Cathay Pacific Reports 2012 Interim Results

The Cathay Pacific Group has reported an attributable loss of HK$935 million for the first six months of 2012.

The loss compares to the profit of HK$2,808 million in H1 2011. The loss per share was HK23.8 cents as compared to the earnings per share of HK71.4 cents in 2011, while turnover for the period rose by 4.4% to HK$48,861 million.

In the first half of 2012, Cathay Pacific’s core business was significantly affected by the persistently high price of jet fuel, passenger yields coming under pressure and weak air cargo demand - factors common to the aviation industry as a whole. Profits from associated companies, including Air China, also showed a marked decline.

In response to these challenges, the Cathay Pacific Group introduced measures designed to protect its business, including schedule changes and capacity reductions, the withdrawal from service of older, less fuel-efficient aircraft, a recruitment freeze and the introduction of voluntary unpaid leave for cabin crew.

At the same time the group kept its network intact and continued with major investments – new aircraft, new products and its own HK$5.9 billion cargo terminal at Hong Kong International Airport – that will benefit the business in the long term.

Fuel remains the airline’s most significant cost. Fuel prices were at historical high during the first half of 2012 (although they decreased significantly at the end of the period) and this had a major impact on Cathay Pacific’s operating results.

In the first six months of 2012, the group’s fuel costs (disregarding the effect of fuel hedging) increased by 6.5% compared to the same period in 2011. Fuel accounted for 41.6% of total operating costs.

Managing the risk associated with high and volatile fuel prices remains a key challenge, and while the airline’s fuel hedging programme helps to mitigate the impact of fuel price fluctuations, with the fuel price remaining high for the past two years, realised profit from hedging activities in the first half of 2012 fell by 59.4% compared to the same period in 2011.

In the first six months of 2012, the passenger business of the Cathay Pacific Group was affected by pressure on yields against the background of increased fuel prices and higher operating costs.

Revenue for the period was HK$34,713 million, representing an increase of 9.2% compared to the same period in 2011.

Capacity increased by 6.9%, and a total of 14.3 million passengers were carried by Cathay Pacific and Dragonair in the first six months, which is a rise of 8.6% compared to the same period in 2011.

The load factor rose by 0.8 percentage points. Yield increased by 1.2% to HK66.1 cents.

Again, the high cost of fuel made it more difficult to operate profitably, particularly on long-haul routes operated by older, less fuel-efficient Boeing 747-400 and Airbus A340-300 aircraft.

The group’s cargo business was affected by continued weak demand in major markets.

Cargo revenue for the first half of 2012 was down by 7.6% to HK$11,897 million compared to the same period in 2011. Yield was down by 0.4% to HK$2.41. Capacity was down by 4.3%, while the load factor was down by 4.1 percentage points to 64.3%.

Demand for shipments from the group’s two key markets, Hong Kong and Mainland China, was well below expectations, though the introduction of new hi-tech consumer electronics products in March resulted in a temporary improvement.

The airline has continued to develop new markets where demand warranted doing so, introducing freighter services to Zhengzhou in March and to Hyderabad in May.

Six Airbus A350-900 aircraft were ordered in January. In August, the airline agreed to acquire 10 Airbus A350-1000 aircraft and to convert 16 previously ordered Airbus A350-900 aircraft into Airbus A350-1000 aircraft which has a bigger capacity and longer range.

The Cathay Pacific Group will take delivery of 19 aircraft in 2012 which will help to improve the operational efficiency of the fleet.

In view of their high operating costs when fuel prices are high, the retirement of the airline’s Boeing 747-400 passenger aircraft has also been accelerated. Three Boeing 747-400BCF freighters have also been withdrawn from service in order to reduce costs.

In May, Cathay Pacific announced its intention to reduce some passenger services on transpacific routes. This will enable fuel-efficient Boeing 777-300ER aircraft to operate on routes currently served by older less fuel efficient Boeing 747-400 aircraft.

The group has increased some services in Asia, where demand is relatively robust. Dragonair introduced or resumed flights to six destinations – Xi’an, Guilin, Clark, Jeju, Taichung and Chiang Mai – and will introduce flights to Kolkata and Haikou later in the year.

Cathay Pacific also continues to improve products and services in the air and on the ground. A new Premium Economy Class was launched alongside new long-haul Economy Class seats. The airline also continued to install its popular new Business Class on long-haul services.

Cathay Pacific Chairman Christopher Pratt said, “Aviation will always be a volatile and challenging industry and our business will always be subject to factors, including economic fluctuations and fuel prices, which are beyond our control. The cost of fuel is the biggest challenge, although the recent reduction in the fuel price will, if sustained, provide welcome relief. We will continue to take whatever measures are necessary to protect the business, managing short-term difficulties while remaining committed to our long-term strategy. Our financial position remains strong and we are in a good position to deal with our current challenges. We will continue to invest in the future, using our core strengths – a superb team, a strong international network, exceptional standards of customer service, a strong relationship with Air China and our position in Hong Kong – to ensure the continued success of the Cathay Pacific Group.”

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