Cathay Pacific rides out high oil costs
Carrier's profit falls marginally, helped by passenger growth and surcharges
Greater demand for travel, especially premium class, and increased income from fuel surcharges helped Cathay Pacific Airways overcome surging oil prices to beat interim earnings expectations, posting only a marginal decline yesterday.
The expansion-minded carrier's net profit fell just 0.1 per cent to HK$1.66 billion year on year for the first half, beating the HK$1.5 billion median forecast in a Bloomberg survey of seven analysts, despite a 30.5 per cent rise in its aviation fuel costs to HK$8.68 billion.
Sales rose 13 per cent to HK$27.1 billion and interim revenue reached HK$27.8 billion on record volumes for both cargo and passengers.
Cathay carried 11.1 per cent more passengers than in the same period last year.
A stronger fuel hedging position helped the airline mitigate skyrocketing operating costs, restricting net fuel expenses to HK$5.89 billion, a 12.2 per cent rise. 'The biggest obstacle to a satisfactory profit was again the price of fuel,' Cathay Pacific chairman Christopher Pratt said yesterday at a post-results press conference.
'For every HK$100 we earned, some HK$38 went to the fuel suppliers. This is very frustrating.'
Cathay offered an interim dividend of 20 HK cents per share, the same as last year.
These results do not include any contribution from the carrier's recent HK$8.22 billion acquisition of Hong Kong Dragon Airlines, which posted an interim loss, according to a separate announcement by Cathay Pacific yesterday.
The deal is due to be completed by the end of the month.
Asia's second-most profitable carrier said cargo volumes grew 10.6 per cent to 573,000 tonnes compared with the same period last year.
But yields - a key measure of profitability expressed in income per kilometre - shrank 3.4 per cent for the segment to HK$1.69 under pressure from higher operating costs. Passenger yields fell 3 per cent to 45 HK cents.
Cathay generated higher than expected fuel surcharge income of HK$2.8 billion in the first half, according to HSBC regional transport analyst Mark Webb, who forecast a 10 per cent decline in interim earnings.
The airline raised its fuel surcharges for the second time this year on August 1.
It is charging HK$481 for each leg of a long-haul flight and HK$117 for flights within Asia.
'Matching last year's earnings was a strong performance,' Mr Webb said.
'Income from fuel surcharges was 18 per cent higher than we had expected and the hedging gains also were higher by HK$500 million.'
The surcharges recovered about 60 per cent of the airline's additional fuel costs in the first half, the company said.
Cathay has hedged 50 per cent of its anticipated demand for jet fuel for the rest of the year and is already committed to 25 per cent for next year, according to finance director Robert Atkinson.
It is also awaiting an end to the Airport Authority's three-month consultation period on the construction of Chek Lap Kok's third general cargo terminal, which Cathay has applied to build and operate as soon as possible.
'Timing is important. But I think it is more important that the authority reaches the right decision,' Mr Pratt said.
Cathay shares rose less than 1 per cent yesterday to close at HK$14.02, the highest closing price in almost five months.
