Hong Kong's Cathay Pacific Airways beat market forecasts on Wednesday with a 4.3 percent rise in second-half earnings, as a resurgent travel industry offset rising fuel costs.
But the world's sixth-largest airline by market value warned that rebounding crude oil prices and tougher competition -- from budget carriers such as Singapore-based Jetstar Asia and Malaysia's AirAsia -- cloud the outlook for 2005.
"Persistently high fuel prices along with greater regional and long haul competition will place further pressure on us to improve productivity and reduce unit costs," Chairman David Turnbull said in a statement.
Chief Executive Philip Chen told a news conference: "Rising jet fuel will be one of our key challenges this year. I don't see the likelihood for oil prices to come down in the short-term."
Cathay hedged about 30 percent of its fuel costs last year. For the first half of 2005 about 15 percent of its jet fuel is hedged, and only 4 percent in the second half.
Cathay posted net profit of HKD$2.65 billion (USD$340 million) for the six months to December 31.
Cathay spent HKD$7.84 billion on fuel last year, against HKD$5.24 billion in 2003. Oil prices have continued to climb this year, with the price of jet fuel in Singapore recently topping USD$62 a barrel, up from USD$46 in October.
Former Cathay Chairman James Hughes-Hallett has said that every 1 US cent rise in the price of a gallon of fuel adds HKD$60 million to the airline's operating costs.
"The 2004 results were good, but looking into this year the airline will still be burdened by high fuel prices," said CSFB analyst Karen Chan. "Unless Cathay said something positive about passenger yields, momentum going forward may not be strong."
For the full-year results, Cathay more than trebled net profit to HKD$4.42 billion from HKD$1.30 billion in 2003 when the city's tourism industry ground to a halt after an outbreak of Severe Acute Respiratory Syndrome (SARS).
Full-year turnover jumped 32 percent to HKD$39 billion.
Cathay, which suffered its worst-ever loss in the first half of 2003, has benefited from Hong Kong's reviving economy and a sharp post-SARS rebound in the tourism sector. It has said it will raise wages for Hong Kong-based ground staff by 3 percent and hire 1,500 staff this year.
The airline carried a record 13.7 million passengers last year, up 36 percent on SARS-hit 2003. Freight traffic rose 11 percent to 972,416 tonnes.
Cathay's yield per passenger kilometre rose 5.8 percent to 45.8 HK cents, but cargo yield dipped 1.1 percent to 1.76 cents.
To meet rising tourism demand, Cathay is expected to take delivery of 16 planes between now and 2007, increasing its fleet to 106 planes. It said it is still evaluating whether to order the new Airbus A380, the world's largest airliner.
