Annual profit at Hong Kong's Cathay Pacific tumbles on high fuel prices, weak demand

HONG KONG – Cathay Pacific Airways Ltd. said its annual profit tumbled by more than 80 per cent because of high jet fuel prices, global economic uncertainty and weak demand for air cargo.

Hong Kong’s biggest airline on Wednesday blamed stubbornly high fuel prices for weighing down the results. Jet fuel is Cathay’s biggest cost, accounting for 41 per cent of its total expense bill.

The airline, which also owns regional Hong Kong-based carrier Dragonair, said “sustained” high fuel prices throughout most of 2012 “had a major impact on operating costs.”

Chairman Christopher Pratt said it was a “challenging year” for the aviation industry.

“Economic uncertainty, particularly in the euro zone countries, and an increasingly competitive environment added to the difficulties,” Pratt said in a statement.

Profit from more lucrative business and first class tickets fell as companies cut back on travel while weak demand from major export markets, especially Europe, hurt the carrier’s air cargo business.

Cathay said 2012 profit fell 83 per cent to 916 million Hong Kong dollars ($118 million) from HK$5.5 billion in 2011.

Earnings per share fell to 23.3 HK cents (3 cents) from HK1.40 a share the year before. It’s the company’s weakest full-year performance since it posted a HK$8.6 billion loss in 2008 — its biggest on record — amid the global financial crisis.

Revenue edged up 1 per cent to HK$99.4 billion.

The company lowered its dividend to 8 HK cents a share from 52 HK cents.

The results include a first half loss of HK$935 million. Cost cutting measures announced in May, including fewer flights on some long-haul routes, speeding up retirement of older jets, freezing hiring and offer unpaid voluntary leave, helped reduce expenses. But the airline said they were not enough to offset the full effects of high fuel prices and weak revenues.

Cathay is upgrading its fleet with newer, more fuel efficient aircraft such as the Airbus A350 and Boeing 777.

“The high cost of fuel made it more difficult to operate profitably, particularly on long-haul routes operated by older, less fuel-efficient Boeing 747-400 and Airbus A340-300 aircraft,” said Pratt, who noted that long-haul routes form a “significant” part of the company’s operations.

Cathay spent 0.8 per cent more on fuel last year as average fuel prices rose 1.7 per cent.

The company also reiterated plans announced earlier this month to buy three Boeing 747-8F freighters, part of a deal that also includes cancelling orders for eight jets and selling four others. The deal is aimed at reducing capacity because Cathay expects slower cargo business growth as economic instability continues to depress consumer confidence.

The contribution from associated company Air China Ltd., in which Cathay owns a 19.3 per cent stake, also declined. Profit from the Chinese state-owned airline’s passenger business fell and the loss at its cargo business widened, although Cathay did not give details.