Cathay Pacific announces 2013 interim results

14 August 2013

The Cathay Pacific Group reported an attributable profit of HK$24 million for the first six months of 2013. This compares to a restated loss of HK$929 million in the first half of 2012. Earnings per share were HK0.6 cents compared to a restated loss per share of HK23.6 cents in the first half of 2012. Turnover for the period fell by 0.6% to HK$48,584 million.

The Directors have declared a first interim dividend of HK$0.06 per share (2012: nil) for the six months ended 30th June 2013. The interim dividend which totals HK$236 million (2012: nil) will be paid on 3rd October 2013.

The Group continued to operate in a challenging business environment in the first half of 2013, though there was improvement in its passenger business. Demand in the major air cargo markets remained weak. The persistently high price of jet fuel continued to have an adverse effect on business. Share of losses from associated companies increased.

In 2012, the Group introduced measures designed to protect its business, in particular from the high price of jet fuel. It changed schedules, reduced capacity and withdrew older, less fuel-efficient aircraft from service. The fuel and aircraft maintenance components of our operating costs in the first half of 2013 were significantly lower and financial performance improved as a result. But the Group did not allow cost reductions to compromise the brand or quality of service offered by Cathay Pacific and Dragonair, and it continued to make major investments in new aircraft, new products and the new cargo terminal at Hong Kong International Airport which will benefit the business in the long term.

In the first half of 2013, the Group’s net fuel costs decreased by 8.5% compared to the same period in 2012. Notwithstanding this reduction, fuel remains the Group’s most significant cost, accounting for 38.8% of total operating costs during the period. Managing the risk associated with high and volatile fuel prices remains a high priority. In April 2013 Cathay Pacific took advantage of a brief drop in fuel prices to extend its fuel hedging into 2016.

The passenger business of Cathay Pacific and Dragonair improved in the first half of 2013 compared to the same period in 2012. Revenue increased by 0.8% to HK$34,978 million, although capacity decreased by 4.8%. The load factor increased by 1.2 percentage points to 81.3%. Yield also improved by 4.4% to HK69.0 cents. Passenger demand was strong on long-haul routes in all classes of travel. However, demand on regional routes did not match the increase in capacity on these routes, which put yield under pressure.

The airlines’ cargo business has been affected by weak demand since April 2011. The Group’s cargo revenue for the first half of 2013 was down by 5.2% to HK$11,278 million compared to the same period in 2012. Capacity for Cathay Pacific and Dragonair was down by 1.8%. The load factor was down by 1.9 percentage points to 62.4%. Yield was down by 3.3% to HK$2.33. Freighter capacity was adjusted in line with demand. We carried more cargo in the bellies of passenger aircraft in order to reduce costs. On the plus side, our new cargo terminal at Hong Kong International Airport is expected to be fully operational by the last quarter of 2013, which will reduce costs and improve efficiency in the Group’s cargo business.

The Group continued to modernise its fleet, taking delivery of six new aircraft - two Airbus A330-300 aircraft, three Boeing 777-300ER aircraft and one Boeing 747-8F freighter – in the first six months of 2013. Four Boeing 747-400 passenger aircraft were retired during the period. In March 2013, the Group entered into agreements in relation to its cargo fleet as part of a package of transactions among The Boeing Company, Cathay Pacific, Air China Cargo Co., Ltd. and Air China. Under these transactions, Cathay Pacific agreed to purchase three Boeing 747-8F freighters, for delivery in the second half of 2013, cancelled orders for eight Boeing 777-200F freighters, acquired options to purchase five Boeing 777-200F freighters and agreed to sell four Boeing 747-400BCF converted freighters. Three of the converted freighters have already left the fleet.

All of the long-haul passenger frequencies that were cancelled as part of 2012’s cost reductions are restored by September 2013. A fifth daily frequency was added to London in June and the airline will, subject to government approval, add a new four-times-weekly service to Male in the Maldives in October 2013 and a new daily service to Newark in the U.S.A. in March 2014. Dragonair continued to strengthen its regional network, adding services to Da Nang, Wenzhou, Yangon and Zhengzhou and will, subject to government approval, add a new three-times-weekly seasonal service to Siem Reap in Cambodia in October 2013. Guadalajara in Mexico will be added to the cargo network in the last quarter of 2013.

On the product side, the new Premium Economy Class, introduced in 2012, is growing in popularity and has helped to improve Economy Class yield. In January 2013 Cathay Pacific began to introduce its new Regional Business Class seat. Installation in the regional fleet will be completed by December 2014. Cathay Pacific started a programme to improve its First Class seats on Boeing 777-300ER aircraft beginning from July. Dragonair has also begun upgrading its cabins with new Business and Economy Class seats and a new inflight entertainment system. At Hong Kong International Airport Cathay Pacific reopened its renovated First Class lounge at The Wing in February. The Group’s fifth departure lounge at Hong Kong International Airport, The Bridge, will open later in 2013.

Cathay Pacific Chairman Christopher Pratt said: “While we continued to operate in a difficult environment in the first six months of 2013, it was pleasing to see some improvement in our business. This improvement mainly reflected stronger passenger business and cost reductions. Our financial position remains strong and we will continue to invest to make our business stronger. We will remain focused on our long-term goals while managing short-term challenges. The business outlook for the rest of 2013 remains unclear, but our core strengths – a superb team, a strong international network, exceptional standards of customer service, a strong relationship with Air China and our position in Hong Kong – remain firmly in place.”

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