Cathay Pacific has significantly reduced its losses for the first half of the year while the cargo sector experienced strong growth. Revenue for Cathay Pacific Group was up 15.7 per cent to HK$53 billion ($6.7 billion) while losses attributable to shareholders being reduced from HK$2 billion in the first half of 2017 to HK$263 million this year.
For the cargo division, volumes exceeded one million tonnes compared to 966,000 tonnes the previous year, and cargo and mail yield was up 16.3 per cent to HK$1.93. Cargo revenue increased 23.4 per cent to HK$12.9 billion and tonnage grew faster than capacity and yield strengthened, which the airline says reflects increasing demand for specialist cargo shipments and movement of higher value goods to and from Asia.
The airline says on cargo services, shipments from Hong Kong and Mainland China were stable and transhipments from the Indian subcontinent, Europe, Japan and Southeast Asia were strong.
E-commerce shipments from Asia remained strong whilst exports of machinery and food from Europe and the Americas to Asia continued to grow, helping to balance the trade flow.
Customers received more product options for transporting high-value, temperature-sensitive pharmaceutical products through rental agreements with va-Q-tec and Sonoco for their containers, adding to solutions with Envirotainer, DoKaSch and CSafe.
Cathay Pacific added freighter services to India by increasing the six times a week service to Chennai to daily, and adding a third flight to Mumbai in June 2018.
The airline also says additional capacity will be added to key routes in America during the second half of 2018 to cope with seasonal demand.
Chairman’s Letter
The operating environment for our airlines remains challenging. We are half way through our three year transformation programme, which is designed to make our businesses leaner, more agile and more effective competitors. The programme is on track. Despite higher fuel prices, we performed much better in the first
half of 2018 than in the first half of 2017. The Cathay Pacific Group reported an attributable loss of HK$263 million for the first six months of 2018. This compares to an attributable loss of HK$2,051 million in the first half of 2017. The loss per share in the first half of 2018 was HK6.7 cents compared to a loss per share of
HK52.1 cents in the first half of 2017. Our airlines, Cathay Pacific and Cathay Dragon, reported an attributable loss of HK$904 million for the first six months of 2018, compared to an attributable loss of HK$2,765 million in the first half of 2017. Revenue generation was satisfactory during the first half of 2018, with passenger yield improving. Our cargo business was strong, with growth in both volume and yield. We benefited from a weak US dollar during the early part of the period, but were adversely affected by significantly increased fuel prices.
Business Performance
The Group’s passenger revenue increased by 10.4% to HK$35,452 million in the first half of 2018. Capacity increased by 3.2%. The growth reflected the introduction of five new routes, increased frequencies on existing routes and the use of larger aircraft on popular routes. The load factor decreased by 0.5 percentage points to 84.2%. Passengers carried increased by 1.9% to 17.5 million. Yield increased by 7.6% to HK55.4 cents. This reflected improvements in revenue management, favourable foreign currency movements, increased revenue from fuel surcharges and strong premium class demand. There was satisfactory growth in ancillary revenue.
Cathay Dragon introduced services to Nanning in January and to Jinan in March. Cathay Pacific introduced services to Brussels in March, to Dublin in June and a seasonal service to Copenhagen in May. These services have been well received and have strengthened the connectivity of Hong Kong International Airport. Cathay
Pacific’s seasonal service to Barcelona became a year-round service in April. Cathay Dragon reintroduced a service to Tokyo Haneda in March. We stopped flying to Kota Kinabalu in January and to Dusseldorf in March.
Cargo revenue improved, reflecting strong demand. Tonnage carried grew faster than capacity and yield strengthened, reflecting increasing demand for specialist cargo shipments and the movement of higher value goods to and from Asia. The Group’s cargo revenue in the first half of 2018 was HK$12,971 million, an
increase of 23.4% compared to the same period in 2017. The cargo capacity of Cathay Pacific and Cathay Dragon increased by 4.1%. The load factor increased by 2.1 percentage points, to 68.3%. Tonnage carried increased by 7.5% to 1.0 million tonnes. Yield increased by 16.3% to HK$1.93.
Total fuel costs for Cathay Pacific and Cathay Dragon (before the effect of fuel hedging) increased by HK$3,621 million (or 31.6%) compared with the first half of 2017, reflecting a 27.9% increase in average into plane fuel prices and a 2.1% increase in consumption. Fuel is the Group’s most significant cost, accounting
for 30.1% of total operating costs in the first half of 2018 (compared to 30.4% in the same period in 2017). Fuel hedging losses were reduced. After taking fuel hedging into account, fuel costs increased by HK$1,037 million (or 7.1%) compared with the first half of 2017. Fuel consumption per revenue tonne kilometre fell by 2.5%, as a result of the introduction of more fuel efficient aircraft.
There was a 5.5% increase in non-fuel costs per available tonne kilometre, to HK$2.29. Disregarding the effect of foreign currency movements, exceptional items and the impact of adopting a new accounting standard,
the increase was 3.3%. The increase reflected higher depreciation and finance costs resulting from the acquisition of aircraft, increased route related expenses and costs incurred to improve our customer proposition.
The contribution from our subsidiaries and associated companies was reduced, principally because of weaker results from Air China Cargo.
In June, we received the first of 20 new Airbus A350-1000 aircraft, a larger version of the Airbus A350-900 aircraft already in the fleet. The new aircraft will be used on the new service which we are introducing to Washington D.C. in September and on other long-haul routes. At 30th June 2018, we had 78 new aircraft on
order for delivery over the next five years. These new aircraft will improve our fuel and operating efficiency and reduce our emissions.
Our Airbus A350 aircraft have inflight Wi-Fi and our latest seats and inflight entertainment systems. We are retrofitting the economy class cabins of our 65 Boeing 777 aircraft. The retrofit includes the introduction of inflight Wi-Fi, which is also being introduced on our Airbus A330 aircraft. We are introducing restaurant style dining on long haul business class services. Our loyalty programmes are being made more rewarding and competitive.
Prospects
Our airlines usually perform better in the second half of the year than in the first half of the year. We expect this to be the case in 2018. The strength of the US dollar and economic uncertainty arising from global trade concerns remain challenges. But we still expect passenger yields to continue to improve and the cargo business to remain strong. Fuel prices are expected to be higher. Hedging losses will reduce but net fuel costs will increase. Our new aircraft will improve fuel efficiency and we expect to generate more ancillary
revenue.
Our transformation programme will continue. We believe that we are on track to achieve our objective of achieving sustainable long-term performance for our airline businesses. There is still much to do, but I am confident in our future. Of course, our success can only be achieved with the extraordinary efforts of
management and service delivery professionals. Their dedication and devotion to Cathay Pacific has shone through during recent difficult times. I thank them for their commitment and their loyalty.
Cathay Pacific has been Hong Kong’s home airline for over seven decades. We remain fully committed to this magnificent city. We will continue to make substantial investments in the development and strengthening of Hong Kong’s position as Asia’s largest international aviation hub.
John Slosar, Chairman
