Cathay Pacific slumps to surprise loss as crude oil hobbles recovery

Cathay Pacific Airways Ltd. slipped to a surprise loss on higher fuel expenses and hedging losses, posing a challenge to Chief Executive Officer (CEO) Rupert Hogg’s efforts to turn around the carrier that faces increasing competition from mainland Chinese airlines.

The premium carrier reported a net loss of HK$263 million ($34 million) for the six months through June, according to a statement on Wednesday. That compares with a loss of HK$2.05 billion a year earlier and the median estimate for a profit of HK$140 million in a Bloomberg News survey of five analysts.

That is a setback for Hogg, who’s been steering a three-year transformation program since taking over as CEO in May 2017 to help turn around the Hong Kong-based carrier after two annual losses. Hogg has scaled back oil-hedging contracts that have caused a drag on profitability, while cutting jobs and improving services in businessclass cabins to lure back the premium traveler, one of his key focuses to shore up earnings.

The carrier paid more for fuel, the biggest expense for carriers in Asia, as a 19 percent surge in Brent crude during the period weighed on costs.

Under Hogg’s transformation program to tackle competition, Cathay Pacific has taken steps to improve its cabin offerings by providing wider choice of meals in business-class cabins on longhaul flights, added newer and more fuelefficient aircraft to its fleet and started services to more destinations.

Also, at the back end of the aircraft – the economy class – the carrier is trying to boost revenue by adding another row of seats on its Boeing Co. 777 planes. The change will result in a 3-4-3 configuration, in line with the industry standard adopted by many premium carriers, although legroom would remain the same, Cathay said in March last year.

Some of those measures seem to be yielding results. Cathay Pacific said in July that demand in the premium cabins across its network has been “strong” and a “small yield growth came on the back of improved business travel and traffic mix over last year.” The carrier reported a profit of HK$792 million in the second half of 2017, although earnings from investments in associates including Air China Ltd. boosted those numbers. Cathay Pacific owns 18 percent of China’s flag carrier.

A key metric of profitability called passenger yield – the money earned from carrying a passenger per kilometer – has been improving as well, with the magnitude of declines narrowing.

Cathay Pacific’s loss doubled to HK$1.26 billion in 2017 as the emergence of Chinese carriers such as Air China, China Southern Airlines Co. and China Eastern Airlines Corp. took the sheen off Hong Kong as a transit hub. (Bloomberg)