Cathay Pacific Airways announced earnings well below expectations yesterday as yield pressure on regional routes and a weak cargo market derailed recovery efforts.
The world's biggest international air cargo carrier posted net profit of HK$24 million in the first half of the year, far below the HK$600 million expected by analysts.
Cathay's ambitions to achieve a significant turnaround was also stymied by the losses generated from its air cargo joint venture, Air China Cargo, and establishment losses at its HK$5.9 billion cargo terminal at the airport that opened in February.
Still, thanks to lower jet fuel prices and stronger passenger demand, the company recovered from its HK$929 million loss in the same period last year. Turnover declined 0.6 per cent to HK$48.6 billion.
"The fortunes of the airline industry correlate closely with the world economy so we don't expect to see any sustained pickup in business until the world economy is on a surer footing," chairman Christopher Pratt said.
Airline operations in the past six months achieved HK$452 million in pre-tax profit, against HK$1 billion in losses last year.
Passenger yield and load factor improved, helped by a nearly 5 per cent cut in capacity in the first half after the early retirement of four Boeing 747-400s and the reduction in long-haul routes.
Reductions in capacity will ease to 1.5 per cent for the full year with the arrival of three B777s in the second half of the year.
Cathay will restore by next month all the long-haul passenger flights cancelled as part of a wave of cost-cutting last year.
Its profit was dented by a loss of about HK$400 million in Air China Cargo, of which it owns 49 per cent, and the HK$350 million loss in the cargo terminal in the first half.
"We hope that the operation at Air China Cargo will improve in the second half as we will replace B747-400s freighters with more fuel-efficient B777s," said Ivan Chu, the company's chief operating officer.
The management also pinned hopes on a reduction in the cargo terminal's losses when it comes into full operation later this year.
Cathay restored flights to Los Angeles to three times daily from June and intends to restore flights to New York to four times daily from next month. This week, it said, it was adding a daily flight to New York's Newark Airport.
Compared with long-haul flights, Cathay said its regional routes faced yield erosion due to competition and price cuts.
Traffic growth from the Pearl River Delta region was undercut by strong competition from mainland carriers. Outbound traffic to Japan soared on the weak yen but was nearly offset by a slump in inbound traffic.
Overall demand for travel to and from the mainland was "reasonably robust" until April, when passenger traffic into the mainland fell sharply after the outbreak of avian flu, Cathay said.
The carrier's cargo business remained under pressure due to overcapacity and softening demand, with cargo revenue falling 5.2 per cent to HK$11.3 billion.
"Demand in the major air cargo markets remained weak," Pratt said. "Our cargo has been affected by weak demand for more than two years, which is unprecedented."
A dividend of 6 HK cents per share will be paid.