Cathay Pacific Soars Ahead

Growth over the past few years has been endemic throughout Asia. There are a number of reasons for this. Firstly, the past half decade has seen a consistently high level of economic growth and stability throughout the world. The fact that the stock-market crash of October 1987 merely faded away within a few weeks of its dramatic arrival is proof that the economic world we nowadays live in is a far more rational, resilient and interconnected being than it was perhaps a half century ago. More latterly, the cessation of the 8 year old Gulf War has led to further long-term price stabilisation, indeed further reductions, in the cost of oil (for every US$1 a barrel fall in the price of crude, airlines like Cathay save around $90m a year!). In addition to cheaper fuel, which equates to stabilised international air fares, the building boom that is set to boost Gulf traffic by at least a third over the coming year will see a steady stream of specialist workers again travelling from the Orient to the Arabian Gulf.

Finally, tourism internationally has gone into overdrive with Asia being a number one destination in itself. And what is now more relevant perhaps is that Asia itself is now travelling. The populations of both Taiwan and South Korea are now able to travel freely and their recently created affluent middle class is wanting to do just that. Japan, not to be outdone, and looking at every means possible to balance its embarrassingly one sided foreign exchange ledger is promoting the prospect of 10,000,000 Japanese leaving the country annually at least once by 1990. Put all this together and you have annual growth in figures never before even dreamt of, let alone envisaged, by even the most positive of thinkers. So where did this begin?

It was back in 1946 that Australian Syd de Kantzow and American Roy Farrell teamed up with a single war surplus C-47 Dakota to serve the emerging air routes of Asia from a base in Hong Kong. The fledgling carrier grew rapidly and by 1948 growth was so great that Kantzow and Farrell had to sell the air line to the then Butterfield & Swire group (renamed John Swire & Sons in 1974) in order to ensure adequate finance for its fleet aspirations. The two men had come a long way since flying the infamous Burma Hump during World War 2 and were now able to see their airline dream take wing under the patronage of one of Asia’s largest and most influential trading houses.

Thus commenced an era of growth cemented on strong corporate foundations that would see the fledgling Hong Kong based carrier expand into modern aircraft, terminals and maintenance facilities. In 1949 Cathay acquired its first DC-4, in 1955 its first DC-6 and in 1959 its first Lockheed Electra. This was the first turbine powered aircraft operated by Cathay and its relatively high cruising speed allowed the expansion of the route network to again include ports as far afield as Sydney, Calcutta and Tokyo.

Dramatic changes were taking place in the industry at this time and to meet them Cathay ordered its first jetliner, the Convair CV880, in 1961. The first of eventually 8 CV880 jets entered CX service the following year and immediately proved an immense hit with both crews and passengers alike. Historically the Convair jet will always be known by those who flew her as one of the finest aeronautical engineering achievements of the period. The CV880, though a gas guzzler in the extreme, was a delight to fly and was built more to military specifications in terms of design integrity and handling qualities. The Convairs soldiered on successfully for more than a decade only to be economically eliminated with the onset of the 1973 oil shock. A price rise of more than a thousand percent for jet fuel in less than a year was too much for the 880 which seated around 50% less passengers than the 707 but actually had a similar fuel burn! Cathay had again moved with the times and had ordered their first Boeing 707-3208 in 1970 for an eventual fleet Which was to number 12 aircraft and provide the backbone of the CX long haul fleet through the turbulent seventies.

Right through this era the Hong Kong based carrier remained largely profitable. Basic operating philosophy was to maintain a fleet of the most technically advanced aircraft as was possible while ensuring that growth was only into guaranteed profitable markets. Even today Cathay will only enter a new market if it can base its traffic aspirations purely upon business traffic. As an example of this, CX presently has rights to serve Honolulu but looks unlikely to exercise them as it is primarily interested in the higher yield and more frequent travelling business executive than the once only deep discount holiday-maker. This policy is borne out as a long-term winner by the fact that Cathay’s business/leisure traffic share is roughly 50:50 while roughly two thirds of its revenue base is generated by the corporate sector. Thus not being able to afford the luxury of state backing and operating deficits, Cathay Pacific remained restrained in its overall market expansion approach preferring to specialise in servicing Hong Kong to the world in a manner unmatched by any competitive airline.

Growth through the sixties had averaged around 20% per annum, with the onset of the mid-seventies recession and continuing oil shocks this dropped to around 10% though still comfortably exceeded the international average. Such growth however required the introduction of wide bodied equipment to augment the expanding 707 fleet. After long deliberation Cathay chose the Lockheed L. 1011 Tristar, an aircraft of almost twice the capacity of the 707 but also able to uplift a considerable relative freight load. The introduction of the Tristars allowed Cathay to further expand its route structure to Australia, throughout Asia and the Middle East. It was only a matter of time before the British owned carrier would serve the UK and Europe in addition to North America in the west.

That time came in 1979 when Cathay acquired its first Boeing 747-200B. The 747 meant that Cathay could now operate the very long haul routes that it was unable to serve with the medium range Tristar. Services to London commenced in 1980 and to Vancouver in 1983. Today the airline serves 37 cities in 25 countries with more than 700 flights a week. Indeed a far cry from that first flight back in 1946 in a war surplus Dakota.

The modern day flagship of the CX fleet is of course the Boeing 747. At end of 1988 the carrier operated a total of 17 747s comprising 6 of the extended upper deck -300s, 8 -200s and 3 Freighters. Set for delivery this year are the first 3 of an initial requirement of 9 747-400s with the first entering revenue service this May. Thereafter Cathay plans on adding 2 -400s to its fleet each year though if growth continues at present levels, this may well be accelerated to accommodate the extra capacity required till a Tristar replacement is in service. These ultra long-range aircraft will take much of the load off the long haul versions of the -200s and greatly increase the operational efficiency over the very long haul services which Cathay has trail blazed in recent years.

When writing about the 747s it is difficult not to pass some comment on the ultra long haul route that the type has operated since 1984 to London and Europe. This is a truly unique service in that it overflies the USSR for more than five hours in addition to passing over nine other countries on its 6,262 nautical mile odyssey. This, for the sake of comparison, is around 250nm less than the Qantas/United 747SP Sydney/Los Angeles run and around 400nm more than a direct track from Heathrow to Singapore as operated by Singapore Airlines and perhaps ultimately by Qantas. What does make the CX run different though is that often the aircraft is payload limited out of Hong Kong, which by any yardstick is not an ideal port from which to embark upon an ultra long-range sector. Kai Tak’s single runway could always be longer; in summer the temperatures are high and if the wind is from the wrong direction; then an immediate hard climb out over the hills and suburbia of Hong Kong necessitates nothing less than every available ounce of power from those four Rolls Royce turbofans.

Australian Aviation was fortunate to recently undertake one of these flights to see first-hand what was involved on such a long haul mission. Cathay presently has its -200Bs using the more powerful D4 engines flying this sector as the lesser thrust -300 aircraft simply cannot uplift sufficient fuel to feed their thirstier engines for the distance involved. General improvement in fuel burn per flight hour at cruise is in the region of 8% for the more powerful RB211-524D4B engines. The 58,000lb thrust 524G engines on the -400, plus the types improved aerodynamics, will further reduce fuel burn per seat kilometre over the -200s by around 20% in addition to not being payload limited. This equation of fuel consumption to power developed is interesting as each successive model of engine burns less fuel while producing more thrust and generally with enhanced standards of reliability and longer periods between major overhaul.

For the London non-stop, Cathay use the -200s full 833,000lb max takeoff weight capability with absolute maximum fuel capacity. In summer the carrier still uplifts its maximum available passenger load while offloading freight as the situation requires. Again another problem due to the heat is the effect of fuel expansion at Hong Kong which can limit the 747-200 to only 160 tonnes instead of the 164 it could typically take on in a cooler environment.

The flight departs Hong Kong and heads southwest over China passing close to the North Vietnamese border region on its course towards Burma and Calcutta before vectoring across northern India to pass south of Delhi and onwards to Pakistan. The flight then heads northwest to cross into Afghanistan and ultimately the USSR to pass south of Moscow before heading west towards the Baltic Sea, across Denmark, Belgium and eventually into London Gatwick. It is interesting to note that if the flight followed the Great Circle route, its distance would be only 5,200nm or 1,037nm less than it actually is.

The flight cannot presently follow this routing though as both the PRC and the USSR forbid aircraft to enter their airspace from either country without first approaching from a ‘neutral’ nation. This is why Cathay Pacific have to vector south of Nepal across northern India, Pakistan and through Afghanistan before entering Soviet airspace. Talks though are currently· underway between all the parties involved, via ICAO, in an attempt to amend this cross-border restriction. It may well be of little practical value to Cathay though as they would then have to directly overfly the Tibetan plain, an area extending over much of southern China and reaching as high as 20,000ft in places. An onboard emergency or cabin decompression would see the aircraft unable to descend to what would be termed a safe operating altitude while the effects of heat loss within the cabin, and the need to carry an enormous reserve of oxygen, would virtually make this a non viable option. Tracking northwards across northern China would not save much time either and would also have the aircraft operating in a particularly remote environment for much of its journey. To cope with the USSR sector, the flight is given a Soviet air defence recognition number while Cathay, like most western carriers, nowadays flies its night-time sectors displaying full logo lighting as an added precaution against visual misidentification.

After takeoff the 747 climbs to 29,500ft. An altitude it will hold till it burns off sufficient fuel to continue slowly to its projected maximum cruise altitude of up to 41,000ft. The effects of altitude and weight are indeed telling in terms of fuel consumption. Departing at maximum weight and generally limited to below 30,000ft; the 747 will gulp 14,200kg of fuel per hour in comparison to the latter stages of the flight at say 39,000ft and more than a hundred tonnes _lighter where fuel burn will be more like 8,500kg per hour! Other interesting aspects of fuel conservation revolve around cruise altitude and speed. For every 3,000ft below its best cruise altitude the aircraft burns an additional 2% fuel while fuel consumption increases by 4% if the aircraft cruises at Mach 0. 860 instead of the optimum 0. 835 – a difference of a bare 15kts in a cruise speed of about 550mph! Regarding altitude and fuel efficiency it is also often a problem flying in either Soviet or Chinese airspace where ATC clears aircraft to cruise altitudes in metres instead of feet. Hence while a heavily laden 747 might be able to step up one or two thousand feet, and thus greatly improve its fuel burn or perhaps reduce a headwind component the requirement to climb a straight 1,000m is almost impossible in most cases and thus damns the aircraft to a more expensive and perhaps slower transit than would possibly be the case in Western airspace.

The flight to London generally takes between 12 and 13 hours depending upon the headwind component while the reverse sector usually enjoys a time saving due to the effect of tailwind. In true workhorse form, the Boeing is turned around in about 3 hours at Gatwick’s new North Terminal for its return flight. For a period of 29 hours the Boeing will be airborne for around 26 hours providing transport from one side of the world to the other for over 800 passengers and many tonnes of freight. Average daily utilisation of the 7 4 7passenger fleet is 13. 9hrs, one of the highest in the business.

Looking after this 30 unit fleet is the Hong Kong Engineering Company Ltd (HAECO), the Swire Group’s maintenance and engineering facility which looks after all of Cathay’s requirements. HAECO though derives only around half of its business revenue from Cathay, the other half comes from serving the diverse and specialist requirements of more than two dozen airlines in addition to re-engineering Yun-7 and Yun-12 commuter aircraft in partnership with the PRC. Like Cathay, HAECO is also riding the crest of a fiscal wave and for the first half of ’88 posted an operating profit 37% higher than for the same period of 1987.

. So what of the future? It is indeed difficult to visit Hong Kong and not become involved in discussion on the implications of the People’s Republic of China absorbing the colony come 1997. Many foreigners and even ethnic Chinese fear this though the majority see it as a positive move that won’t alter the way things occur within the corporate enclave of Hong Kong to any great extent.

Certainly the last thing China wants is a destabilisation of the Hong Kong marketplace. To China, Hong Kong is the fiscal Magic Kingdom that will not only make a great difference to China’s economic well being through the next century but has already been actively doing so for several decades.

To this end the China International Trust & Investment Corporation (The PRC Government’s overseas investment arm) has already acquired a 12. 5% shareholding in Cathay Pacific Airways Ltd. Present ownership comprises Swire Pacific Ltd (50. 23%), The Hong Kong & Shanghai Banking Corp (16. 43%), CITIC (12. 5%), Hysan Development Company Ltd (2. 5%) and some 18. 34% remains on the open market. Demand for Cathay stock is such that in 1986 when the airline placed 20% of its stock on the open market, the stampede to invest was so great that the Hong Kong Stock Exchange had to be closed due to the rush for shares and the resultant destabilising effect it had on the entire Exchange, which incidentally is one of the world’s largest. An incredible US$6. 5bn flooded the market which makes PanAm’s Pacific Division sell off value of US$750m look sick by comparison!

From 1997 Hong Kong will become what the mainland Chinese term a Special Administrative Region where capitalism can flourish safe from the inverted dogma of traditional Communism. Many within Hong Kong though feel that by 1997 all of China (and perhaps most of the USSR and Eastern Europe also) may well be one big pseudo capitalist enclave so most resident Hong Kong Chinese feel confident about the future of what is the world’s busiest trading port.

No matter what, the future for Cathay Pacific is one hundred per cent bullish. . Load factors are high, yield is high, productivity is high and growth is consistently in double figures. Indeed, Cathay Pacific faces the future with the confidence that comes from being a true market leader.