Management

David Fickling is a Bloomberg Gadfly columnist covering commodities, as well as industrial and consumer companies. He has been a reporter for Bloomberg News, Dow Jones, the Wall Street Journal, the Financial Times and the Guardian.

It's a highly choreographed event in which the future leaders of a secretive Chinese institution are announced to the world via a complex internal formula.

No, not Beijing's upcoming Communist Party congress, which traditionally appoints the new leadership -- we're talking about Cathay Pacific Airways Ltd.'s succession plan.

The appointment Wednesday of Rupert Hogg to follow Ivan Chu as chief executive officer has been a lock-in for three years, ever since he was named chief operating officer at the same time Chu was elevated to the top job. Since Philip Chen took the mantle in 2005 -- the first ethnic Chinese boss since the carrier was founded in 1946 -- every single CEO has done an apprenticeship as COO before serving in the most senior role for about three years.

Career Path
The road to chief executive of Cathay Pacific is long, but oddly predictable
Source: Company reports, Bloomberg

The training to become a Cathay CEO starts even earlier than that. If you want to know who's going to be running the carrier when Hong Kong is subsumed into China in 2047, check this year's intake at Cathay's controlling shareholder, the private British conglomerate John Swire & Sons Ltd. All five of the past CEOs had put in about three decades at the group before being elevated to the airline's top job.

There are benefits to certainty. Hogg has been a member of the executive, management and finance committees since 2014, and has often spoken for the airline in the way a CEO would at a different company. As a result, there's no need for a transition period.

There are drawbacks, too. Certainty is all very well, but what Cathay Pacific desperately needs is change.

The carrier posted its first annual loss since 2008 last month, and analysts expect the red ink to bleed into the current fiscal year too. Six months after Cathay junked its profit outlook and announced a "critical review" of the business, the clearest indicator of its turnaround plan has come not from the company but from shareholder Air China Ltd. The latter's chief financial officer told Bloomberg last month that Cathay would cut HK$4 billion ($515 million) in costs over three years.  

Fallen Giant
Cathay Pacific just posted its third loss since 1990. It's headed to a fourth
Source: Bloomberg

To be sure, there's a hint of a thaw in Wednesday's announcement. Incoming COO Greg Hughes looks to be heir-presumptive for the next coronation in March 2020, but unlike his predecessors he has a rival. Paul Loo, a former general manager of Cathay's China business, will also report to Hogg and take charge of customer and commercial relationships. Such creative tension in the top ranks is a welcome tonic for such a staid business.

A more radical regime change would have been better. James Hogan, CEO of Etihad Airways PJSC since 2006 as the company has built itself into a global force, is leaving the Abu Dhabi flag carrier later this year amid a review of its strategy. His knowledge of Gulf aviation would give Cathay insight into a region that's a primary threat, while his expertise in building alliances would be a boon for a carrier that's suffered from an unwillingness to deepen links with rivals.

EasyJet Plc chief Carolyn McCall, who's been in the job for seven years, might also be worth poaching. Cathay desperately needs to cut costs and reshape itself on the shorter-haul routes where it's likely to be most competitive. McCall has managed to narrow the cost gap with rival budget carrier Ryanair since taking over in 2010, and Cathay could learn from her willingness to give up market share to focus on more profitable routes.

Trimming the Fat
Carolyn McCall has managed to bring EasyJet's costs closer to arch-rival Ryanair
Source: Bloomberg
Note: Shows non-fuel costs per ASK. ASK = available seat kilometer, the distance flown by planes multiplied by the number of available seats.

There's even Qantas Airways Ltd.'s Alan Joyce, who's led that airline to a revival after a Cathay-style cost crisis earlier this decade. Qantas CEOs are typically kept in the job for 10 years, and he'll hit that milestone in 2018.

Whatever happens, Cathay needs to adopt a sense of urgency over its fate. Within its four-hectare headquarters campus known as Cathay City, all attention is now focused on the accession to the carrier's Dragon Throne. Beyond its walls, an aviation revolution is brewing.

Change will come to Cathay Pacific. The Swire dynasty needs to decide whether to greet it, or be steamrolled by it.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

  1. It's also announced a target of cutting 30 percent of employee costs at its Hong Kong office, but that's unlikely to be a game-changer. The company has just 557 non-flying employees at salaries above HK$1 million (typical of senior professionals in Hong Kong), out of a total 24,603 staff, according to its 2015 annual report.

To contact the author of this story:
David Fickling in Sydney at dfickling@bloomberg.net

To contact the editor responsible for this story:
Matthew Brooker at mbrooker1@bloomberg.net