Cathay Pacific posts HK$2.3 billion profit for 2018 as Hong Kong airline turns corner
- Earnings helped by company’s stake in Air China and customer loyalty programme Asia Miles
- Outlook for 2019 being shaped by trade war with US and strained labour relations
Cathay Pacific Airways’ measures to cut costs and boost revenues have borne fruit, generating a HK$2.34 billion (US$293 million) annual profit and halting two years of back-to-back losses, as executives remained tight-lipped about a bid for rival HK Express.
The airline was cautiously optimistic about 2019, determined to build on recent gains despite geopolitical and macroeconomic headwinds, saying it would grow capacity 6.9 per cent this year, through flying more and further.
Delivering its annual results on Wednesday, the company said its core airline business provided a small, positive contribution of HK$241 million – a profit margin of just 0.2 per cent – as earnings were shored up by Cathay’s 18.13 per cent stake in Air China, its loyalty business Asia Miles, and holdings in cargo business ventures.
It unveiled an annual profit for the first time in three years on revenue of HK$111 billion, an increase of 14.2 per cent on the previous year. Cathay made a loss of HK$1.25 billion in 2017.
“Our transformation programme is yielding positive results. We are making good progress on each of them,” chairman John Slosar said at a post-results briefing, referring to the airline’s cost savings and productivity.
“That being said, there is still much to do and we do aspire to have much better results going forward.”
CEO Rupert Hogg said the company had turned a corner on a “tough couple of years” of losses and companywide restructuring. Staff were also given a HK$2,000 bonus as a reward.
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The airline’s executives noted the financial consequences of a massive data breach, the impact of the US-China trade war and strained labour relations.
Looking ahead, Cathay said concerns remained over the US-China trade war, which could hurt its booming cargo business, an area that had shored up weakness in the passenger airline unit in recent years.
It said business would remain “challenging”, citing geopolitical discord, global trade tensions and dampening passenger and cargo demand. The airline also cited competition concerns, especially in long-haul economy class.
The bosses, however, also struck a note of optimism about the outlook.
“I don’t think we’ve seen anything to tell us that 2019 is not going to have some areas of strength that we can exploit,” Slosar said, citing a stronger US market and robustness in Asia, though the region had softened from a strong base.
Hong Kong’s biggest airline remains in talks with mainland China’s HNA Group to buy budget carrier rival HK Express in a takeover bid. But the Cathay executives remained guarded about the possible acquisition, giving little away other than the carrier and its rival’s controlling shareholder were still talking.
“We can’t elaborate,” Slosar said, adding: “We are not at liberty to expand on that.”
Also on the horizon for the airline are the implications and potential fines from a huge data breach, which affected 9.4 million customers and was described by Cathay as one its worst company crises. Some 15 countries and 27 regulators had sought answers from the airline, but no fines have been issued so far.
The airline said it still knew little about the financial consequences but anticipated regulatory fines.
“We made no provisions because there are no specific cases that will be faced but as for the future we don’t know,” Slosar said.
A charge of HK$58 million was made associated to data security costs, but not fines.
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Hogg said the airline would continue to keep costs under control through innovation and productivity improvements.
Though its three-year restructure would conclude this year, “it won’t stop at the end of 2019”, the CEO added. “Beyond 2019 we are thinking how to continue that innovation and continuous improvement in productivity so we are always as efficient as we can be.”
The airline racked up a fuel hedging loss of HK$1.4 billion, down 77 per cent year on year. Losses from long-term speculative bets on the price of oil have been a major cause for the airline’s downturn in fortunes. It has been able to recoup some of those losses through a passenger and cargo fuel surcharge.
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The airline took a charge of HK$201 million as a result of cutting hundreds of jobs overseas. It booked a similar HK$224 million charge for cutting jobs in Hong Kong the previous year. The job cuts were reflected in a 1.2 per cent rise in staff costs in 2018.
The airline would supplement its expansion by hiring 500 pilots, 1,500 cabin crew and 270 airport staff, similar numbers to last year.
As for diversifying from an all-male leadership team, Slosar said Cathay had no firm plans for appointing its first female director in a year, but pointed out it hired more women than men.
