In the red:
(from left) Cathay Pacific finance director Martin Murray, chief executive Ivan Chu, chairman John Slosar and chief operating officer Rupert Hogg hold a press conference on the company’s annual result in Hong Kong. Hong Kong’s troubled flagship airline Cathay Pacific swung to a US$74mil loss in 2016, the firm said, citing ‘intense competition’ from rival carriers.
SINGAPORE: Cathay Pacific Airways Ltd reported its first loss in eight years and scrapped plans for a second-half dividend after competition from Chinese airlines and losses from fuel hedging dented earnings. The stock fell the most in seven months.
The net loss totaled HK$575mil (US$74mil) in 2016, while sales dropped 9.4% to HK$92.8bil, Hong Kong-based Cathay, Asia’s largest international airline, said in a statement. Jefferies Group LLC said the losses could continue in the current year as well.
Cathay said the operating environment in 2017 would remain challenging, and that premium travel from Hong Kong was below expectations, prompting the airline to sell such tickets at promotional prices to leisure travellers.
The carrier, whose passenger yields have been damped by competition from full-service carriers for business seats and budget airlines for the mass market, said it is starting a three-year “corporate transformation” programme to improve returns and operational efficiency.
The carrier is “facing structural problems from competition headwinds, given Chinese airlines continue to aggressively expand international capacity, yield pressures from weak premium-class traffic and cost-conscious leisure travellers,” Andrew Lee, an analyst at Jefferies, wrote in a note.
Chief executive officer Ivan Chu has seen Cathay’s shares plunge about 25% since his appointment in March 2014, compared with a gain for Hong Kong’s Hang Seng Index. The stock declined 1% to HK$11.48, after dropping as much as 6.9% earlier, the biggest intraday loss since Aug 17.
Cathay, whose parent is the Swire Group, last posted a loss in 2008, of HK$8.7bil, according to data compiled by Bloomberg. The carrier, in which Air China Ltd holds almost 30%, has been widening its discounts to premium offerings in a bid to fill seats as it competes against rivals such as China Eastern Airlines Corp.
For instance, an economy-class ticket on Cathay’s Hong Kong-New York direct flight a month from now costs about US$1,235, while seats on Asiana Airlines Inc and Korean Air Lines Co go for less than US$750, based on a search on Chinese online travel-booking app Ctrip. China Eastern is offering tickets for US$715 from Shenzhen to the US city via Shanghai.
“The bar for air travel is getting lower as cheap fares are driving growth in the economy class,” Geoffrey Cheng, an analyst at Bocom International Holdings Co, said before the earnings announcement.
“For those who still travel in the premium cabin, they increasingly favour transfer flights” because “it’s cheaper than non-stop service,” he said.
Cathay’s passenger yields, the money earned from flying a traveller for one kilometer and a key measure of profitability, dropped 9.2% to 54.1 Hong Kong cents last year. Cargo yield declined 16% to HK$1.59.
Analysts in a Bloomberg News survey had predicted full-year results ranging from a profit of HK$1.5bil to a net loss of HK$1.5bil. The disparity in the figures reflected varying estimates of charges due to fuel-hedging losses.
Losses from fuel hedging totaled HK$8.46bil last year, compared with HK$8.47bil in 2015. Cathay said it expects further fuel-hedging losses in 2017, although that should be less than for last year. The carrier had unrealised hedging gains of HK$3.57bil at the end of 2016. It was expected to pay a second interim dividend of 27 Hong Kong cents, according to estimates compiled by Bloomberg.
Under the revamp plan, Cathay is reviewing revenue management, distribution and pricing practices. It also intends to increase ancillary revenue, and is working to reduce unit costs excluding fuel over the next three years.