Cathay to post record profit, say analysts

PUBLISHED : Monday, 07 March, 2011, 12:00am
UPDATED : Monday, 07 March, 2011, 12:00am

Cathay Pacific Airways is set to unveil a bumper profit for 2010 on Wednesday, thanks to strong gains in passenger and cargo volumes and a one-off exceptional gain.

Goldman Sachs has forecast the carrier could report a record net profit of HK$14.5 billion for the year ended December 31, though this will include a windfall gain from the sale of its stake in Hong Kong Aircraft Engineering last June.

Stripping out this exceptional item, analysts report baseline net profit will range between HK$12-13 billion, which would include a contribution from Air China.

This time last year the airline reported attributable profit of HK$4.69 billion for 2009, following a loss of nearly HK$8.7 billion the previous year. Turnover in 2009 fell by 22.6 per cent to just under HK$66.98 billion.

Analysts expect that total revenue for 2010 will vary between HK$88 and HK$92 billion. This was despite the disruptions caused by Iceland's volcanic eruptions in April and snow in December.

And while net profit could stall this year on the back of higher oil prices, analysts are already forecasting a further bumper revenue year for 2011 with total group revenue set to top HK$100 billion.

Cathay Pacific has already signalled it is headed for a record year after disclosing in a November 15 trading statement that it expected net profit would 'not be less than HK$12.5 billion'.

Included in this outcome, it added, was a share in a likely profit of HK$1.7 billion forecast for Air China for the second half of 2010. And the bottom-line profit would also include aggregate profit of almost HK$2.17 billion from the sale of its interests in Hong Kong Air Cargo Terminals, and the European Commission's imposition of a Euro57.12 million (HK$618.57 million) fine on the airline.

Underpinning gains, it said, was strong demand for passenger and cargo services.

The airline saw passenger numbers rise 9.1 per cent to 27.8 million last year, while cargo volumes were up 18.1 per cent to 1.8 million tonnes.

Tony Tyler, the airline's chief executive, said in the November trading statement that the expected results would follow a difficult period brought on by the financial crisis.

'Two years ago we suffered a record loss. This year we expect to make a record profit. This only goes to show that we must manage our business prudently, so that we are able to thrive in the good times and survive the bad times,' said Tyler, who retires at the end of this month.

Analysts warn that while it may be too early to tell if those bad times will return this year, the carrier will face more turbulence partly through inflation and higher costs, but also increased capacity.

'Outside of the usual suspects [including rising fuel bills] ... this year the airline is facing inflationary pressure through wages and higher airport landing fees,' one analyst said.

Pointing to rising fuel costs, the International Air Transport Association, which represents 230 airlines operating 93 per cent of scheduled air traffic, said fuel was now estimated to represent 29 per cent of an airline's total operating costs compared with 26 per cent in 2010.

While fuel hedging, passenger and air cargo fuel surcharges, and increased demand will offset some of the impact from higher fuel prices, the rise in the cost of jet fuel will undoubtedly hit net profit this year.

This will come at a time when Cathay is scheduled to take delivery of 15 passenger and freight aircraft.

Nine passenger Airbus and Boeing planes and six Boeing 747-8 freighters will join the Cathay Pacific fleet in 2010.

On the up

Cathay Pacific has seen strong gains in passenger volumes

The airline saw passenger numbers rise last year by this much: 9.1%