Cathay Pacific Airways bounced back from its worst loss in history, posting a HK$4.69 billion net annual profit, following an HK$8.7 billion loss in 2008. 'We have seen a much better fundamental change in the demand over the past year,' said Christopher Pratt, chairman of Cathay. Passenger traffic and prices for business class and first class, two major profit drivers for Cathay, had been trending upwards over the past four to five months. But passenger yields, or revenue per passenger per mile, had yet to return to the level in 2007, he said. Disregarding the substantial rebound in premium traffic, Cathay management is contemplating a plan to insert an intermediate product between economy and business class, the so-called premium economy class, in the cabins across its network. Pratt said the airline was trying to identify changes in passenger demand over the longer term. Demand had returned but had fundamentally changed, he said, adding that Cathay wanted to install premium economy seats as early as 2012. Rival carriers Singapore Airlines, British Airways and Qantas Airways also have four class configurations. The move to premium economy seats to capture demand between economy class and business class is part of a global trend, said Karen Chan, transport analyst at RCM. 'It could lure a passenger in economy to trade up his ticket as well as capture the demand for a trade-down from the business class,' Chan said. The ticket price for business class is usually four times economy class while premium economy is just twice the price of economy. The better-than-expected profit result from Cathay not only reflected a HK$1.25 billion one-off gain from selling down part of its stake in Hong Kong Aircraft Engineering Co and the write-back of fuel hedging losses which amounted to HK$2.76 billion, but also a solid recovery in its core business, mainly in the fourth quarter. Cathay's operating profit before fuel hedging and non-recurring items stood at HK$285 million, as opposed to HK$1.44 billion operating losses in 2008. In response to the most severe economic downturn since the Great Depression of the 1930s, the carrier cut passenger capacity by 3.7 per cent and cargo capacity by 13 per cent, instituted an unpaid-leave plan for staff and delayed aircraft delivery. After an unexpected upswing in demand in the fourth quarter, the airline decided to halve the unpaid-leave period to two weeks. Senior management, including Pratt, chief executive Tony Tyler and chief operating officer John Slosar may also resume receiving bonuses in the 2009 financial year after the decision to suspend it in 2008 as long as shareholders give their approval in the annual meeting. Cathay's capacity will return to 2007 levels as early as next year, the company said. Oil prices are the major challenge ahead, Pratt said. 'We've tried active hedging which is an expensive and tricky game and could have a backlash very easily,' he said. There will be no further cash settlement or mark-to-market loss incurred in the company if the Brent price stands above US$80 per barrel in 2010 and 2011, the company said. Sales from passenger services decreased 20.8 per cent year on year to HK$45.9 billion last year on a 1.6 per cent drop in passenger numbers and lower fuel surcharge income. Cargo sales plunged 30 per cent to HK$17.26 billion on a 7.1 per cent dip in cargo volume. Total sales dropped 22.6 per cent to HK$66.98 billion. Earnings per share amounted to HK$1.193 while the directors recommended a final dividend of 10 HK cents. Fuel costs dropped dramatically to HK$17.35 billion from HK$47.32 billion a year earlier after taking into account the fuel hedging gain and the cutback in capacity. Shares in Cathay closed at HK$15.20 yesterday, up 4.68 per cent.