Cathay Pacific

Cathay Pacific profit surges but falls short of estimates

Net profit soars in the first six months but still falls short of airline and analyst expectations

PUBLISHED : Wednesday, 13 August, 2014, 2:10pm
UPDATED : Thursday, 14 August, 2014, 5:09am

First-half net profit at Cathay Pacific Airways rose to HK$347 million from HK$24 million in the same period last year but still fell short of the company's and analysts' expectations.

Chairman John Slosar said "the results continue to be below where we'd like them to be".

But results in the second half were expected to be "much better" because of seasonal factors and signs of pickup in cargo load, Slosar said.

Shares of Cathay, which includes Cathay Pacific and Dragonair, dropped 1.74 per cent to end yesterday at HK$14.68. In contrast, the benchmark Hang Seng Index finished at its highest in more than 31/2 years by rising 0.81 per cent to 24,890.34 points.

The company reported yesterday that yield, the most important measure of an airline's profitability, slipped 3.5 per cent in the passenger business to 66.6 HK cents and dropped 6.9 per cent for cargo and mail.

The profit margin improved by 0.6 percentage point to 0.7 per cent.

The company blamed industrywide challenges such as high fuel prices and weak cargo demand as well as losses from Air China, in which it holds a 20 per cent stake. The mainland's flag carrier is due to post its results on August 26.

Revenue from passengers accounted for HK$37 billion out of total revenue of HK$51 billion, up 4.4 per cent from the same period last year.

The passenger load factor, which measures how well an airline is filling its planes, improved by 2.3 percentage points to a three-year high of 83.6 per cent, but yield declined 3.5 per cent overall, with European routes being the only ones on which yield improved.

Andrew Orchard, an analyst at CIMB securities, said Cathay's earnings were still "a little underwhelming" given market expectations of a "faster recovery".

"The bigger competitive story is continued short-haul pressure and growing transpacific capacity," said Will Horton, an analyst at the Centre for Aviation. He dismissed competition from Gulf carriers as the main reason for Cathay's performance.

Yields from North America, which contributed the most turnover outside Hong Kong and the mainland, are being squeezed by competition.

"It may not be until after 2015 that the market bottoms out," Horton said.

Demand for travel to the mainland was "below expectations" in the first half because of increased competition, the company said. But travel from the mainland continued to grow, and Cathay's cargo business on the mainland also expanded.

Cargo contributed turnover of HK$11.7 billion for the world's largest cargo carrier. Chief executive Ivan Chu said total tonnage rose 8.5 per cent and key markets such as the US, China and Asia showed signs of improvement, but overcapacity worldwide since 2011 remains a challenge.

Fuel costs, accounting for 37.9 per cent of the HK$49 billion total operating costs, increased 5.2 per cent from the same period last year with more flights operated.

Barclays said it expected Cathay's passenger yield to rebound in the second half, driven by the high load factor, fewer new routes, easing political tension in Thailand - which should help short-haul routes - and the accelerated retirement of the company's older aircraft.