Fuel savings propel Cathay's profit
Airline to raise passenger capacity and cargo yields with help of more fuel efficient aircraft
Cathay Pacific Airways tripled its net profit last year to HK$2.62 billion largely on the back of savings in fuel costs and a slight improvement in passenger yields as Hong Kong's flagship carrier plans to expand cargo and passenger traffic in 2014.
The net was in comparison to 2012 earnings of HK$862 million. A HK$2.3 billion reduction in total fuel costs was the main contributor to the bottom line.
The fuel cost savings came from three main factors; a 3 per cent fall in fuel prices, hedging to trim the cost of fuel supplies and a reduction in the number of flights.
Passenger yields rose 1.8 per cent due to an increase in front cabin, business and first class customers, and in long-haul routes which padded net profits. Passenger revenues climbed 2.4 per cent in the year to HK$71.8 billion. The earnings were in line with market expectations of HK$2.65 billion.
Cathay is looking forward to further improvement this year.
"The business outlook for 2014 looks to be improved when compared to 2013," Cathay chairman Christopher Pratt said.
"For an industry operating with thin margins like airlines, improvement in passenger yield, be it as low as 1 or 2 per cent, could mean a big deal to the bottom line," said Daiwa Capital Markets analyst Kelvin Lau. "On the flip side, the company could easily [go into the] red if they fail to do the bits and pieces to improve their efficiencies."
After a contraction of 1.8 per cent in passenger capacity last year, Cathay is looking to raise passenger capacity by 7 per cent this year, mainly on routes to North America and Europe. Some 16 fuel efficient aircraft, mainly Airbus 330s and Boeing 777-300ERs, will be delivered and six B747s will be let go.
Cathay shares fell 2.4 per cent yesterday to end at HK$15.40.
Cathay believes the cargo business remains challenging. "The problems we are facing in air freight may be due to structural instead of cyclical reasons," Pratt said. These include competition from Middle East carriers over European bound cargo, the battle against sea-borne trade, and the growing trend of local sourcing.
Replacing the B747 with fuel efficient freighters and passenger aircraft that can load more cargoes in their bellies would help counter the negative factors in the cargo trade, said Ivan Chu, chief operating officer of the airline. Cathay's cargo revenue dropped 3.6 per cent year on year to HK$23.6 billion last year. Cargo yields declined 4.1 per cent.
Cathay's outlook on its cargo business was gloomier than the market view. The International Air Transport Association said earlier this week that more signs were pointing to stronger demand growth in air cargo globally in 2014.