by giving attainable incentives like a free companion ticket after $30,000 in spend on their co-brand card annually.
Avianca sells its Lifemiles for outright purchase but has also hit the market hard with a reasonable award chart, and good signup bonuses. Their $59/year card offers 40k miles and their $149/year Vuela card makes 60k Lifemiles available amongst other incentives to use the card.
Follow The Model
American Airlines is a mileage program, not an airline that is in the business of making money from selling tickets. Delta pocketed a billion dollars from their American Express seven-year deal. United is lagging behind with a deal in the low hundreds of millions but will re-negotiate in the near future for a better deal in the coming year.
Cathay Pacific should follow the US model (or BA) and actively sell their miles to banks with big incentives with almost no cost. Through three quarters of 2018, American Airlines had booked $1.8bn in credit card mileage sales. Cathay Pacific lost $162MM and $74MM USD in 2016, and 2017 respectively.
Now is the best time for the carrier to work with partners like AMEX and Citi for attractive bonuses to drive up transfers to Asia Miles. Load factors are low, and the carrier only has to release seats they choose. If flights fill back up, they can limit the availability but keep the money.
Cathay Pacific faces a particularly unique challenge with limited load factors and their single city/single hub focus. While they have the levers in place to turn on nearly cost-free revenue and negate losses, the carrier hasn’t done so to date, but should.
Frequent flyers who fly the carrier in premium cabins (Premium Economy Class, Business Class, First Class) swear by the airline for its product and service, introducing others to Cathay Pacific through a more aggressive credit card model may make more fans and customers.
What do you think? Are transfer bonuses, credit card sign up bonuses and re-worked banking relationships a valid method for Cathay Pacific to remain profitable despite political headwinds?
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Huh?! Cathay – Hong Kong – PRC. And you suggest they turn to United States financial institutions ?! After what happened to Huawei?!
Are you sure you’re all right?
hong kong is completely unique from the PRC in terms of finance and business institutions. Not a good example lol.
They should just merge with a Chinese carrier.
They may happen anyway.
Interesting outlook, but the Alaskan cc does seem like a better approach. I got the CX cc several months back with a better signup bonus and am slowly working my way to enough miles – 120K 🙁 – for 1St class somewhere to or from HKG 😉
In the meantime I’ve booked JFK-HKG for next March (RTW20 1.0) as the start of my Qatar double A380 1st Class using 70K AS miles 🙂
It sounds like you have a plan Bill, and you are on your way. My post is simply suggesting that they put their foot on the accelerator a little bit heading into the headwinds they are encountering right now. You’re a perfect example, already intrigued by another airline’s credit card to fly their great product. If they temporarily increased their spending bonus from say 1x on normal purchases to 2x, or 3x on travel purchases, you may make the CX card your primary.
Please not. It is probably nice for US persons to collect CC bonuses and enjoy free rides in big seats. However this is eating redemption seat capacity away from those who have to actually earn their miles by flying – this applies to the about 95% of non-americans on this planet.
We are talking about frequent flyer loyalty schemes here, not about schemes where banks and CC providers artificially keep operationally insolvent and poorly managed airlines afloat. As eg AA.
I won’t say anything about what US airlines do to keep their books balanced but please do not suck non-US airlines into this mess.
A few differences, 1) Cathay already participates with their own US credit card and membership in two US travel currency programs – they just aren’t very active in them. My point is that if they are going to participate, go full boar. It’s like a starving person going to a buffet, but deciding just to eat crackers.
2) Cathay Pacific has no shortage of available premium redemption seats right now. They can of course always turn this on or off as they choose so it really wouldn’t have an effect on those trying to find space.
3) I have zero disagreement regarding American Airlines and have written as much many times.
Tx Kyle. I see your point, doing it half hearted won’t help them.
I was not so much referring to CX availability but more generally to OW availability. As non-american I immensely dislike those fat CC bonuses. Having said that I am realistic enough to know that I would make use of it had I been an american.
You’ve deleted my comments that was not inline with your view. Wow! Anti criticism are we?
One of your previous comments (in addition to being unclear and illogical) used profanity. If the comment doesn’t make sense and uses profanity we will delete it. It should have never been approved in the first place.
We welcome disagreement which is why other comments you left remain active.