Cathay Pacific’s profit soars despite challenges

Cathay Pacific’s profit soars despite challenges

Hong Kong-flag carrier Cathay Pacific reported today that its group profit skyrocketed more than 14-fold in the first half of 2014 from a year earlier, despite a “challenging” operating environment, as both passenger and cargo revenues posted sound growth.

Cathay Pacific’s group profit came to HK$347 million (about US$44.8 million) in the January through June period, compared with HK$24 million in the same six-month period last year. The airline’s group revenue from overall operations totaled HK$50.840 billion in the first half of this year, up 4.6 percent from HK$48.584 billion a year earlier. Of the airline’s overall revenue, HK$11.663 billion came from cargo operations, up 3.4 percent from a year earlier.

“A number of factors had a significant negative impact on the group’s business in the first six months of 2014,” Cathay Pacific said in its earnings release. “The principal adverse factors were reduced passenger yield, continued weakness and overcapacity in the air cargo market, the continued high fuel price and a weak performance from an associated company, Air China.”

As for its cargo operations, Cathay Pacific said: “Yield for Cathay Pacific and Dragonair decreased by 6.9 percent to HK$2.17. Capacity increased by 10.8 percent, while the load factor rose by 0.8 percentage points to 63.2 percent.”

Cathay Pacific’s cargo results are in stark contrast to those of Singapore Airlines, which posted poor first-quarter earnings last month. In June, robust demand out of Hong Kong and China saw cargo and mail carried on Cathay Pacific and Dragonair growing 15 percent year-over-year.

“Overcapacity in the industry remains a major concern and has made it difficult to increase rates,” Cathay Pacific said. “The airlines continued to manage capacity in line with demand in the first half of 2014.”

In the first half of 2014, only the Asia-Pacific region saw air freight capacity outpace volume growth, rising 6.5 percent, according to the International Air Transport Association. In all other major regions worldwide, capacity grew more slowly than volume.

“More cargo was carried in the bellies of passenger aircraft, reflecting increased use of Boeing 777-300ER aircraft,” Cathay Pacific said.

The steady addition of new passenger routes of the Asian region and increasing flight frequencies to existing destinations are undermining the improving demand for cargo.

Cathay Pacific Chairman John Slosar said: “The operating environment for the Cathay Pacific Group ― and the aviation industry as a whole ― remains challenging. The air cargo business remains problematic because of excess capacity. Intense competition similarly puts pressure on yield.”

On the plus side, Slosar said Cathay Pacific expects its new freighter fleet and cargo terminal will allow the business to successfully compete in the air cargo market in the long-term. He also painted a rosy picture of Cathay Pacific’s business prospect in the near-term: “We expect business to be better in the second half of 2014. Our financial position remains strong and will enable us, despite the current difficult trading conditions, to maintain the quality of our products and services and to continue with our long-term strategic investment in the business.”

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