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Cathay tumbles to first half loss

written by australianaviation.com.au | August 17, 2017

Cathay Pacific is banking on fuel efficient aircraft such as the Airbus A350-900 to boost its financial performance. (Victor Pody)
Cathay Pacific is banking on fuel efficient aircraft such as the Airbus A350-900 to boost its financial performance. (Victor Pody)

Cathay Pacific has slumped to a $HK2 billion first half loss amid intense competition, higher fuel prices and weak demand across a number of markets including its Australian operations, which performed below expectations.

The airline reported a net loss of HK$2.051 billion (A$330 million) for the six months to June 30 2017, tumbling into the red from a net profit of HK$353 million (A$57 million) in the prior corresponding period.

The disappointing first half has Cathay on track for its first back-to-back full year loss since the airline was established in 1946. (Cathay reported a net loss of HK$575 million for calendar 2016.)

Cathay, and others, have battled the rapid international expansion of Chinese airlines and the ongoing rise of Middle East carriers offering long-haul to long-haul connections through their hubs, which have bitten into previously lucrative markets.

In particular, the rapid growth of Chinese carriers on international routes has reduced the number of passengers from China transiting through Cathay’s Hong Kong hub.


And at the budget end, Asian-based low-cost carriers have won passengers happy to pay lower fares for a no-frills product on short- and medium-haul routes.

Further, the economic slowdown – both in China and elsewhere – had led to a significant reduction in premium corporate travel in business and first class, particularly on long-haul routes.

Under new chief executive Rupert Hogg, Cathay has sought to regain lost ground through an overhaul that included a reorganisation of the business, hundreds of staff layoffs and other cost reduction efforts.

Cathay Pacific chairman John Slosar said the outlook for the period ahead offered little encouragement.

“We do not expect the operating environment in the second half of 2017 to improve materially,” he said in a statement.

“In particular, the passenger business will continue to be affected by strong competition from other airlines and our results are expected to be adversely affected by higher fuel prices and our fuel hedging positions.”

On a more positive note, Slosar said there were better prospects in the cargo market, while the benefits of the company’s transformation plans would be felt in the second half of calendar 2017.

“We are confident that we are on the right track to achieve strong and sustainable long-term performance, with a leaner, more competitive business, while enhancing the brand and the quality of services that our customers deserve and expect,” Slosar said.

Cathay said the performance of its Southwest Pacific (ie Australia and New Zealand) routes was below expectations, with demand weak.

“Increased capacity from Mainland China, Hong Kong and Australian carriers put pressure on yield and the number of transit passengers,” the company said in its first half results released late Wednesday afternoon (Hong Kong time).

Cathay serves six points in Australia and two destinations in New Zealand. In addition to the growth in nonstop Australia-China routes, Cathay also faces increased competition in the Australia-Hong Kong market after Virgin Australia introduced five times weekly flights from Melbourne to the Special Autonomous Region (SAR) in July.

Virgin’s arrival has put downward pressure on ticket prices between Australia and Hong Kong, with the new entrant offering sale fares below $400 in recent times.

Cathay said passenger yields, an industry measure of average airfares per passenger per kilometre, fell 5.2 per cent overall and were down in every market. The biggest declines were in North America (down 7.7 per cent) and Europe (7.3 per cent).

Yields on Southwest Pacific and South Africa routes (which are grouped together in Cathay’s results presentation) dropped 5.1 per cent.

There was more encouraging news on the cargo front, with Cathay describing demand as “robust” during the first half, with “very strong” cargo exports from Mainland China.

In terms of the fleet, Cathay said it currently had taken delivery of 17 Airbus A350-900s, with a further five to join the fleet by the end of calendar 2017. The airline has also retired its final four A340-300s.

Cathay said total fuel costs rose 33.4 per cent in the first half of calendar 2017, compared with the prior corresponding period, with the bulk of the increase due to higher average fuel prices.

The company also continues to suffer losses from its fuel hedging program. But those losses declined 27 per cent to HK$3.2 billion in the half.

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Comments (2)

  • Roger


    Typo: aross instead of across

    • australianaviation.com.au


      fixed, apologies for the error.

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