Update | Cathay 'cautiously optimistic' after results disappoint
Airline reports half-year profits increase nearly five times year on year to HK$1.97 billion
Shares of Cathay Pacific Airways slid 7.7 per cent on Wednesday after it reported half-yearly profits had increased nearly five times year on year but missed analysts' expectations.
Net profit for the first six months at the airline and its subsidiary Dragonair combined was HK$1.97 billion, lagging market estimates of HK$2.119 billion. That compares with HK$347 million in the same period a year ago when oil prices were twice the current level.
Revenue dropped 0.9 per cent to HK$50.39 billion despite an 8.8 per cent increase in traffic.
"Strong competition, a significant reduction in fuel surcharges and a higher proportion of passengers connecting through Hong Kong put downward pressure on yield," said chairman John Slosar. The company also blamed the devaluation of various currencies in Cathay's key markets such as the yen, the euro, and the Australian dollar.
Passenger yield, a measure of profitability, dropped 9.3 per cent to 60.4 HK cents as premium class demand on long-haul routes was weaker than expected, the company said. Cargo yield dropped 11.1 per cent to HK$1.93, reflecting the drag of waning Chinese exports on the global air cargo market.
The airline that prides itself on its premium product offerings is not filling as many seats in the front of the plane as it would like.
A passenger load factor - a measure of capacity utilisation - of 85.9 per cent in the first half, a year-on-year improvement by 2.3 percentage points, makes Cathay 8 percentage points ahead of its peers and is "the highest in Asia", said chief executive Ivan Chu, adding that almost half were transit passengers.
Slosar said prospects for its cargo business, which saw a 2.5 per cent drop in revenue to HK$11.38 billion, were "hard to forecast".
While Cathay's fuel bill shrank by 12 per cent to HK$16.6 billion in the first half, wrong bets made earlier on fuel price movement meant hedging losses amounting to a whopping HK$3.7 billion for the first half would continue to grow as long as oil prices stay low.
Chief financial officer Martin Murray said the airline took out some hedging contracts at the beginning of the year and has not made any significant changes since, making it 63 per cent hedged at an average Brent price of US$91 per barrel for the remainder of the year.
The company declared an interim dividend of 26 HK cents per share.
