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Cathay Pacific reports modest profit, little thanks to cargo

By Hpanchal on August 15, 2013

The Cathay Pacific Group reported a profit of 2.3 million euros (US$3 million) for the first half of 2013 – little thanks to cargo.

Cathay Pacific’s cargo business took a turn during the first six months. The airline group’s cargo revenue was down 5.2 percent year over year.

Cathay Pacific’s profit of 2.3 million euros for the first six months is an improvement over the loss of 90 million euros (US$120 million) during the first half of 2012.

Cathay Pacific’s freight business has been struggling in the face of weak demand since April 2011. Capacity for both Cathay Pacific and Dragonair, an airline owned by the group, was down 1.8 percent during the first half of 2013. The load factor was down by 1.9 percentage points to 62.4 percent.

Freighter capacity was adjusted in line with demand, and Cathay Pacific carried more belly cargo in order to reduce costs.

Demand for cargo shipments from the airline’s main market, Hong Kong, remained weak. With increasing competition on European routes, Cathay Pacific merged flights in order to manage capacity. The airline suspended cargo services to Brussels and Stockholm in February due to continued weak demand to and from Europe.

Demand on transpacific routes was below expectations, as was the performance of the airline’s Japan, Taiwan and Korea routes. But Cathay Pacific’s Shanghai and Hanoi, Vietnam routes were strong.

“Despite the current market conditions, we remain confident about the long-term prospects of our airfreight business and Hong Kong’s future as an international air cargo hub,” Cathay Pacific said in its interim results.

The airline’s new cargo terminal at Hong Kong International Airport is expected to be fully operational by the last quarter of 2013, which Cathay Pacific says will reduce costs and improve efficiency in the cargo business.

Demand in the major air cargo markets remained weak. The persistently high price of jet fuel continued to have an adverse effect on business.

In 2012, the group introduced measures designed partly to protect itself from high fuel prices. It changed schedules, reduced capacity and took older, less fuel-efficient aircraft out of service. In the first half of 2013, the fuel and aircraft maintenance components of Cathay Pacific’s operating costs were lower.

The group’s net fuel costs decreased by 8.5 percent year over year. But fuel was still its most significant expense, accounting for 38.8 percent of total operating costs.

In the first six months of 2013, Cathay Pacific took delivery of six aircraft, including a Boeing 747-8F freighter. It also agreed to purchase three more Boeing 747-8Fs for delivery in the second half of 2013, cancelled orders for eight Boeing 777-200Fs, acquired options to purchase five Boeing 777-200Fs and agreed to sell four Boeing 747-400BCF converted freighters.

Three of the converted freighters have already left the fleet.

“While we continued to operate in a difficult environment in the first six months of 2013, it was pleasing to see some improvement in our business,” Cathay Pacific Chairman Christopher Pratt said. “This improvement mainly reflected stronger passenger business and cost reductions. Our financial position remains strong and we will continue to invest to make our business stronger. We will remain focused on our long-term goals while managing short-term challenges. The business outlook for the rest of 2013 remains unclear, but our core strengths – a superb team, a strong international network, exceptional standards of customer service, a strong relationship with Air China and our position in Hong Kong – remain firmly in place.”