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?
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?