Cathay profit nosedives

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March 15, 2017

Cathay Pacific’s profit has nosedived almost 110 per cent to a 2016 net loss of $HK575m ($US74m) amid warnings from the Hong Kong group that it expects the environment this year to remain challenging.

The worse than expected result is the group’s first loss in eight years and came as it grappled with the aggressive expansion of Chinese carriers.

The carrier blamed the slump from a 2015 profit of $HK6 billion on “intense and increased” competition combined with economic factors such as the strength of the Hong Kong Dollar and reduced economic growth in mainland China.

Cathay said other airlines significantly increased capacity during the year with more direct flights from mainland China and increased competition from low-cost carriers.

Group revenue fell 9.4 per cent to $HK92.75 billion.

Overcapacity hit cargo operations, where revenue was down 13.2 per cent,  and the strong Hong Kong dollar made the city an expensive destination and reduced visitor numbers, it said.

Benefits from low fuel prices were also partially offset by fuel hedging losses.

The upshot was a 9.4 per cent reduction in group revenue to $HK92.75 billion and a warning the stress would continue.

“We expect the operating environment in 2017 to remain challenging. Strong competition from other airlines and the adverse effect of the strength of the Hong Kong dollar are expected to continue to put pressure on yield,’’ Cathay chairman John Slosar said. .”The cargo market got off to a good start, but overcapacity is expected to persist.’’

Passenger revenue fell 8.4 per cent to $HK66.9 billion while capacity increased by 2.4 per cent as new routes such as Madrid and London Gatwick were added and frequencies were increased on others. 

The load factor was down 1.2 percentage points to 84.5 per cent while yields fell 9.2 per cent.

The airline took delivery of 10 Airbus A350-900s during the year and deployed them on services to Auckland, Düsseldorf, London Gatwick, Paris and Rome.

t retired its remaining Boeing 747-400s and three Airbus A340-300s during the year with another A340 leaving in January and the remaining three aircraft all due to go this year.

Cathay expects to continue to benefit this year lower fuel prices,  but to a lesser extent than in 2016, as it works to reduce costs, improve reliability and use its assets more efficiently.

 “Despite the challenges with which we are faced, we still expect our business to grow in the long term.’’ Slosar said. “Air traffic to, from and within the Asia-Pacific region is expected to grow strongly. We intend to benefit from this growth by increasing our passenger capacity by 4-5 per cent  per annum, at least until the third runway at Hong Kong International Airport is open.

“We will continue to introduce new destinations and to increase frequencies on our most popular routes.’’

Slosar said the group was embarking on a three-year “corporate transformation program’’ aimed at producing returns above the cost of capital.

“The goal is to become a more agile and competitive organisation in order to take advantage of changing market trends and customer preferences,’’ he said.