51.1% increase in fuel prices, economic fluctuations and volcanic eruptions can pose threat to sustained growth.
The Cathay Pacific Group on Wednesday announced a profit of HK$6,840 million for the first six months of 2010. This compares to a profit of HK$812 million in the first half of 2009. Earnings per share were up 8.4 times to HK173.9 cents. Turnover for the period increased by 33.7% to HK$41,337 million.
Cathay Pacific has committed to investing in new aircraft and other items such as the new cargo terminal at Hong Kong International Airport and upgrades to its product in the cabin and on the ground between now and 2013. In addition, the airline has just signed a Letter of Intent with Airbus to buy 30 A350-900s and also intends to exercise purchase rights with Boeing to buy another six 777-300ERs. The total catalogue price of these aircraft will be about HK$75 billion. The new A350s will be delivered between 2016 and 2019 and will be used partly to replace some of the airline’s older aircraft and partly to accommodate future growth, according to a Cathay Pacific report.
In the first half of the year the Cathay Pacific Group experienced a continuing and significant recovery in its core business following the extremely challenging conditions experienced for much of the previous year. The turnround in business that began in the last quarter of 2009 continued into 2010 and gained momentum. Both the passenger and cargo businesses of Cathay Pacific and Dragonair performed well with revenues continuing to increase despite uncertainty over the stability of the global economy.
In recognition of the positive interim result and the great effort made by its staff, the airline will pay an advance profit share in the form of an ex-gratia payment of 14 days salary to all eligible members of the Cathay Pacific team. This is a down payment on the final share of profit that will be calculated on the basis of the full-year results for 2010.
The Group’s passenger business experienced a marked improvement from the lows of 2009 with revenues returning to almost pre-financial crisis levels. In economy class, load factors were generally high, as they were during much of the previous year, and yields increased. In the premium classes there was a sharp increase in demand for business travel originating in Hong Kong although this was not matched by a comparable increase in demand for travel originating in other major cities. The two airlines carried a total of 13.0 million passengers in the first six months of 2010 – an increase of 8.5% year on year. The load factor increased by 5.5% points. Capacity decreased by 0.1%. Passenger revenue for the half-year period was HK$27,411 million – an increase of 25.7% from the first half of 2009. Yield increased by 17.5% to HK58.4 cents.
Cargo business was very robust for the whole of the first half with strong demand in all key markets. The cargo load factor increased by 11.8% points compared with the first half of 2009, hitting a record of 78.0%. By July the airline had brought back into service all five aircraft parked in the desert during last year’s downturn which helped it to meet demand. In the half year the amount of freight carried by both airlines increased by 24.4% to 872,000 tonnes. Cargo revenue increased by 63.1% to HK$11,844 million while yield increased by 36.1% to HK$2.26.
Fuel is the airline’s most significant cost component and fuel prices once again increased in the first half of 2010 - by 51.1% compared to the same period in 2009. Managing the risk associated with fuel price changes is a key challenge and objective.
After the extremely challenging conditions of much of 2009 the Cathay Pacific Group welcomed the subsequent turnround in business. In 2010 the airline has been able to restore capacity and reinstate services, and the turnround has enabled the Group to rebuild its balance sheet and strengthen its financial position, putting it in a better position to proceed with its core objectives of growing its airlines and further strengthening the position of Hong Kong as one of the world’s leading international aviation hubs.
The strategic partnership with Air China continues to go from strength to strength with an important development in the relationship – the formation of a new cargo joint venture based in Shanghai – announced in February. The two airlines will use an existing Air China subsidiary, Air China Cargo, in which Cathay Pacific will take equity and economic interest of 49%, as the platform for the joint venture, which is expected to begin operations in October. At the same time Cathay Pacific reaffirmed its commitment to the Hong Kong hub by recommencing work in March on its own cargo terminal at Hong Kong International Airport – a state-of-the-art HK$5.5 billion facility designed to enhance the competitiveness and efficiency of Hong Kong as an airfreight hub.
Cathay Pacific Chairman Christopher Pratt said: “If present trends continue, we expect our financial results to continue to be strong in the second half of 2010. That said, conditions can change rapidly in the airline industry. Our results would be adversely affected, and very quickly so, by a significant further increase in fuel prices or any return to the recessionary economic conditions of 2008 and much of 2009.
“We remain confident in the long-term future of the Cathay Pacific Group and Hong Kong. We are in a challenging and unpredictable industry and we have to be mindful of the many things – economic fluctuations, rising fuel prices, even volcanic eruptions – that can quickly have an impact on our business. Nevertheless, we have a number of things working in our favour, including our capable, supportive and committed team, a superb international network, effective management of costs, our quality service and product offering, a strong relationship with Air China, and our position in Hong Kong – one of the world’s great cities and a premier international aviation hub. These core strengths will, I believe, ensure the continued success of the Company.”
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