Cathay profit dives 59pc on big rise in fuel costs
High oil prices took a heavy toll on Cathay Pacific Airways' half-year profit, which came in at just HK$2.8 billion, down 59 per cent on the same period last year, the airline reported yesterday.
Also contributing to the big drop in profit was the absence of any gains from disposals, compared with a HK$2.16 billion gain in the same period last year from the sale of investments in subsidiaries.
Fuel costs rose HK$6.46 billion or 41 per cent to HK$18.56 billion. The jet fuel price jumped 53 per cent on average to US$128 per barrel, but fuel hedging, which covered 30 per cent of fuel consumption in the year and 20 per cent next year, helped Cathay pocket HK$962 million in hedging gains.
The drop in profit has not deterred the carrier from rejuvenating its fleet. Cathay announced yesterday it had ordered 12 new aircraft for HK$25.6 billion. The latest order will raise the number of aircraft on order over the period to 2019 to 97 - 79 wide-bodied passenger planes and 18 freighters. The estimated cost for the total order book is HK$200 billion. Some of the new planes will replace older aircraft, resulting in a net increase of 37 per cent from an existing fleet of 170.
The latest order is for four Boeing 777-300 extended-range passenger planes and eight Boeing 777-200 freighters, which will be primarily used on regional and European routes.
On the commercial impact of the emissions trading scheme proposed by the European Union for next year, chief executive John Slosar said the extra cost would be passed on to passengers since the carrier was required to buy carbon credits to neutralise its emissions.
The scheme is part of the EU's plan to cut emissions by 20 per cent from the 1990 levels by 2020. Cathay has described the scheme as discriminatory as it penalises long-haul carriers since the EU will charge flights to and from Europe, including non-EU areas.
'We are fully covered and have already bought the carbon credits for next year,' Slosar said.
He did not detail the costs and Cathay has yet to decide by how much each European ticket would be priced higher. European routes account for about 20 per cent of the airline's total traffic.
Mainland carriers have said the emission scheme would cost them 800 million yuan (HK$973.44 million) next year, which translates to 300 yuan more for each ticket.
For the six months to June, Cathay reported a 15.9 per cent year-on-year rise in passenger ticket sales to HK$31.77 billion. Weakening cargo demand since April narrowed cargo sales growth to 7.7 per cent at HK$11.6 billion.
After an exceptionally good year in 2010, when the carrier enjoyed record earnings, soaring fuel prices and softening cargo demand have cast a cloud on the outlook for the remainder of the year.
If the recession in the global economy is sustained, cargo demand would continue to weaken, chairman Chris Pratt said. 'But Hong Kong and Cathay are in quite a special place and as China continues to do well, we will benefit,' he said.
