Cathay Pacific Reports $121 Million Loss in First Half of 2012
By James Ruggia
August 09, 2012 10:43 PM
In the first six months of 2012, Cathay Pacific Group reported an attributable loss of HK$935 million ($121 million). This compares to the profit of HK$2,808 million ($362 million) in the first half of 2011. The carrier cited “the persistently high price of jet fuel, passenger yields coming under pressure and weak air cargo demand -- factors common to the aviation industry as a whole.”
In response to these challenges, the Cathay Pacific Group introduced measures including schedule changes and capacity reductions; the withdrawal from service of older, less-fuel-efficient aircraft; a recruitment freeze; and the introduction of voluntary unpaid leave for cabin crew. At the same time, the group continued with major investments, including new aircraft, new products and its own HK$5.9 billion cargo terminal at Hong Kong International Airport.
Fuel prices were at historical high levels during the first half of 2012, although they decreased significantly at the end of the period, and this had a major impact on Cathay Pacific’s operating results. In the first six months of 2012, the group’s fuel costs (disregarding the effect of fuel hedging) increased by 6.5 percent compared to the same period in 2011. Fuel accounted for 41.6 percent of total operating costs. Managing the risk associated with high and volatile fuel prices remains a key challenge. The airline’s fuel hedging program helps to mitigate the impact of fuel price fluctuations. However, with the fuel price remaining high for the past two years, realized profit from hedging activities in the first half of 2012 fell by 59.4 percent compared to the same period in 2011.
In the first six months of 2012, the passenger business of the Cathay Pacific Group was affected by pressure on yields against the background of increased fuel prices and higher operating costs. Revenues increased 9.2 percent compared to the same period in 2011. Capacity increased by 6.9 percent. A total of 14.3 million passengers were carried by Cathay Pacific and Dragonair in the first six months, which is a rise of 8.6 percent compared to the same period in 2011. The load factor rose by 0.8 percentage points. Yield increased by 1.2 percent to HK66.1 cents. Still, the high cost of fuel made it more difficult to operate profitably, particularly on long-haul routes operated by older, less fuel-efficient, Boeing 747-400 and Airbus A340-300 aircraft. The group’s cargo business was also affected by continued weak demand in major markets.
Six Airbus A350-900 aircraft were ordered in January. In August, the airline agreed to acquire 10 Airbus A350-1000 aircraft and to convert 16 previously ordered Airbus A350-900 aircraft into Airbus A350-1000 aircraft, which has a bigger capacity and longer range. The Cathay Pacific Group will take delivery of 19 aircraft in 2012 which will help to improve the operational efficiency of the fleet. In view of their high operating costs when fuel prices are high, the retirement of the airline’s Boeing 747-400 passenger aircraft has been accelerated. Three Boeing 747-400BCF freighters have also been withdrawn from service in order to reduce costs.
In May, Cathay Pacific announced its intention to reduce some passenger services on transpacific routes. This will enable fuel-efficient Boeing 777-300ER aircraft to operate on routes currently served by older less fuel efficient Boeing 747-400 aircraft. The group remains committed nevertheless to maintaining its network and has increased some services in Asia, where demand is relatively robust.
Dragonair introduced or resumed flights to six destinations -- Xi’an, Guilin, Clark, Jeju, Taichung and Chiang Mai -- and will introduce flights to Kolkata and Haikou later in the year. Cathay Pacific continues to improve products and services in the air and on the ground. A new Premium Economy Class was launched alongside new long-haul Economy Class seats. The airline also continued to install its new Business Class on long-haul services.