Cathay Pacific Revamp Takes Airline Closer to Profit Revival

Galtero Lara
Marcha 14, 2018

Cathay said losses from wrong-way fuel bets amounted to HK$6.4 billion for the whole of a year ago, narrowing from HK$8.46 billion in 2016.

Hong Kong flag carrier Cathay Pacific on Wednesday announced a HK$1.26 billion ($161 million) net loss for 2017, marking the first back-to-back annual loss in its 71-year history.

Mr Hogg also has cut 600 jobs as part of a three-year revamp, and taken delivery of newer aircraft to help Cathay become more competitive against low-priced and Chinese mainland carriers.

That's well below analysts' expectations for a loss of HK$2.26 billion, based on estimates compiled by Bloomberg.

The news was greeted by a surge more than three percent surge in the firm's share price in afternoon Hong Kong trade, although the gains were later pared.

It reported an attributable profit of HK$792 million in the second half, helped by an improving cargo market and profits from subsidiaries and associates such as Air China, which offset its first half loss of HK$2.05 billion.

Cathay says it saw positive results from its three-year transformation programme as the year progressed, and that also benefited from a strong cargo business, a weaker USA dollar and improved premium class demand.

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However, fuel was still the most significant outlay, accounting for 30% of operating costs at HK$31.11 billion, compared with HK$27.95 billion in the year before. Fuel hedging losses were reduced.

Companies such as China Eastern and China Southern Airlines are offering direct services to Europe and the United States from the mainland, while budget carriers have targeted regional travellers, undermining Cathay's position.

Cathay said passenger revenue decreased 3.5% in 2017, with passenger yield - the average amount paid per person per mile - dropping 3.3%.

Fuel is the largest component of an airline's costs in Asia.

Ten months in the job, chief executive officer Rupert Hogg can reassure investors that a rebound in business travel and cargo demand have contained the damage caused by past fuel-hedging contracts gone awry.

"The outlook for our cargo business is positive and we will take best advantage of opportunities in the growing global cargo market", Chairman John Slosar said in the statement.

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