Cathay Pacific posts HK$2.3 billion profit for 2018 as HK airline turns corner

14-Mar-2019 Intellasia | South China Morning Post | 6:00 AM Print This Post

Cathay Pacific recorded a HK$2.3 billion (US$293 million) annual profit for 2018, reversing two straight years of losses, with the core airline business making a HK$645 million contribution to the upswing in fortunes.

Earnings were shored up by Cathay’s 18.13 per cent stake in Air China, its loyalty business Asia Miles, and holdings in cargo business ventures.

The airline delivered its annual results on Wednesday, unveiling a profit on HK$111 billion in revenue, a rise of 14.2 per cent on the previous year. Cathay made a loss of HK$1.25 billion in 2017.

The financial consequences of a massive data breach, the impact of the US-China trade war, strained labour relations, and a possible acquisition of a local rival to ease competition concerns are shaping the airline’s outlook.

As the company looks to the rest of 2019, it said business would remain “challenging”, citing geopolitical discord, global trade tensions and “dampening” passenger and cargo demand.

The airline attributed its more buoyant results to its ability to control costs.

“Our transformation programme remains on track and had a positive impact,” John Slosar, the Cathay chair, said.

The airline was keen to underscore its turnaround and ongoing transformation.

“We are certainly in a better place today than 12 months ago, despite external factors such as rising fuel costs and the geopolitical environment which are already having a negative impact on market sentiment, affecting our passenger and cargo businesses,” it said in a statement.

As the Hong Kong Stock Exchanged reopened after lunch, shares in the airline rose 2 per cent on the positive earnings result to HK$13.46, or higher by 0.28 cents.

The airline’s shares have risen 21 per cent, also boosted by news of its interest in HK Express.

Cathay was able to earn more money to cover the rising costs, including its biggest outlay, jet fuel. That was aided after the carrier sought to trim HK$4 billion in expenses over three years. The airline is in the final year of a business restructuring which has seen the loss of 600 jobs in Hong Kong, and hundreds more overseas.

The airline was able to make customers pay more for flights as yield, a key measure of how much money travellers pay, rose 6.7 per cent, more than the 4.8 per cent rise in costs including fuel. The underlying unit cost rose 1.9 per cent.

Competition concerns remain, the airline said, as Hong Kong’s biggest airline stalks budget carrier rival HK Express in a takeover bid.

In the second half of 2018, the airline delivered a profit of HK$2.6 billion, following a first-half loss of HK$263 million.

Concern lingers over the trade war between the US and China, something that could hurt the airline’s booming cargo business, which has shored up the weakness in the passenger airline unit in recent years.

“Competition will remain intense, especially in economy class on long-haul routes,” Slosar said. “Operational constraints will impose additional costs. These factors will affect both the passenger and the cargo business.”

In addition, the implications and potential fines from a huge data breach scandal, which affected 9.4 million Cathay customers and which the airline described as one its worst company crises, remain on the horizon.

Some 15 countries and 27 regulators had sought answers from the airline, but no fines have been issued so far.

Airport Authority Hong Kong CEO Fred Lam Tin Fuk told Bloomberg on Wednesday morning that uncertainty affected its air cargo business and the region in general in recent months, though he remained upbeat in the longer term.

Cathay is one of the world’s biggest cargo operators.

“Our air cargo businesses have diversified,” Lam said. “Mainland Chinese cargo accounts for only 10 per cent of our cargo volume. We believe that with the resolution of the trade tension with China and the US in the medium and long term we believe it can be contained.”

The airline racked up a fuel hedging loss of HK$1.4 billion, 77 per cent down year-on-year. Losses from long-term speculative bets on the price of oil have been a major cause for the airline’s downturn in fortunes.

After cutting hundreds of jobs overseas, understood to be about 550 posts, the airline took a charge of HK$201 million as a result. It booked a similar charge of HK$224 million for cutting jobs in Hong Kong the previous financial year. The cost cuts were reflected in a 1.2 per cent rise in staff costs in 2018.

A charge of HK$58 million was made associated to data security costs, but is not thought to relate to fines. The airline also gained HK$101 million on a carbon emissions credit.

Airline executives will speak to the press in a post-results meeting later on Wednesday afternoon.


Category: Hong Kong

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