Cathay Pacific racks up first back-to-back loss in 71-year history, at US$160 million

Cathay Pacific racks up first back-to-back loss in 71-year history, at US$160 million

Cathay Pacific Airways, Asia’s largest international airline, saw its net loss more than double to HK$1.25 billion (US$160 million) in 2017 – the carrier’s first back-to-back loss in its 71-year history – as it restructures to turn around the business, the company announced on Wednesday.

Robust earnings from Cathay Pacific’s cargo unit and a much larger contribution of profits from subsidiaries and associate businesses helped offset the steepest loss in nine years as bad fuel hedging bets, one-off fines and redundancy costs dragged down results.

The results were better than some analysts’ estimates of a HK$2.8 billion net loss. The airline recorded a HK$575 million loss in 2016.

Total revenue grew 4.9 per cent to HK$97.2 billion but operating expenses increased 7.1 per cent to HK$101.3 billion.

Excluding one-off gains and losses, after a deficit of HK$2.05 billion in the first half of 2017, the airline managed to record a second-half profit of HK$792 million. The second half of the year is traditionally a stronger period for the airline.

However, a number of one-off factors affected the airline’s earnings including a HK$498 million fine from the European Commission and HK$224 million associated with redundancy charges.

The airline booked gains of HK$830 million, including disposal of its interest in TravelSky Technology for a profit of HK$586 million.

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Losses associated with the airline’s core business worsened to HK$4.3 billion from HK$3.3 billion the year before.

“We took decisive action through our transformation programme to make our businesses leaner and more agile and more effective competitors,” Cathay Pacific Airways chairman John Slosar said.

“Our focus in 2017 was on building the right foundations, structure and strategy to improve revenue and to better contain costs. Evidence of progress became apparent in the second half of the year.”

Signalling that the airline was moving in a positive direction, Slosar added: “As the year progressed we began to see positive results from our transformation programme and our business also benefited from a strong cargo business, a weaker US dollar, and improved premium class passenger demand.”

Passenger yield, a measure of how much an airline makes on air tickets, fell 3.3 per cent to 52.3 HK cents, as Cathay again faced overcapacity in key markets leading to “intense competition”.

Cargo yield jumped 11.3 per cent to HK$1.77, on the back of stronger demand.

Another closely monitored metric, cost per available tonne kilometre (excluding fuel), reflecting its cost structure, rose slightly to HK$2.14, indicating the airline still had more work to do to rein in costs.

Analyst Corrine Png, CEO of Crucial Perspective, said: “Cathay Pacific was widely expected to incur a substantial loss so investors are encouraged that the airline actually made a profit in the second half of 2017.”

But she added that Cathay will “need to work harder at improving cost efficiencies to boost its long-term competitiveness and profit margins more significantly in 2018 and beyond.”

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Fuel costs being the airline’s biggest expense, total costs rose to HK$31.1 billion, even as losses associated with hedging contracts fell to HK$6.3 billion.

Cathay Pacific and its regional airline Cathay Dragon carried 34.8 million passengers, down 0.1 percentage points year on year.

Geoffrey Cheng, deputy head of research at Bocom International, said the airline’s core loss-making business “was still a bit of an issue” but the results were “quite positive”.

Hong Kong’s biggest airline has cut 600 jobs so far as it overhauls its business in response to stiff competition, particularly as vigorous expansion from mainland Chinese and Middle East airlines and low-cost carriers erode market share.

Despite the poor performance, Cathay Pacific kept its full-year dividend unchanged at 5 HK cents per share. Loss per share more than doubled to 32 HK cents from 14.6 HK cents.

Cathay shares climbed 3.2 per cent, to HK$14.22, in afternoon trading in Hong Kong.


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