Cathay Pacific Airways has reported a 12.5 per cent rise in earnings before exceptionals for the first half in the face of depressed passenger and cargo yields compounded by high fuel prices and a weak yen. The interim earnings result - up 67.5 per cent when a $541 million exceptional gain from sale of shares in Hong Kong Dragon Airlines (Dragonair) is included - met the expectations of most analysts, who generally considered the figures respectable. Far worse than expected was the extent of the airline's yield decline, with passenger yield falling 4.4 per cent and cargo yield 6.9 per cent. The lower passenger yield was blamed on the weak yen and rising fare pressures from competitors in Southeast Asia. Tougher competition in the cargo industry affected freight carriage rates, and revenue from freight was 'below target' at $2.68 billion - up 4.8 per cent from the first half last year. Despite the negatives, the territory's de facto flag carrier boosted attributable earnings to $1.64 billion, from $983 million in the first half last year. Stripping out the exceptional item left a $1.1 billion result. Turnover rose 6.9 per cent to $15.21 billion, with passenger and excess baggage revenues up 9.04 per cent, and cargo and mail sales rising 3.3 per cent. Net operating profit rose 12.63 per cent to $1.15 billion. Interim dividend per share was up 4.5 per cent - to 11.5 cents from 11 cents - and earnings per share rose to 56.2 cents from 34.3 cents, or to 37.7 cents minus the exceptional. Chairman Peter Sutch, also chairman of parent Swire Pacific, said the board thought it a healthy result considering the tough operating environment. 'Despite continuing pressure on yields, we expect that the second half of the year will be better than the first and the outlook for 1996 as a whole remains positive,' Mr Sutch said. 'Meeting. . . targets has not been easy given the prevailing operating climate, but in general, the first six months has produced a good result.' Fuel costs jumped 19.65 per cent in the period but total airline operating expenses were better controlled, rising 8.17 per cent compared to the same period last year. Cathay has been hurt in recent years by operating expenses rising faster than inflation. Personnel costs in particular have been a concern, but they rose just 8.09 per cent during the half. Cathay's largest shareholder, China-backed Citic Pacific, bought 572.9 million newly issued shares in the airline on June 10, boosting its stake to 25 per cent from 10 per cent and reducing Swire's stake to 43.9 per cent from 52.6 per cent. The purchase left Cathay with $6.3 billion that will be put towards acquisition of new aircraft and to help fund the airline's 1998 move to Hong Kong's replacement airport at Chek Lap Kok. The placement to Citic coincided with Beijing-backed China National Aviation Corp becoming the single biggest shareholder in Dragonair. It bought 35.86 per cent of the regional carrier from Swire, Cathay and Citic for $1.97 billion in return for a pledge to halt plans to set up a rival airline in Hong Kong. Mr Sutch said of the share restructuring: 'We believe that these arrangements will contribute to the continued growth of both Cathay Pacific and Dragonair and allow us to take full advantage of the opportunities afforded by the new airport at Chek Lap Kok, within a stable and positive aviation environment.'