14/08/2014 Asia Business Report

next month's referendum on Scottish independence. Now on BBC News, all

the latest business news, live from Singapore.

Soaring profits ` Cathay Pacific outperforms many of its rivals but

warns of challenges ahead. And the chief of one of YDL,

Malaysia's biggest companies, explains why they are stating family

run. `` staying.

Welcome to Asia Business Report. I'm Rico Hizon. They are one of this

region's most prestigious carriers and have turned in half`year profits

15 times greater than in the same period last year. Cathay Pacific,

based in Hong Kong, made $45 million and is predicting better

performances for the rest of the year.

Cathay Pacific flies more international passengers than any

other airline in Asia. Even so, it has been affected by a slump in

travel, especially in business and first class. To compensate, it has

been adding more flights to cities in America and heavily advertising

discounts to those locations. The strategy has clearly worked. Airline

passengers are starting to come back but aren't paying the sorts of fares

they were before, which is really hitting airline yields. As we saw

with the results today, they have added a number of flights but have

had to discount fares to fill up the seats. This has worked at OK for

them, they have raised their earnings, but what it has meant is

that they will have to look to raise those fares in the future.

The airline says it expects business to improve even further in the

second half of the year. But with rising competition from Asian rivals

like Air China and Singapore Airlines, it is difficult to make

more profit. One way is by cutting cost. Fuel is the airline's

number`one expense and costs have jumped by 5% compared to last year.

In response, Cathay Pacific has purchased five newer and more

fuel`efficient planes and plans to retire at about a dozen of its

ageing aircraft in three years, all in an effort to bring up earnings.

Earlier, I asked our correspondent about the competition airlines like

Cathay Pacific face from budget carriers. We have seen so many

distressing airline disasters but the reality is that air travel has

become a very commoditised business where even premium airlines, known

for their safety, are unable to command prices they used to. Here in

Hong Kong, Cathay Pacific, relative to other cities in Asia, is

relatively protected from budget carriers because at the moment there

is really only one other that is based in the city, Jetstar, the

Australian group. It is trying to start Jetstar Hong Kong but hasn't

received approval yet. It appears Cathay Pacific is aware of the

regional rivalries heating up and are looking to make their name in

long haul, which is why they have been adding so many flights to US

cities in the last few months. They are flying five times a day to New

York, four times to LA, and are adding another flight to Chicago.

They are really counting on travel booming between China and the US.

Briefly, tell us about their new plane orders and how it will help

boost fuel efficiency and earnings going forward.

That's right. It has announced that it is purchasing, or has ordered, 90

aircraft for a total of $27 billion and they will be taking delivery of

those planes over the next few years. It is mainly to boost their

long`haul flights and improve fuel efficiency. Staying with earnings

news, the world's largest PC maker Lenovo saw profits jump by 23%

because of higher smartphone sales. It grew to $214 million. Revenue

rose by 80%, with gains coming from Europe, the Middle East, Africa and

the Americas. South`east Asia's largest phone company has posted a

17% fall in profit because of currency fluctuations. SingTel

earned about $700 million in the three months until June, which is

below expectation. Revenue fell by more than 3% as its overseas units

like Optus in Australia faced stiffer competition.

South Korea's central bank cut interest rates for the first time in

15 months, a move widely expected by analysts. The Bank of Korea lowered

its key rate by 0.25% to try to stimulate more spending in the

economy. In Japan, core machinery orders rose in June, showing that

spending by businesses could be recovering. Orders rose 8.8% in

June, below forecast, but it was still an improvement from a record

19.5% drop in the month of May. The jury is still out on China's growth

prospects. Economic reports released on

Wednesday paint a mixed picture, despite recent attempts by the

government to stimulate the economy. Retail sales for July did rise by

12.2% from one year ago but still came in below analysts' forecasts.

Our Shanghai correspondent Johhn Sudworth went to the shops to tell

us more. As always with China, the economic data looks impressive but

the big question is whether it is impressive enough. The July figures,

in particular the retail sales, increase of 12.2% year`on`year and

the fixed asset investment up 17%, look like bumper numbers but

analysts suggest they are lower than expected. They are therefore a sign

of a weakening in this economy and raise concerns about meeting the

7.5% growth target for this year. Further stimulus is exactly the

opposite of what China wants. It wants to get away from investment

led growth to this kind of growth, consumer led spending and growth.

Much talked about, of course, but much harder to achieve in reality.

If you took the train from Kuala Lumpur airport to the city, checked

into a hotel and went shopping in the biggest shopping mall, chances

are many of the services you used would have been owned or controlled

by one single family. Malaysia's YTL, once a small company, is now a

conglomerate worth several billion dollars. We spoke with the managing

director and his strategy for the next generations. Trains, planes,

infrastructure construction. I would love to see a role construction

site, that tower crane will stop there is something raw and beautiful

about it. Construction and infrastructure. I like to see it

being made and I like to see it finished and when it is finished, I

like to see how it has changed people. Taking on the company was

never be difficult idea. My father was very smart. We would always test

a deal. He has a sense of wisdom and experience and common sense that is

uncanny. He wears his power very lightly and he is a gentle leader,

who delegates very early as a patriarch. In a similar manner, when

my brothers and sisters came back, I delegated to them and decided not to

hold power tightly. In my time, I have had six other siblings. There

are seven of us. So, in my time, I was really wanting them to come back

from college quickly and help me. There was so much business to do and

so few people that I could really count on to do them, so my brother

and sisters were very much welcome. In our studies, most of the

companies that collapse do so at the point when they grow exponentially

larger. We want to make sure that we do not suffer the same fate. Many

family companies do not survive because they cannot survive this

next generation. So, we have put together a legal trust that reminds

them of how we made it, what to do, what not to do, succession of

leadership, what to look for, and the principles of morality. All of

that is very strongly put in the institution. We put quite a lot of

our tangible barriers up to make sure that they never forget where we

came from. Future generations, I hope, will be able to sustain and

continue this creativity and will continue to be a force for good for

many generations to come. Before we go, a quick look at the markets.

Asian stocks are mostly in positive territory, rising in mid`morning

Thursday trade after US share prices gained overnight. This is despite

disappointing retail sales data in the US. Thank you for joining us.

Goodbye for now. This is BBC News. The headlines: The

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