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SCMP Reporter

TOO many empty seats on the lucrative Taiwan run, too few new passengers elsewhere, and too rapid increases in costs kept profits of Cathay Pacific Airways almost grounded last year.

  The group yesterday posted a 4.1 per cent rise in net profits for last year and chairman Peter Sutch said unexpected traffic slumps on the lucrative Taiwan route were one factor behind the somewhat disappointing HK$2.38 billion in earnings.

    Mr Sutch also blamed smaller than expected traffic growth, at 11.6 per cent, and personnel cost increases of 13.5 per cent.

   These factors, combined with depressed yields on passengers and cargo, down 4.3 per cent overall, made last year difficult.

  However, another strong showing by Hong Kong Dragon Airlines (Dragonair) and a good year for Cathay Pacific Cargo helped the airline to avoid posting negative results.

  'The first few years of the 1990s have probably been the most difficult ones the industry has faced,' said Mr Sutch.

  'I believe that [result], under the circumstances, to be a creditable result.'   The marginal increase in attributable earnings and a 4.25 per cent increase in earnings per share, to 83.4 cents, comes after 1993's drop of 24 per cent from the HK$3 billion profit recorded in 1992.

   The 1993 loss was largely attributed to a 17-day cabin crew strike early in the year that cost the airline HK$240 million. Analysts had predicted a six per cent rise in profits and earnings per share last year, to HK$2.43 billion and 85 cents respectively, according to the March Estimate Directory.

  Although Dragonair's performance figures were not revealed, analysts estimated the airline to have generated well over HK$500 million last year, significantly up from the HK$425 million it is thought to have earned in 1993. Cargo also boosted Cathay's results, with the business growing 17.4 per cent last year.

  Revenues rose to US$627 million, accounting for 20 per cent of the airline's total revenue.

  Positive results were also posted by Securair and Cathay Pacific Catering Services.

  Other associates, meanwhile, did not produce such strong showings, with Hong Kong Aircraft Engineering Company (HAECO) posting a 7.5 per cent drop in attributable earnings, to $413.6 million.

  Air Hong Kong, in which Cathay took a 75 per cent shareholding last year, lost more than $70 million.

  A ban on Taiwanese group travel to China following the murder of 24 tourists last year hit Cathay for several months. It was the airline's most profitable route and accounted for an estimated 15 per cent of its business. Managing director Rod Eddington said personnel expenses also hit the airline hard, rising by a greater percentage than operating expenses, by 13.5 per cent, to HK$6.17 billion over 1993's HK$5.43 billion.

  Operating expenses rose by 12.2 per cent to HK$22.69 billion over 1993's HK$20.22 billion.

  Depressed yields continued to plague the airline, with passenger yields falling by 2.6 per cent despite an increase of 9.3 per cent to HK$20.02 billion in passenger and excess baggage revenue.

  Cargo and mail revenue increased by 14.7 per cent but yield dropped by 2.6 per cent.

  Mr Eddington said, however, that a smaller decline in yields than in 1993 was a positive sign and that Cathay expected yields to bottom out this year because few airlines were introducing new capacity into the market. Mr Sutch said he was cautiously optimistic that this year would be a better year for Cathay.

  'We are looking forward to some further improvement in 1995,' said Mr Sutch.

  He said there was a little more optimism than over the past few years.

  But the year started on a negative note and fallout from the Kobe earthquake was expected to hit the airline hard in the first half.

  Travel to Japan is already down by about 20 per cent and travel to western Japan is down 33 per cent from before the earthquake.

Analysts estimate the Japanese market to account for just under a quarter of Cathay's business.

  Morgan Grenfell analyst Viktor Shvets said that while the Japanese earthquake would have an effect on earnings in the first half of the year, he expected this year to be much better than last.



Cathay battles headwind