Cathay Pacific Posts Profit on Capacity, Haeco Sale (Update1)
March 10, 2010, 1:24 AM EST(Adds chairman’s comment in 13th paragraph.)
By Wendy Leung
March 10 (Bloomberg) -- Cathay Pacific Airways Ltd., Hong Kong’s biggest carrier, posted a second-half profit after paring capacity and selling a stake in a maintenance venture.
The HK$3.9 billion ($503 million) profit compared with a loss of HK$7.9 billion a year earlier, based on annual results announced today. Sales fell 18 percent to HK$36 billion.
Cathay made a HK$1.25 billion gain last year from the sale of shares in Hong Kong Aircraft Engineering Co. as it boosted cash holdings and trimmed services to withstand a slowdown in global air travel. Demand is now picking up because of an economic rebound and first-quarter forward bookings are “very solid,” Chief Executive Officer Tony Tyler said last month.
“Profit may rebound this year on a recovery in premium traffic and cargo -- not just one-time gains,” said Kelvin Lau, an analyst at Daiwa Institute of Research. “Cathay is also benefiting from the effects of cost-cutting measures from last year and industrywide capacity cuts.”
Full-year net income of HK$4.7 billion, compared with a loss of HK$8.7 billion a year earlier, the carrier said in a statement today. Profit was higher than the HK$2.25 billion median of 10 analyst estimates compiled by Bloomberg. Sales dropped 23 percent to HK$67 billion.
The airline made a 2009 operating profit of HK$285 million, excluding fuel-hedging gains, non-recurring items and tax. It made a HK$1.44 billion loss a year earlier on the same basis.
Traffic Falls
Cathay’s passenger yield, a measure of average sales, dropped 20 percent last year as business and leisure travelers pared flying because of the global recession. Passenger numbers, including at the Hong Kong Dragon Airlines Ltd. unit, fell 1.6 percent to 24.6 million. Cargo volumes declined 7.1 percent.
The company will pay an annual dividend of 10 Hong Kong cents a share. It didn’t make a payout a year earlier.
Cathay, controlled by Swire Pacific Ltd., rose 1.9 percent to HK$14.80 at the lunchtime trading break before the announcement. The carrier has more than doubled in the past year, compared with an 82 percent gain for Singapore Airlines Ltd.
Cathay offered staff unpaid leave and cut capacity last year as travel slowed. In January, it returned a Boeing Co. 747- 400 freighter to service and delayed parking another 747-400 passenger plane as demand recovered.
“Cathay’s yield will be improving this year,” said Allen Wong, an analyst at Quam Ltd. in Hong Kong. “But fuel costs are a concern as oil prices are definitely getting higher this year.”
Fuel Costs
The Hong Kong carrier’s gross fuel cost fell 49 percent last year to HK$20.1 billion. It bought fuel at an average price of $73 per barrel. Realized and paper fuel-hedging gains of HK$2.76 billion compared with losses of HK$7.97 billion in 2008.
Fuel prices “started to rise again in the middle of 2009, reaching uncomfortably high levels,” Chairman Christopher Pratt said in the statement. “We expect the results of fuel hedging to be less volatile in future.”
The carrier said it will lose $850 million on fuel-hedging contracts this year and next if oil prices are at $40 a barrel. If the price is about $80 a barrel, the airline won’t have any cash costs and will be able to write back provisions made for possible losses.
Crude oil for April delivery traded at $81.61 a barrel at 12:50 p.m. Prices have jumped about 78 percent in the past year.
Cathay had a fleet of 163 planes as of Dec. 31, with another 36 on order. That includes aircraft operated by Dragonair and Air Hong Kong, a cargo venture with DHL. Seven new passenger planes are due to arrive this year.
The airline also last month agreed to buy a stake in Air China Ltd.’s cargo unit. Air China is Cathay’s second-biggest shareholder.
--Editors: Neil Denslow, Chana Schoenberger
To contact the reporter on this story: Wendy Leung in Hong Kong at wleung12@bloomberg.net
To contact the editor responsible for this story: Neil Denslow at ndenslow@bloomberg.net
