CATHAY Pacific has reported a slight increase in profits for 1992 to $3 billion, but predicted a difficult six months ahead. While the airline's overall profit level has remained fairly static for the last three years, profit margins declined for the third successive year because of inflation, soft market conditions and increased airport charges and taxes. A 1.9 per cent increase in profits may be small compared to the rises being reported in other sectors, but for a company in the aviation industry, which is in serious recession worldwide, it was an achievement. World airlines together lost between $19.5 billion and $23.4 billion in 1991. Total losses of $46 billion are expected to be reported for last year. Cathay has been one of very few airlines to remain in the black. It has managed to maintain its profit levels thanks to increased turnover and productivity. The fare wars that started in 1991 continued last year because of a world capacity surplus and the need for many airlines to generate cash regardless of profits. Given these factors, said Cathay chairman Peter Sutch, the result showed a ''creditable performance''. The company declared a final dividend of 31.5 cents per share, bringing the total for the year to 42 cents per share, the same as for 1991. Earnings per share increased by two per cent to 105 cents. Mr Sutch said: ''In a world airline industry that remained in a weak state, with excess capacity on many routes, Cathay Pacific was faced with a real challenge to maintain yields. ''In addition, Hongkong's high inflation rate continued to exert severe cost pressure in our home base.'' Mr Sutch said he expected to see continued soft demand and severe price competition in the immediate future. The recessions in Japan and Europe were the most important negative influence on Cathay last year. ''The outlook for our major Japanese market remains depressed, but there are some signs that the major economies outside the Asia-Pacific region are finally beginning to emerge from their lengthy recessions,'' said Mr Sutch. Turnover last year rose 11.3 per cent to $23.31 billion. The airline's total capacity rose 15 per cent, from 5,621 million available tonne kilometres in 1991 to 6,466 million. The revenue load factor fell 0.6 of a percentage point to 70.4 per cent. To improve productivity, Cathay launched its ''operation better shape'' review in the spring of 1991. The review is expected to take another two years to complete. Major changes have so far included the moves of Cathay's revenue centre to Guangzhou and its data centre to Sydney, Australia, to capitalise on far lower costs. It has also been investigating the possibility of setting up a joint-venture aircraft engineering centre in China through Hongkong Aircraft Engineering Co. The efforts made to cut costs have impressed analysts. Profits were at the lower end of market expectations, but investors were heartened by the fact that there had been no drop in earnings per share. This helped the shares hold up well. They fell just 0.5 per cent to $9.80 on a day when the Hang Seng Index fell 1.8 per cent amid renewed concern over Sino-British relations. Mr Wong Kam-ming, an S.G. Warburg Securities analyst, thought the profits disappointing, and expressed concern about directors' predictions of a ''difficult'' half year ahead. Although many airlines have not yet reported results for 1992, most that have have had pitiful news. The top 10 carriers in the US have already revealed they together lost $42.9 billion in 1992, a sum that admittedly included one-off payments for retirement plans and redundancies as the industry cut staff costs. Lufthansa and Air France have each made operating losses of more than $3.9 billion and Japan Air Lines is expected to report losses of around $3.12 billion. And Scandinavian Airlines System (SAS), reporting its third consecutive year loss, yesterday said it needed to team up with one of Europe's top five airlines to survive. The carrier, half of which is owned by the governments of Denmark, Norway and Sweden, said losses after financial items had leapt in 1992 to 849 million Swedish kronor (about HK$857 million) from a 61 million kronor loss in 1991. Mr Rod Eddington, Cathay's managing director, said: ''Clearly our challenge is to do two things. One is to prevent erosion of profit margin, but also to make sure continue to see real growth in the business, and Hongkong inflation is a major problem. ''In 1992, the average Cathay Pacific staff member in Hongkong got a salary increase of a touch over 10 per cent. . .You have got to pay good salaries to good people and in our business we need good people. ''Slashing salaries is absolutely the very last position any good business should get itself into. It is the last thing we want to do, so we are constantly looking at other ways of getting productivity up without having to take that drastic step.''