Revamp takes Cathay Pacific closer to profit revival
Carrier reported surprise earnings in second half of 2017
SINGAPORE: Cathay Pacific Airways Ltd is finally seeing some respite from its earnings woes.
Asia’s biggest international carrier reported a surprise profit in the second half of 2017, with a pick-up in cargo and premium-travel demand helping narrow the full-year net loss to HK$1.26bil (US$161mil).
That’s well below analysts’ expectations for a loss of HK$2.26bil, based on estimates compiled by Bloomberg.
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.
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-cost and Chinese mainland carriers.
“The outlook for our cargo business is positive,” chairman John Slosar said in a statement. “Our priorities for 2018 are our transformation programme, changing the way that we work so as to better contain costs which will strengthen our passenger business further.”
Cathay ferried 11% more cargo for the full year, while the number of passengers carried increased 1.4%. Cargo yield – a key indicator of profitability reflected by earnings from carrying one tonne per kilometer – jumped 11%. A slower rate of decline in passenger yields also supported the improved result.
“The surprise in the second-half profit was due to cargo business,” said Mohshin Aziz, an analyst at Maybank Investment Bank Bhd in Kuala Lumpur. “Cargo performed far better than what was expected. Passenger yield is still in pain.”
Cathay recorded profit of HK$792mil for the second half, helped by increased earnings from associates including Air China Ltd, in which it owns 18%. The Hong Kong-based carrier posted a loss of HK$928mil in the second half of 2016.
Shares of Cathay recovered from losses in the morning trading session yesterday and climbed as much as 3.2% to HK$14.22 in Hong Kong, the highest intraday price since November 2015. The stock rose 1.2% as of 2:17pm yesterday.
“Cargo is highly cyclical and they are heavily dependent on cargo,” said K. Ajith, an analyst at UOB Kay Hian Pte Ltd in Singapore.
“There’s concern whether this is sustainable” given uncertainties due to a possible trade war after the US increased tariffs on aluminum and steel, he said.
Cathay said losses from wrongway fuel bets amounted to HK$6.4bil for the whole of last year, narrowing from HK$8.46bil in 2016.
Fuel is the largest component of an airline’s costs in Asia. Cathay has been booking losses on its hedges after crude oil unexpectedly tumbled from more than US$100 a barrel in 2015. The carrier has since shortened the contracts’ lock-in period to two years from four.
As part of the three-year plan kicked off last year, Cathay is on track to cut costs by HK$4bil, Slosar said in January.
The company has been in talks with its pilots over compensation, frozen pay for senior staff, and increased the number of economy seats on some planes as part of its efforts.