Cathay Pacific posts first annual loss in eight years

Cathay Pacific posts first annual loss in eight years

Cathay Pacific reported its first annual loss in eight years in 2016 in the face of intensified competition from rival carriers serving China.

The Hong Kong-based airline group slumped HK$575 million ($74.01 million) into the red last year after achieving a profit of HK$6 billion the previous year.

The group’s passenger revenue in 2016 was almost HK$67 billion, a decline of 8.4% from the previous year.

Capacity increased by 2.4%, reflecting the introduction of new services and increased frequencies on other routes.

Passenger yield, which was under “intense pressure” throughout the year, fell by 9.2% to HK54.1 cents, “reflecting overcapacity in the market, a decline in premium class demand and weak foreign currencies”.

The load factor decreased by 1.2 percentage points, to 84.5%.

The 2016 performance came as rival airlines, including low cost carriers, “significantly increased capacity” including more direct flights between mainland China and international destinations.

Chairman John Slosar warned that the operating environment in 2017 was expected to “remain challenging”.

He said: ”Strong competition from other airlines and the adverse effect of the strength of the Hong Kong dollar are expected to continue to put pressure on yield. The cargo market got off to a good start, but overcapacity is expected to persist.

“We expect to continue to benefit in 2017 from the fact that fuel prices are much lower than their previous high levels, but to a lesser extent – because of some increase in oil prices in recent months – than in 2016.

“We also expect to incur further fuel hedging losses in 2017, but these should be less than in 2016. Our subsidiaries and associates are expected to continue to perform satisfactorily.”

He added: “Despite the challenges with which we are faced, we still expect our business to grow in the long-term.

“Air traffic to, from and within the Asia-Pacific region is expected to grow strongly. We intend to benefit from this growth by increasing our passenger capacity by 4-5% per annum, at least until the third runway at Hong Kong international airport is open.

“We will continue to introduce new destinations and to increase frequencies on our most popular routes. We are buying new and more fuel efficient aircraft. This will increase productivity and reduce costs.”

A three-year programme of “corporate transformation” has been started with the intention of achieving returns above the cost of capital, Slosar said.

Revenue management, distribution and pricing practices are being reviewed and an increase in ancillary revenue is planned.

“The goal is to become a more agile and competitive organisation in order to take advantage of changing market trends and customer preferences.

“We will continue to make investments designed to strengthen our brand and what we offer to our customers.

“We aim to deliver better services and to do so more effectively through the use of data analytics and mobile technology. Doing this will increase operational efficiency and help us to meet our customers’ needs better.

“Just as important as improving revenues is reducing costs. We are working on operational changes intended to improve the reliability of our schedules.

“This will reduce the costs of disruption and will also enable us to use our assets more efficiently and to improve our on-time performance.

“Our organisation will become leaner. This will improve productivity and reduce costs and will also enable us to make decisions more quickly. Our aim is to reduce our unit costs excluding fuel over the next three years.”

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