In the first half of 2011, the core business of the Group remained generally robust following the very strong performance of 2010. The passenger businesses of both Cathay Pacific and Dragonair performed well, with strong demand for premium class travel despite economic uncertainty in some of the world’s major economies. The cargo business performed reasonably in the first quarter of the year but was appreciably weaker in the second quarter. Revenues were boosted by the relative strength of a number of key operating currencies.
Increased jet fuel prices had a significant effect on operating results in the first half of 2011. Fuel is the Group’s biggest single cost, and during the period fuel costs rose by 49.5% compared to the same period in 2010, an increase of HK$6,461 million (CAD$811 million) that reflects higher fuel prices and an expanded operation. Managing the risk associated with fuel prices is a key objective and the Group has a robust fuel hedging programme in place. In the first half of 2011, hedging activities resulted in a realised profit of HK$962 million (CAD$121 million) with additional unrealised mark-to-market gains of HK$1,197 million (CAD$150 million) being recognised in reserves.
Passenger revenue for the period was HK$31,774 million (CAD$3,988 million) - an increase of 15.9% compared to the same period in 2010. Capacity increased by 9.8% and the two airlines carried a total of 13.2 million passengers, a rise of 1.7% on 2010. The load factor fell by 4.7 percentage points while yield increased by 11.8% to HK65.3 cents (CAD 8.2 cents). Load factors in economy class remained high, particularly on the North American and Southeast Asian routes, while demand for premium class travel remained strong and yields continued to increase. However, the earthquake and tsunami in Japan in March resulted in a significant reduction in demand in one of the Group’s most important markets. By June we were seeing some recovery on the Japan routes, though volumes remain well below those achieved before the earthquake and tsunami.
The Cathay Pacific and Dragonair cargo business performed reasonably in the first quarter of 2011, though demand out of its two most important markets, Hong Kong and Mainland China, weakened significantly from April onwards. Cargo revenue for the first half of 2011 was up by 7.7% to HK$11,628 million (CAD$1,459 million) compared with the same period in 2010. Yield was up by 7.1% to HK$2.42 (CAD 30 cents) while capacity was up 14.6%. The load factor fell by 9.6 percentage points to 68.4%.
The Group took delivery of six new aircraft in the first half of 2011 with a further eight deliveries scheduled in the second half of the year. In March Cathay Pacific announced its intention to acquire another 27 new aircraft – two Airbus A350-900s, 15 Airbus A330-300s and 10 Boeing 777-300ERs. In August, Cathay Pacific announced a further acquisition of four Boeing 777-300ERs and eight Boeing 777-200F freighters. The delivery of the airline’s new Boeing 747-8F freighters has been further delayed. Two are now scheduled to be delivered in September 2011, with three more arriving before the end of the year. However, the delivery schedule is still subject to final confirmation.
The Group continued its efforts to provide a better proposition for its customers, strengthening its network and improving products on the ground and in the air. Cathay Pacific started flying to Abu Dhabi in June and will start flying to Chicago in September, with frequencies increased to Milan, Paris, New York, Toronto and a number of Southeast Asian routes. Dragonair increased frequencies to a number of cities in Mainland China. On the product side, Cathay Pacific’s new Business Class product has been well received by passengers and now features on seven aircraft.
Among the other major developments in the first half of 2011, Cathay Pacific launched a cargo joint venture with Air China in May, in which it holds an equity and an economic interest. The joint venture operates from Shanghai under the Air China Cargo name and will capture airfreight opportunities from the Yangtze River Delta region. At the same time Cathay Pacific is highlighting its commitment to its home hub by building a new HK$5.5 billion (CAD$690 million) cargo terminal at Hong Kong International Airport. The airline has given its full backing to building a third runway at the airport to address the issue of capacity constraints, ensure the sustainability of the Hong Kong economy and maintain Hong Kong’s position as Asia’s premier aviation hub. Recognising environmental concerns relating to the third runway project, Cathay Pacific is playing an active role in the industry effort to reduce emissions and noise.
Cathay Pacific Chairman Christopher Pratt said: “After an exceptionally strong 2010, in which we made record profits, 2011 is proving to be more challenging. High fuel prices are increasing costs and recovering them through higher tariffs may affect demand. The outlook for the world economy is uncertain and a return to recessionary economic conditions would also affect demand and possibly average price levels. 2010’s strong performance enabled us to rebuild our balance sheet. Our financial position is strong. We remain in a good position to deal with increased operating costs and the economic uncertainty with which we are faced and to reinforce Hong Kong’s position as a leading international aviation hub.
“The current high fuel prices and economic uncertainty are a reminder that we operate in a challenging and unpredictable industry and accordingly must continue to manage our finances prudently. Despite the uncertainties and challenges, we are confident of our position and that we can meet those challenges. We have a superb team, a strong international network, exceptional standards of customer service, a strong relationship with Air China and our position in one of the world’s premier international aviation hubs, Hong Kong. We expect these core strengths to ensure the continued success of the airline.”
About Cathay Pacific
Cathay Pacific offers 14 flights weekly non-stop from Vancouver to Hong Kong, daily non-stop service from Vancouver to New York and 14 flights weekly non-stop from Toronto to Hong Kong, plus a 3-time weekly freighter service between Vancouver and Hong Kong and Toronto and Hong Kong. The airline is a member of the oneworld™ alliance and a partner in Asia Miles, a leading Travel Reward program. For more information, visit: www.cathaypacific.com/ca.