Cathay Pacific net profit plunges 61%

HONG KONG: Cathay Pacific on Wednesday said its 2011 net profit plunged 61 per cent as it struggled with high fuel prices as well as softening demand for its cargo business, and warned of a challenging 2012.


The Hong Kong flag carrier said it earned HK$5.5 billion ($709 million) last year, well below the record HK$14.0 billion profit it recorded in 2010, despite a 9.9 per cent increase in total revenue to HK$98.41 billion.


“After a record year in 2010, we faced a number of major challenges in 2011,” chairman Christopher Pratt said in a statement to the Hong Kong stock exchange, where the airline is listed.


Passenger revenue for the year rose 14.2 per cent to HK$67.78 billion. It carried a total of 27.6 million passengers last year, a rise of 2.9 per cent from 2010, as demand for premium class travel remained robust.


Pratt said the challenges included the instability of the global economy, the weakness of the air cargo market, the impact of natural disasters in Japan and Thailand, unrest in the Middle East and continued high jet fuel prices.


“Fuel is our biggest single cost and the persistently high jet fuel prices had a significant effect on our operating results in 2011,” Pratt said, adding that gross fuel costs surged HK$12.46 billion, or 44 per cent, in 2011.


The airline also noted weakened demand for cargo shipments from its two key markets, Hong Kong and mainland China, as well as the European market, due to falling exports amid weak consumer sentiment.


Cargo revenue for 2011 was up 0.3 per cent to HK$25.98 billion compared with 2010, but the load factor fell.


Cathay Pacific shares fell 2.82 per cent to HK$15.14 after the announcement.


Pratt warned of a challenging year ahead, with pressure on Cathay’s economy class yields and cargo business due to global economic uncertainties.


“As a result, 2012 is looking even more challenging than 2011 and we are therefore cautious about prospects for this year,” he said.


“We will continue to be vigilant in managing our costs while not compromising the quality of our products and services or our long-term strategic investment in the business. Our financial position remains strong.”


Cathay has a fleet of 133 aircraft and, along with subsidiary Dragonair, flies to more than 160 cities.


Cathay’s announcement comes as the aviation industry comes under pressure from soaring fuel prices and low demand, with regional players like Singapore Airlines, Qantas, Malaysia Airlines and Air New Zealand posting dismal earnings.


Singapore Airlines has asked its pilots to volunteer for unpaid leave for up to two years and said it would raise fuel surcharges after reporting a 53 percent plunge in third-quarter profit.


Air New Zealand said it would slash more than 400 jobs after a 61.2 per cent slump in half-year profit, while last month Qantas said it would slash at least 500 jobs, cut costs and close two international routes after posting an 83 per cent slump in first-half net profits.


Cathay has received the green light from Hong Kong’s civil aviation authorities for its application to raise passenger fuel surcharges by up to 7.0 per cent this month. The application is reviewed on a monthly basis.


The International Air Transport Association in December cut its forecast for the sector’s profits this year to $3.5 billion, down from its earlier forecast of $4.9 billion.


The IATA warned of losses of more than $8.0 billion under a worst-case scenario in which the eurozone debt problem evolved into a full-blown banking crisis and a European recession.



About the author

Aziz Hassan

A journalist since July 1976 with both the English and Malaya press and was with two newspaper groups before The Mole. Does corporate report-writing and translation in his free time. Currently also a contributing weekly rugby columnist for the New Straits Times.