After flying high in 2007, the aviation industry is heading for a downturn, according to Cathay Pacific’s John Slosar, as the US approaches a recession and the rising price of oil hits profits.
Speaking with BusinessDay during a recent Australian visit, Mr Slosar, Cathay Pacific’s chief operating officer, also said the airline would consider another joint bid with affiliate Air China in an effort to tie-up with Shanghai-based China Eastern and dominate the world’s second-largest aviation market.
In September, Air China and Cathay Pacific, which own 17.5% of each other, launched a bid for China Eastern, but political pressure is believed to have been the reason the pair backed away from the deal.
Earlier this month, Air China’s parent company, China National Aviation Corp, said it would offer at least $HK5 a share ($A0.72) but that the final price was yet to be decided. Cathay Pacific is not considered to be a particularly active partner in the current China Eastern bid.
“We had a bit of a go around last September,” Mr Slosar said. “It didn’t work out, for some reasons we know and probably some we may never know. At that point we said ‘fine, we will just get on with what we are doing’.
“CNAC has said ‘we will make an offer of at least $HK5’. They have apparently delivered that offer; we haven’t seen it.
“I think they are going to have some discussions. Air China have been our partner in China and if there ever comes a time when they want to talk to us, we will talk to them just as we did in the past. It really depends on how Air China and China Eastern resolve their issues.”
Mergers aside, Cathay Pacific says it expects growth of about 13% in 2008, but admits to having “one eye on the the state of the world economy and another on the price of oil”.
“The world economy going into a tank would not be great news for us,” Mr Slosar said. “You would have to say there is a good chance there will be some kind of slow down of economic activity although we don’t see it completely collapsing. We think Asia is going to be reasonably OK so we are feeling OK.
“However, I don’t think it will be the boom year that 2007 was. Maybe that means back to normal airline business, which will make it tougher and airlines won’t make as much money.
“We will watch closely how the subprime pain or the economic pain starts to bring back the number of people choosing to travel.”
The aviation industry was still being painted as the “carbon bad guy”, according to Mr Slosar, despite efforts to build more efficient planes and to cut the emissions level, which stands at about 2% of global emissions.
“We have completely failed to convince anyone or explain that to anyone,” Mr Slosar said.