Cathay Pacific Airways Limited announces 2015 Interim Results

The Cathay Pacific Group has reported an attributable profit of HK$1,972 million for the first six months of 2015. This compares to a profit of HK$347 million in the first half of 2014. Earnings per share were HK50.1 cents compared to HK8.8 cents for the corresponding period in 2014. Revenue for the period decreased by 0.9% to HK$50,388 million.

The Group’s performance in the first six months of 2015 was considerably better than in the same period in 2014. There were higher load factors in the Group’s passenger business, reflecting strong economy class demand. The increase in demand in air cargo markets which began in summer 2014 continued in the first part of 2015, but demand slackened in the second quarter. There was an improved contribution from subsidiary and associated companies. Air China’s profits were significantly higher, principally as a result of lower fuel prices.

Passenger revenue for Cathay Pacific and Dragonair decreased by 0.8% to HK$36,226 million. Capacity increased by 6.4%, reflecting the introduction of new routes to Boston and Zurich and increased frequencies on other routes. The load factor increased by 2.3 percentage points to 85.9%. Strong competition, a significant reduction in fuel surcharges, foreign currency movements and the fact that a higher proportion of passengers were connecting through Hong Kong put downward pressure on yield, which decreased by 9.3% to HK60.4 cents. Demand on regional routes was strong, particularly in economy class. There was strong economy class demand on long-haul routes. But premium class demand, though robust on short-haul routes, was weaker than expected on some long-haul routes.

The increase in demand in air cargo, which began in summer 2014, continued during the first few months of 2015, but slackened in the second quarter. The Group’s cargo revenue for the period was HK$11,376 million, a decrease of 2.5% compared to the same period in 2014. Capacity for Cathay Pacific and Dragonair grew by 8.9% and the load factor increased by 0.9 percentage points to 64.1%. But strong competition, overcapacity in the industry and a significant reduction in fuel surcharges put downward pressure on yield, which dropped by 11.1% to HK$1.93. However there was strong demand on some of its principal cargo routes, notably to and from North America, assisted in part by maritime backlogs caused by industrial action at major shipping ports on the West Coast of the United States. Intra-Asia shipments grew but traffic to Europe fell short of expectations.

In the first half of 2015, despite an increase in passenger and cargo capacity of 6.4% and 8.9% respectively, the Group’s fuel costs (before the effect of fuel hedging) decreased by HK$7,078 million (or 35.5%) compared to the same period in 2014. Despite lower fuel prices, fuel remains the Group’s most significant cost. Fuel accounted for 34.2% of total operating costs, a reduction of 3.7 percentage points compared to the same period in 2014. This was due to a 38.5% decrease in the average into-plane fuel price, partially offset by a 4.9% increase in consumption. Managing the risk associated with volatile fuel prices remains a priority. In the first half of 2015, lower fuel costs were partially offset by hedging losses, resulting in its net fuel costs decreasing by HK$2,311 million (or 12.2%). Its fuel hedging extends to 2019. Non-fuel costs were managed effectively and benefited from weakness in a number of currencies.

In the first six months of 2015, Cathay Pacific took delivery of seven new aircraft: four Boeing 777-300ERs and three Airbus A330-300s. Four Boeing 747-400 passenger aircraft, one of which will be returned to its lessor by the end of 2015, were retired during the period, as were three A340-300 aircraft.  In 2013 it was agreed that six Boeing 747-400F freighters in the Cathay Pacific fleet would be sold back to The Boeing Company. Two of these freighters have been delivered, one in November 2014, the other in July 2015. The remaining four freighters will leave the fleet by the end of 2016. At 30th June 2015 the Group had 72 new aircraft on order for delivery up to 2024. Its first Airbus A350-900XWB aircraft is scheduled to be delivered in February 2016.

Cathay Pacific introduced passenger services to Zurich in March and Boston in May, and will launch flights to Dusseldorf in September. It increased frequencies on its Jakarta service in January, on its Bangkok and Manila services in March and on its San Francisco service in June. It is increasing its flights to Bangkok and Osaka over the summer peak. In June, Cathay Pacific reduced flights to Seoul in response to the incidence of middle east respiratory syndrome and the resulting drop in demand. The Cathay Pacific service to Moscow was discontinued. Dragonair started to fly daily to Haneda in Tokyo in March and a service to Hiroshima in August. Dragonair increased frequencies on its Phnom Penh and Wuhan services in January and Kolkata service in May. It is also increasing flights to Okinawa over the summer season. A new cargo service to Kolkata was introduced in March and frequencies on cargo services to North America and India were also increased.

Except for Boeing 747-400 and Airbus A340-300 passenger aircraft due to be retired in the next years, all Cathay Pacific and Dragonair wide-bodied passenger aircraft have been fitted or refitted with new or refreshed seats in all classes. The Airbus A350XWB aircraft will have new cabins, seats and entertainment systems. Cathay Pacific opened overseas lounges in Manila in May and Bangkok in June and reopened the first class lounge at The Pier, at Hong Kong International Airport in June, all of which follow a new design. The business class lounge at The Pier is being renovated and is expected to reopen in the second quarter of 2016. Two more lounges (one in San Francisco, the other in Taipei) will open in the fourth quarter of 2015.

Cathay Pacific Chairman John Slosar said: “The operating environment was generally positive in the first half of 2015. Passenger and cargo demand was generally strong. We reduced our operating costs due to lower fuel prices, partially offset by fuel hedging losses. We continued to manage non-fuel costs effectively. But we face challenges. Yield remained under pressure and there is increasing congestion at Hong Kong International Airport.  We strongly support the construction of a third runway at the airport and believe that construction should start as soon as possible. We think the Airport Authority Hong Kong can, and should, finance the construction itself without burdening airport users unduly with additional charges. Airport charges must be competitive if Hong Kong’s aviation, tourism and related industries are to continue to grow.

We usually perform better in the second half of the year than in the first.  We expect our business to do well in the remainder of 2015 and we will continue to focus on providing high-quality products and services.  We will continue to invest in aircraft, our products and the development of our network. Our financial position remains strong. Our commitment to our world-class team and to the aviation hub in our home city, Hong Kong, is unwavering.”