Cathay Pacific announces biggest loss since 2003
The world’s largest international air-carrier, Cathay Pacific Ltd huge losses of HK$935 million ($121 million) for the first six months of 2012, in its worst half since 2003.
Cathay’s losses reflect a decline in the use of air freight internationally. The latest in a long line of struggling air carriers, Cathay claim their core business was ‘significantly affected by the persistently high price of jet fuel, passenger yields coming under pressure and weak air cargo demand’ – a factor common across the aviation industry.
The loss compares to profits of HK$2,808 million in the first half of 2011, and saw a loss per share of HK28.3 cents. Associated companies such as Air China also showed a marked decline.
Cathay have introduced a number of measures designed to protect its business, such as schedule changes, capacity reductions and the withdrawal of older, less fuel efficient aircraft. In addition, it has implemented a recruitment freeze, and has introduced voluntary unpaid leave for cabin crew.
Cathay assures that it’s ‘network will remain intact’, and is planning to continue with investments, including the purchase of 19 new aircraft, it’s new HK$5.9 billion cargo terminal at Hong Kong International Airport.
“Aviation will always be a volatile and challenging industry and our business will always be subject to factors, including economic fluctuations and fuel prices, which are beyond our control. The cost of fuel is the biggest challenge, although the recent reduction in the fuel price will, if sustained, provide welcome relief,” explained Cathay Pacific Chairman Christopher Pratt.
“We will continue to take whatever measures are necessary to protect the business, managing short-term difficulties while remaining committed to our long-term strategy. Our financial position remains strong and we are in a good position to deal with our current challenges. We will continue to invest in the future, using our core strengths – a superb team, a strong international network, exceptional standards of customer service, a strong relationship with Air China and our position in Hong Kong – to ensure the continued success of the Cathay Pacific Group.”
There has been speculation that the expansion of new budget airlines has contributed to a decline in passengers, however John Slosar, Cathay’s Chief Executive, denied that this is the case: “The fact that people are setting up a lot of [budget] airlines doesn’t necessarily mean they are successful,” Mr Slosar told the Financial Times.
Driver shortages: Why the industry needs to be worried
While driver shortages are a global problem, with a recent survey from the International Road Transport Union suggesting that driver shortages are expected to increase by 25% year-on-year across its 23 member countries, the issue has very much made itself felt for UK businesses in recent weeks.
A perfect storm of factors, which many within the industry have been wary of, and warning about, for months, have led to a situation wherein businesses are suddenly facing significant difficulties around transporting goods to shelves on time, as well as inflated operating costs for doing so.
What’s more, the public may also see price rises as a result due to demand outmatching supply for certain product lines, which in turn brings with it the risk of customer dissatisfaction and a hit to brand and stakeholder reputation. Given that this price inflation has been speculated to hit in October, when the extended grace period on Brexit customs checks comes to an end, the worst may be yet to come.
"Steps must be taken to make a career in the industry a more attractive proposition for younger drivers, which will require a joint effort from government, industry bodies, and the sector as a whole"
That said, we have already been hearing reports of service interruption due to lack of driver availability, meaning that volumes aren’t being transported, or delivered, to required schedules and lead times. A real-world example of this occurred on the weekend of 4-6 June with convenience retailer Nisa, with deliveries to Nisa outlets across the UK affected by driver shortages to its logistics provider DHL.
But where has this skills shortage stemmed from?
Supply is the primary issue. Specifically, the number of available EU drivers has decreased by up to 15,000 drivers due to Brexit alone, and this has been further exacerbated by drivers returning to their home country during the COVID-19 pandemic, as well as changes to foreign exchange rates making UK a less desirable place to live and work. This, alongside the recent need to manage IR35 tax changes, has also led to significant inflation in driver and transport costs.
COVID-19 complications have also meant that there have been no HGV driver tests over the past year, meaning the expected 6,000-7,000 new drivers over the past year have not appeared. With the return of the hospitality sector we understand that this is a significant challenge with, for instance, order delivery lead times being extended.
It is little surprise, therefore, that the Road Haulage Association (RHA) earlier this month became the latest in a long line of industry spokespeople to write to the government about the driver shortage for trucks. The letter echoed the view held by much of the industry, that the cause of this issue is both multi-faceted and, at least in some aspects, long-standing.
So, many in the industry are in agreement as to the driving factors behind this crisis. But what can be done?
Simply enough, outside of businesses completely reorganising their supply chain network, external support is needed. In the short-term, the government should consider providing the industry with financial aid, and this can also be supported more widely with legislative change.
Specifically, immigration policy could be updated to place drivers on the shortage occupations list, which would go some way towards easing the burden created by foreign drivers returning to their home countries. Looking elsewhere, government should also look for ways to increase the availability of HGV driver tests after the blockage created by the coronavirus lockdowns.
Looking more long-term, steps must be taken to make a career in the industry a more attractive proposition for younger drivers, which will require a joint effort from government, industry bodies, and the sector as a whole. As it stands, multiple sources suggest that the average age of truck drivers in the UK is 48, with only one in every hundred drivers under the age of 25. We must therefore do more to increase the talent pipeline coming into the industry if we are to offset more significant skills shortages further down the line.
On the back of a turbulent year for the supply chain industry, it has become increasingly clear that the long-foretold shortage of drivers is now having a tangible and, in places, crippling effect on supply chains.
Drivers, and the wider supply chain industry, have rightly been recognised for the seismic role they played in keeping the nation moving and fed over the past year under unprecedented strain. If this level of service is to continue, we must now see Government answer calls to provide the support the sector needs, and work hand-in-hand with the industry to find a solution. If we do not see concrete action to this effect soon, we are likely to be in for a turbulent few months.
Rob Wright is executive director at SCALA, a leading provider of management services for the supply chain and logistics sector