Cathay Pacific revamp brings profit revival

Asia’s biggest international carrier posts surprise profit in 2H17, narrows fullyear loss to RM628m

By BLOOMBERG

SINGAPORE • Cathay Pacific Airways Ltd is finally seeing some respite from its earnings woes.

Asia’s biggest international carrier reported a surprise profit in the second half of 2017 (2H17), with a pick-up in cargo and premium-travel demand helping narrow the full-year net loss to HK$1.26 billion (RM628.31 million). That’s well below analysts’ expectations for a loss of HK$2.26 billion, based on estimates compiled by Bloomberg.

Ten months in the job, CEO Rupert Hogg (picture) can reassure investors that a rebound in business travel and cargo demand have contained the damage caused by past fuel-hedging contracts gone awry. Hogg also has cut 600 jobs as part of a three-year revamp, and taken delivery of newer aircraft to help Cathay become more competitive against low-cost and Chinese mainland carriers.

“The outlook for our cargo business is positive,” chairman John Slosar said in a statement yesterday. “Our priorities for 2018 are our transformation programme, changing the way that we work so as to better contain costs which will strengthen our passenger business further.”

Cathay ferried 11% more cargo for the full year, while the number of passengers carried increased 1.4%.

Cargo yield — a key indicator of profitability reflected by earnings from carrying one tonne per kilometer — jumped 11%. A slower rate of decline in passenger yields also supported the improved result.

“The surprise in the 2H17 profit was due to cargo business,” said Mohshin Aziz, an analyst at Maybank Investment Bank Bhd in Kuala Lumpur. “Cargo performed far better than what was expected. Passenger yield is still in pain.”

Cathay recorded profit of HK$792 million for the 2H17, helped by increased earnings from associates including Air China Ltd, in which it owns 18%. The Hong Kong-based carrier posted a loss of HK$928 million in the 2H16.

Fierce competition from mainland Chinese carriers that offer non-stop routes to the US and Europe, making Hong Kong less attractive as a transit hub, pushed Cathay to its first back-to-back annual losses.

The focus is on transforming the business, with an aim to grow 4% a year until Hong Kong gets its third runway, CEO Hogg told reporters yesterday after the earnings announcement. “We are bullish about the market demand here,” he said, adding he found the yield trends encouraging.

Paul Loo, the chief commercial officer, ruled out further job cuts.

Shares of Cathay, which jumped as much as 3.2% after the earnings were announced, erased the gains and ended the day unchanged in Hong Kong.

“Cargo is highly cyclical and they are heavily dependent on cargo,” said K Ajith, an analyst at UOB Kay Hian Pte Ltd in Singapore. “There’s concern whether this is sustainable” given uncertainties due to a possible trade war after the US increased tariffs on aluminium and steel, he said.

Cathay said losses from wrong-way fuel bets amounted to HK$6.4 billion for the whole of last year, narrowing from HK$8.46 billion in 2016.