Cathay Pacific profits soar, competition hurts yields

August 14, 2014 - 12:00:00 am

HONG KONG: Cathay Pacific said yesterday its first-half net profit soared to HK$347m ($44.77m) on higher passenger demand, but the Hong Kong flag carrier warned of a “challenging” outlook as surging competition held down fares.

The figure for the six months ending June 30 compared with a net profit of HK$24m in the same period last year. Revenue in the reported period jumped 4.6 percent to HK$50.84bn. But despite its upbeat performance, the blue-chip airline faces several challenges including persistently high jet fuel prices, said group chairman John Slosar.

“The operating environment for the Cathay Pacific Group —and the aviation industry as a whole — remains challenging,” Slosar said in a filing to the Hong Kong stock exchange.

“On the plus side, we continue to strengthen our passenger network and the connections available through Hong Kong,” he said.

Aviation analyst Daniel Tsang said the huge increase in net profits was on account of the airline’s improving passenger operations, which contributed to a sharp jump in revenues.

The airline’s passenger revenue in the reported period was up 4.4 percent to HK$36.52bn compared to the previous year, helped by the introduction of new long-haul routes to destinations such as Doha and Newark. However, Tsang said the airline will need to improve its passenger yields, a key measure of airlines’ profitability, to maintain this earnings trend.

Passenger yield, the measure of the average fare paid by a passenger per mile, fell 3.5 percent to HK66.6 cents, reflecting weaker ticket prices in the face of surging competition. “For this upward trend to be sustained, arresting this yield decline is paramount and a prerequisite,” he said.

Shares in the airline fell 1.74 percent after the results announcement, closing at HK$14.68 in Hong Kong trade. The benchmark Hang Seng Index finished up 0.81 percent.

Revenue from the carrier’s air cargo business, which took a toll for more than two years due to the weak economy and demand for shipments, rose 3.4 percent in the first-half to HK$11.66bn.

But over-capacity in the air cargo market created downward pressure on rates, with the airline seeing cargo yield falling by 6.9 percent.

“We expect our cargo business to be better in the second half of 2014 than it was in the first half. We are well placed to take advantage of any increase in demand,” the airline said.

Cathay also indicated that high fuel prices were partly mitigated by operating more fuel-efficient aircraft.