Cathay Pacific reports 1H2008 Loss of HK$663 million

Cathay Pacific has reported a loss of HK$663 million in its 2008 Interim Results. This compares to a profit of HK$2,581 million in the first half of 2007. The big change in the company’s financial performance was entirely due to the relentless rise in the cost of jet fuel in recent months.

Group turnover rose by 22.6% over the same period in 2007 to HK$42,448 million, with a significant increase in both passenger and cargo revenue. However, ever-increasing fuel prices completely undermined the airline’s business, with the average into-plane fuel price increasing by 60% to US$132 per barrel. As a result the fuel bill rose from HK$10.55 billion to HK$19.31 billion, a climb of 83%.

Fuel as a percentage of total operating cost rose to 45.3% for the first half of 2008, compared to 33.6% this time last year. Cost per ATK increased to HK$2.79 while the cost per ATK without fuel increased by 2.4% due to strong foreign currencies and inflation driving up operating costs. The steep rise in fuel prices was not matched by the increase in fuel surcharges. The fuel surcharges approved by the Hong Kong Civil Aviation Department in the first half were less than half of the increased fuel bill and were significantly behind those charged by many of Cathay's major international competitors.

Passenger revenue for the Cathay Pacific Group increased by 21.9% to HK$25,566 million and the group’s two airlines, Cathay Pacific and Dragonair, carried a total of 12.5 million passengers in the first six months of the year – a rise of 13.7% over the same period in 2007. This compares to a capacity increase of 14.3%. The overall passenger load factor rose by 1.9 percentage points to 80%. There was some softening in demand for premium travel in the latter part of the first half, though yield still grew by 4.1% to HK55.9 cents.

The amount of cargo carried by Cathay Pacific and Dragonair grew by 6.8% to 828,399 tonnes, with demand more robust than originally anticipated. The cargo load factor rose by 1.1 percentage points to 66.4% against a capacity increase of 6.9%. Yield fell 1.8% to HK$1.60 due to pricing pressures.

The Cathay Pacific Group continued to expand and modernise its fleet in the first half of 2008 with three more Boeing 777-300ERs, Extended Range, passenger aircraft arriving for Cathay Pacific plus two Airbus A330-300s. The current high fuel prices make it vital to operate the most efficient freighter fleet and in May the airline took delivery of the first of six Boeing 747-400ERF Extended Range Freighters which benefit from higher fuel efficiency. The group also has 10 new-generation Boeing 747-8F freighters on order and at the same time has begun a programme to retire the older, more inefficient Boeing 747-200/300F “Classic” freighters in its fleet. Two have already left – one from Cathay Pacific and one from Dragonair.

In H1 2008, Cathay Pacific and Dragonair added a total of 27 more flights a week to and from India, with two new destinations added – Bengaluru (Bangalore) and Chennai. The group has also confirmed that it will design, construct and operate a new cargo terminal at Hong Kong International Airport. Work on the project, to be operated under a 20-year franchise agreement, has already begun and the terminal will open in 2011 with an annual throughput capacity of 2.6 million tonnes.

In terms of product and service, more passengers are now benefiting from the ongoing rollout of new three-class cabin designs, which are now found on 28 of Cathay Pacific’s medium and long-haul aircraft. The group also opened new lounges in Beijing, Melbourne, Seoul and Shanghai as part of an ongoing commitment to improve passengers’ travel experience.

Cathay Pacific Chairman Christopher Pratt said, “Global aviation is making a painful adjustment to the new reality of US$100-plus oil. Cathay Pacific is reducing other costs where it can but there is a limit to how much cost can be saved before quality and brand are compromised. It is thus inevitable that fares for passengers and shippers will have to rise to reflect the new cost of operation. It is difficult to forecast with any degree of accuracy the extent to which these higher fares will reduce demand but thus far it has remained robust. Despite the current difficulties Cathay Pacific remains confident in its future. Hong Kong remains Asia’s premier aviation hub and Cathay Pacific’s superb international network affords unrivalled connectivity to and from China. The company’s priority at this time is to protect the integrity of this network. There will be some redeployment of capacity within the network but it is not envisaged that the company will withdraw from any destination it now serves.”

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