Cost cutting alone won't turn Cathay's fortunes around

The challenges facing Cathay Pacific aren't unique to the Hong Kong flag carrier. Several Asian airlines, including Singapore Airlines and Thai Airways, are in need of a major overhaul to combat falling earnings.

Japan Airlines - once the symbol of that country's economic might - underwent a protracted state-backed restructuring exercise after filing for bankruptcy protection in 2010. Cathay's problems are considerably simpler and less threatening than those that brought the Japanese flag carrier to its knees.

Earnings of the Hong Kong airline - a publicly listed unit of property conglomerate Swire - took a big hit last year, mainly as a result of having misjudged the fuel-price trend. But, the company management said the airline is facing mounting competition, especially in the more lucrative long-haul flights operated by various Chinese mainland and Middle Eastern carriers.

Airline analysts say Asian budget airlines are also making big inroads into the regional route markets that were once dominated by the major carriers.

To stay afloat, Cathay has taken the most obvious step - a drastic staff retrenchment program to achieve target savings of HK$4 billion within three years. It has also vowed to increase the number of seats on its aircraft to lift capacity.

Apparently, the airline thinks that economy-class passengers are more concerned with pricing than in-flight service in which Cathay is widely known to excel. But, some airline analysts have questioned if giving up the advantage that has taken the airline so many years to build up to compete with its rivals is a wise move.

One commentator described Cathay's move as "suicidal", branding it "death by a thousand cuts". He must be among the airline's horde of loyal customers who have been spoilt by the airline's service even in economy class.

Investors, however, are apparently taking a different view. A stock analyst predicted that Cathay will be back in the black in no more than two years, and even made a "buy" recommendation for its shares at the current low prices.

But, there's really no hurry to do so at this juncture. Cathay has yet to reveal the details of its restructuring. Cost-cutting alone is not going to turn its fortunes around.