Hong Kong's Cathay Pacific Airways posts $120M 1H loss on fuel costs, biggest loss since 2003
HONG KONG - Cathay Pacific Airways Ltd., Hong Kong's biggest airline, posted its biggest first-half loss in a decade on Wednesday because of persistently high fuel prices, the global economic slump and poor air cargo demand.
Cathay blamed jet fuel prices, its biggest expense, for "significantly" affecting profitability. It's fighting back by upgrading its fleet and confirmed it's beefing up an existing order for Airbus A350 jets by adding 10 more to the deal and converting 16 others into larger models.
The company said Europe's economic instability was having a big effect on both its passenger and cargo services, while revenue from many other international routes was also under pressure because of increased competition.
The Asian carrier is the latest in a string of global airlines that have reported poor results amid grim economic conditions.
"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," Chairman Cristopher Pratt said in a statement. "These factors are common to the aviation industry as a whole. Airlines around the world are being adversely affected by the current business environment."
Profits from associated companies, including Air China, in which Cathay has a 20 per cent stake, showed a "marked decline." Air China, one of China's three major state-owned airlines, warned last month that first-half profit would fall by half because of the economic slowdown in China, the world's second biggest economy. Other Asian airlines including Korean Air Line Co., South Korea's biggest carrier, and Singapore Airlines, have reported quarterly losses this year because of the global slump and high fuel prices.
Cathay, which also owns regional Hong Kong-based carrier Dragonair, posted a loss of 935 million Hong Kong dollars ($120.5 million) or 23.8 Hong Kong cents a share for the first six months of 2012. That's down from a profit of HK$2.8 billion ($360 million), or 71.4 cents, last year and the biggest first-half loss since a HK$1.2 billion loss in January-June, 2003 amid the Sars health crisis.
Revenue rose 4.4 per cent to HK$48.9 million.
The airline had warned in May that first half results would disappoint and that it would respond to the challenges by freezing hiring and allowing cabin crew to take unpaid leave.
Cathay also reiterated plans to modernize its fleet by replacing older, fuel-thirsty jets with newer, more efficient ones, confirming plans announced earlier to beef up an existing 30-jet Airbus order and speed up retirement of older, gas-guzzling Boeing 747 aircraft. Fuel is the airline's single biggest expense, accounting for 42 per cent of total costs. Pratt said the price of oil rose sharply from February to the end of May, pushing the airline's fuel bill up by 6.5 per cent, or HK$1.3 billion, over last year.
The airline is converting 16 jets to the larger A350-1000 model and ordering 10 more of the same model, which chief executive John Slosar said uses about 16-17 per cent less fuel on average than a Boeing 777. The 777 in turn is 20 per cent more efficient than a 747.
The new and upgraded jets will add $4.4 billion to the deal but the airline said it's getting a "significant" discount from Airbus, without disclosing the actual price — common practice in the aviation industry.