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Cathay Pacific

Cathay Pacific says air congestion and other delays cost HK$1b last year

Airline’s full-year profit jumps 91pc to HK$6 billion, even as fuel-hedging loss widens to HK$8.47 billion

PUBLISHED : Wednesday, 09 March, 2016, 9:32pm
UPDATED : Friday, 01 April, 2016, 3:38pm

Air traffic congestion in Hong Kong and mainland China last year cost Cathay Pacific Airways HK$1 billion, the company said Wednesday, the first time the airline has calculated the figure.

“One of the biggest challenges we faced in 2015 was the impact of air traffic control-related delays in the Greater China region, and the increasing congestion at Hong Kong International Airport,” Cathay chairman John Slosar said at a media briefing Wednesday. “There is a real cost to all this - in the region of HK$1 billion last year. Delays and congestion create a lose-lose situation for airlines and our customers alike,” he said.

Delays and congestion create a lose-lose situation for airlines and our customers alike
John Slosar, Cathay Pacific chairman

The figure includes the cost to reroute passengers and adjust fleet deployment, the airline said.

Cathay reported a 90.5 per cent jump in profit to HK$6 billion, beating analysts’ estimates, despite a HK$8.47 billion loss from fuel hedging.

The airline is now carrying more transit than Hong Kong originated passengers, said chief executive Ivan Chu.

“Last year, for the first time, the number of sixth freedom passengers we carried is bigger than traffic originating from Hong Kong,” Chu said.

As transit traffic tends to be less profitable, that contributed to a 11.4 per cent drop in passenger yield, the unit revenue indicator, he said, apart from weak demand for its premium cabin seats and lowered fuel surcharges.

Bocom International analyst Geoffrey Cheng said the changing traffic pattern has mixed impact on Cathay’s yield outlook.

“Often times transiting traffic is less profitable. But as a network airline you cannot do without that. It is a matter of balancing revenue and passenger mix,” Cheng said.

Will Horton, an analyst with the Centre for Aviation, said markets outside Hong Kong offer greater growth potential.

“Hong Kong full-service demand is saturated. The opportunity in Hong Kong is mostly at the budget end of the market,” he said.

Cathay filled 85.7 per cent of its seats last year, an all-time high load factor and an increase of 2.4 percentage points year-on-year. Slosar said the airline will try to capture more of the growing traffic demand out of and into mainland China.

He also said Cathay is not abandoning fuel hedging despite the steep losses from wrong bets that had locked in prices at higher levels.

“Obviously, being unhedged would have been the best in 2015,” he said. “Our aim in hedging remains mitigating the risk of exposure to rapidly rising, or very high and sustained, fuel prices....So, hedging will remain an element of our risk management strategy,” he said.
In spite of the hedging losses, the company still saw saved HK$7.33 billion on its fuel bill thanks to a 40 per cent drop in the fuel price. Its existing hedging contracts extend to 2019. Bocom’s Cheng said if fuel stays at current level, Cathay’s 2016 fuel hedging loss will not be as bad as 2015’s.

Cathay’s shares rose 4.6 per cent to HK$14 on Wednesday.

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