Cathay Pacific posts HK$2.05 billion interim loss

August 16, 2017 19:06
Cathay Pacific blamed intense competition in the industry for its dismal performance. Photo: Bloomberg

Cathay Pacific Airways on Wednesday posted a net loss of HK$2.05 billion for the first half of this year, compared with a net profit of HK$353 million in the same period in 2016.

Group chairman John Slosar blamed the loss on fundamental structural changes in the airline industry, which he said continue to affect the operating environment for airlines and create difficult operating conditions.

"The factors which affected our performance were largely the same as in 2016," Slosar said in a statement, adding that intense competition with other airlines was the most significant.

He said other major adverse factors were higher fuel prices (including the effect of hedging), the impact of a strong Hong Kong dollar on revenues denominated in other currencies, and higher aircraft maintenance costs.

Slosar also cited a fine of 57.12 million euros (HK$498 million) imposed by the European Commission, which found that Cathay and other airlines colluded on cargo surcharges in violation of EU competition laws.

Passenger revenue slid 3.9 percent to HK$32.1 billion, while yield, the revenue earned from carrying a passenger for one kilometer, declined 5.2 percent to 51.5 HK cents. 

Cargo revenue rose 11.7 percent to HK$10.5 billion while yield rose 4.4 percent to HK$1.66.

Total fuel costs for Cathay Pacific and Cathay Dragon (before the effect of fuel hedging) jumped 33.4 percent to HK$2.87 billion, reflecting a 31.5 percent rise in average fuel prices and a 1.6 percent increase in consumption.

If hedging losses are taken into account, fuel costs increased by HK$1.68 billion or 12.7 percent from the same period last year.

Fuel costs accounted for 30.4 percent of total operating costs, compared with 29.1 percent in the same period last year.

Cathay gained HK$244 million from the partial disposal of its stake in Air China, which was diluted to 18.13 percent from 20.13 percent.

In April, Cathay also disposed of its entire interest in Travelsky Technology Ltd. at a profit of HK$586 million.

In May, the airline announced a reorganization of the head office as part of its three-year corporate transformation program. It resulted in redundancy costs of HK$224 million.

"We do not expect the operating environment in the second half of 2017 to improve materially," Slosar said.

Passenger business will continue to be affected by strong competition from other airlines and the results are expected to be hurt by higher fuel prices and fuel hedging positions.

"However, the outlook for the cargo business is good and we expect robust demand and growth in cargo capacity, yield and load factor in the second half of this year," he said.

"We expect to see the benefits of our transformation in the second half of 2017, and the effects will accelerate in 2018."

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