Dragged down by the sluggish cargo business and falling ticket prices, Cathay Pacific Airways plunged into the red in the first half, reporting a HK$935 million loss, compared with a HK$2.8 billion profit a year earlier.
It was the biggest first-half loss since January-June 2003, when it lost HK$1.2 billion amid the Sars crisis.
Sales rose 4.4 per cent year-on-year to HK$48.9 billion and losses per share were 23.8 HK cents. No dividend was declared.
Chairman Chris Pratt said passenger yield, which measures revenue per passenger per mile, was under pressure in all cabin classes.
Business travellers were reducing or deferring trips, while economy passengers were becoming more price-sensitive.
But Cathay continued to play down the looming impact of budget carriers on fares in the region.
'Passengers are always price-sensitive and we have a very competitive price to attract them,' chief executive John Slosar said.
Financial headwinds have buffeted the entire aviation industry amid waning demand for passenger and cargo traffic to and from Europe and the United States.
Softening demand combined with stubbornly high jet fuel prices have seen many airlines struggling in the first half, including Lufthansa, British Airways and Korean Air.
The abrupt rise in maintenance costs and the marked decline in earnings from its associate Air China, in which Cathay holds 20 per cent, also dented Cathay's earnings. The losses in the cargo joint venture with Air China also added to the woes of the carrier.
Cathay, which is the largest air cargo carrier in the world excluding the express giants, is relying heavily on a rebound in international trade and a pick-up in the global economy.
'We are still pinning high hopes on an uptick in cargo demand in the fourth quarter, which is the traditional peak season for cargo,' chief operating officer Ivan Chu said.
Cathay's cargo unit in Hong Kong carried 9.8 per cent less cargo in the first half.
Air China Cargo, a joint venture in which Cathay has a 49 per cent stake, saw its losses rise to HK$600 million in the first half, due to withering export volume from the world's factory to Europe and the US.
To rein in oil costs, Cathay has grasped the opportunity to increase its fuel hedging position to 37 per cent from below 30 per cent. Jet fuel costs, which account for 41 per cent of total operating costs, rose 10 per cent to HK$20.4 billion in the first half.
Maintenance costs climbed 23 per cent to HK$4.6 billion as more engine work was done.
Cathay says maintenance costs will fall in the second half because it has sped up the retirement programme of its Boeing 747-400 aircraft and reduced the frequency of long-haul routes.
Depreciation costs increased to HK$4.4 billion from HK$4.1 billion due to the acceleration in depreciation relating to the nine older B747-400s earmarked for sale.
Cathay said it would continue to add destinations to North Asia, while its subsidiary Dragonair would recruit cabin crews and front-line staff as its capacity would rise 7.8 per cent on last year.