Cathay Pacific Rises on Better-Than-Estimated Profit (Update1)
March 10, 2010, 5:38 AM EST(Adds Chairman’s comment in third paragraph.)
By Wendy Leung
March 10 (Bloomberg) -- Cathay Pacific Airways Ltd., Hong Kong’s biggest carrier, rose the most in about three months after posting a better-than-estimated profit on capacity cuts and the sale of a stake in a maintenance venture.
The carrier made a second-half profit of HK$3.9 billion ($503 million) 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 also resumed dividend payments after booking a HK$1.25 billion gain from the sale of Hong Kong Aircraft Engineering Co. shares and cutting flights last year to help withstand a slowdown in global air travel. Demand has picked up this year as the economy improves and the carrier has seen “encouraging” sales growth, Chairman Christopher Pratt told reporters in Hong Kong.
“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.”
Compensate Staff
Cathay, controlled by Swire Pacific Ltd., plans to compensate staff who took unpaid leave last year amid the slowdown, Pratt said. Executives will also probably accept any bonuses offered, he said. Pratt, Chief Executive Officer Tony Tyler and Chief Operating Officer John Slosar waived their 2008 bonuses during last year’s slump.
The airline rose 4.7 percent, the most since Dec. 11, to HK$15.20 in Hong Kong trading. It has more than doubled in the past year, compared with an 83 percent gain for Singapore Airlines Ltd.
Cathay will pay an annual dividend of 10 Hong Kong cents a share. It was expected to make a second-half profit of HK$1.4 billion, based on the median of 10 analyst estimates for annual earnings.
The airline reported a full-year net income of HK$4.7 billion, compared with a loss of HK$8.7 billion a year earlier, in a statement. Sales dropped 23 percent to HK$67 billion.
Cathay 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.
Yields Fall
Passenger yields, 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.
While the airline has restored some flights cut last year during the slowdown, overall capacity is unlikely to return to 2008 levels before next year at the earliest, Slosar said. In January, the carrier returned a Boeing Co. 747-400 freighter to service and delayed parking a 747 passenger plane.
“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.”
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.
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 $81.55 a barrel today. 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 agreed last month to buy a stake in Air China Ltd.’s cargo unit. Air China is Cathay’s second-biggest shareholder.
--Editors: Neil Denslow, Terje Langeland
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
