Cathay Pacific Reports Record Loss

The Cathay Pacific Group has reported an attributable loss of HK$8,558 million in 2008, compared to a profit of HK$7,023 million the previous year. The 2008 result is a record annual loss for the airline.

Group turnover rose by 14.9% to HK$86,578 million in 2008. Business in the first six months of the year was generally strong, but extremely high fuel prices in the first half of the year and a plunge in both passenger and cargo demand in the second half as a result of the global financial crisis adversely impacted the financial results.

The price of aviation fuel reached new highs in July 2008 though prices fell significantly towards the end of the year. Fuel surcharges on cargo and passenger tickets only partially offset the additional cost incurred over the course of the year. The fall in fuel prices, though welcome, caused unrealised mark-to-market losses of HK$7.6 billion on fuel hedging contracts for the period 2009-2011 which were entered into in order to give a degree of certainty as to future fuel prices and protection against price increases.

Cathay Pacific and Dragonair between them carried 25 million passengers in 2008 – a rise of 7.3% on the previous year. Passenger revenue increased by HK$8,526 million largely as a result of strong demand in the first half. At the same time capacity increased by 12.7% due to the arrival of new aircraft and an increase in services to destinations in Australia, India and the Middle East. Demand from First and Business Class passengers was high until the summer but saw a sharp fall in the wake of the financial crisis. As a result of a strong first-half performance, passenger yield rose by 5.3% to HK$63.6.

The group’s cargo business in the first half was stronger than anticipated, but there was a rapid decline in the last quarter of the year as demand fell in all key markets. Cargo revenue for Cathay Pacific and Dragonair combined rose by HK$2,298 million while total tonnage carried fell by 1.6% to 1,644,785 tonnes. Capacity grew by 0.7% though services were trimmed in the second half of the year due to weakening demand. Higher fuel surcharges helped improve yield by 12.4% to HK$2.54.

As fuel prices soared in the early part of the year a number of measures were put in place to tackle the problem, including moving capacity to routes more likely to make money and continuing work to upgrade the fleet.

As the impact of the financial crisis in the second half of 2008 became clearer further measures were announced to limit the impact on the business, including revising downwards the original growth plans for 2009, disposing of the five Boeing 777-200 aircraft in the Cathay Pacific fleet, not renewing leases on two Airbus A330-300s and one Airbus A320-200 operated by Dragonair when they expire in June and October 2009, and taking three Boeing 747-400BCF “Boeing Converted Freighters” out of service – two from Cathay Pacific and one from Dragonair. In January 2009 the airline announced the suspension of the construction of the Cathay Pacific cargo terminal at Hong Kong International Airport for two years.

Cathay Pacific Chairman Christopher Pratt said, “Having made a painful adjustment to high fuel prices, the aviation industry now has to adjust to a severe economic downturn. Cathay Pacific expects an extremely challenging year in 2009. Passenger and cargo demand are expected to remain weak and, if fuel prices remain at their present levels, further losses on fuel hedging contracts will be incurred (although they will not be at the levels incurred in 2008 and the actual cost of fuel will be substantially lower than in 2008). Up to the end of February, unrealised mark to market losses on fuel hedging of HK$1.9 billion have been incurred in 2009, compared with HK$7.6 billion for the whole of 2008. The 2009 losses principally reflect reductions in the forward prices payable for fuel during the periods in which the relevant fuel hedging contracts will mature.”

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