August 11, 2004
Cathay Pacific Airways on Wednesday reported first-half net profit at the low end of market forecasts as rising fuel costs cloud the industry's outlook.
Cathay made a net profit of HKD$1.77 billion (USD$226.9 million) in the first six months of 2004, compared with a record net loss of HKD$1.24 billion (USD$159 million) in the year-ago period when a SARS outbreak emptied planes and forced the airline to cut over half its flights.
Cathay Pacific, among the worst hit airlines during last year's SARS outbreak, said it had benefited from a recovering Hong Kong economy, a sharp rebound in business and leisure traffic and currency gains from a weaker US dollar, but profits lagged market forecasts and Cathay's shares fell over 5 percent.
"The prospects for the traditionally stronger second half appear to be good, but the sharp increase in the fuel price is a great concern for us and could dampen global economic growth and demand for air travel," Cathay Chairman James Hughes-Hallett told a news conference.
Cathay's fuel costs rose 43 percent to HKD$3.4 billion (USD$435.9 million) in the six months to June.
The airline's return to profit mirrors that of rival Singapore Airlines, which posted a net profit of SGD$259 million (USD$150.3 million) for the three months to June.
But Japan Airlines, Asia's biggest airline, posted a net loss for its first quarter to June, hit by high fuel costs. Qantas Airways is scheduled to report its full-year results on August 19.
Cathay's first-half revenue jumped 48 percent to HKD$18.19 billion (USD$2.33 billion), while the firm proposed an interim dividend of HKD$0.20 per share, up from HKD$0.03 a year ago.
Cathay took the unusual move of halving its 2002 annual dividend to preserve cash as SARS devastated its business.
Total operating expenses rose 22 percent. Cathay said fuel accounted for 22 percent of its costs in the first half. That percentage has since risen to 25 percent as oil prices scaled 21 year highs -- compared with 15-17 percent in a normal year.
"The fuel price increase will hurt in the second half. The first couple of months were not so severe and we also had pretty good hedging. For next year, we are not as well hedged as we are this year," said chief executive David Turnbull.
Cathay, like many other airlines, added surcharges to passenger tickets in May. Last week, it applied to extend and increase the surcharges of USD$5 on short-haul routes and USD$14 on long haul routes but said such levies only partly offset the extra fuel costs.
The airline also said it was considering raising USD$150 million through a Singapore dollar debt issue to help fund an expansion of its fleet to 103 from 86 aircraft in three years.
Cathay faces added competition from low-cost carriers and long-time local rival Dragonair, which now competes with it on routes to Tokyo, Bangkok and Taipei. Next year, Dragonair will also compete with Cathay on flights to Sydney.
In July, Malaysian budget carrier AirAsia began flying to Bangkok from Macau, just a one-hour ferry ride from Hong Kong, offering one-way tickets for as little as USD$25.
(Reuters)
