Reuters in Hong Kong, 8 August 2012
Cathay Pacific Airways (SEHK: 0293), the world's largest air freight carrier, posted its worst first-half loss since 2003, hurt by high fuel costs, weak cargo demand and fewer premium passengers, pushing its shares down as much as 7.7 per cent.
Cathay, among the worst-hit airlines during the 2003 outbreak of Severe Acute Respiratory Syndrome (SARS), is now grappling with economic uncertainty in Europe and the United States that has weighed on passenger and cargo traffic, and hurt some of the big players such as regional rival Singapore Airlines.
"Its stock is likely to come under pressure in the short term as analysts are expected to downgrade full-year earnings estimates for the company," said Steven Leung, sales director at brokerage UOB Kay Hian.
Cathay, which also competes with Australia's Qantas Airways, reported a net loss of HK$935 million (US$120.6 million)for the six months ended in June, underlining how sagging demand and high oil prices are taking their toll on the industry.
The earnings lagged an average forecast of a HK$122.5 million profit from six analysts polled by Reuters and compared with a profit of HK$2.81 billion (US$359.9 million) for the same period a year earlier.
The loss was Cathay's worst for a first-half period since the outbreak of SARS hit the city in 2003, when it posted a first-half loss of HK$1.24 billion.
Cathay said demand for cargo shipments in the first half remained weak, with routes to Europe particularly sluggish due to the region's deepening debt crisis, resulting in a 7.6 per cent drop in freight revenue to HK$11.9 billion (US$1.53 billion).
Cathay's cargo unit, which accounted for 24 per cent of revenue, shipped 10 per cent less freight in the first six months of the year due to weak demand in its key markets, including Hong Kong and China, as a global economic slowdown cut consumer demand for electronics and other manufactured goods from Asia.
The cargo slump also hurt Cathay's cargo joint venture with Air China (SEHK: 0753, announcements, news) , contributing to a HK$167 million loss from associates to Cathay during the first half.
The Hong Kong-listed airline said it expected the cargo market to improve, but did not provide a time frame.
Industry executives and economic analysts generally see airline cargo traffic as a leading indicator of the airline business, as well as an overall reflection of global trade.
Cathay posted its worst ever six-month loss in the second half of 2008, with a HK$7.9 billion loss due to hefty fuel hedging charges.
Fuel costs rose 6.5 per cent from a year earlier and accounted for about 42 per cent of the carrier's total operating costs. Aircraft maintenance expenses rose 23 per cent.
The carrier's realised profit from hedging activities fell 59 per cent from a year earlier, while passenger yields rose just 1.2 per cent.
Cathay said premium class yields remained under pressure in the first half and it highlighted a drop in demand for corporate travel from Hong Kong, saying employees of major corporations were travelling less. It did not provide details.
Passenger traffic at Cathay, which is 45 per cent-held by Swire Pacific (SEHK: 0019) and about 30 per cent-owned by Air China, rose 8.6 per cent in the first half, although the company remained under pressure from competition from Middle Eastern carriers and budget carriers.
Shares of Cathay fell as much as 7.7 per cent after the results were announced and stood at HK$12.14 at 1.46pm, down 6 per cent and lagging a 0.2 per cent drop in the benchmark Hang Seng Index.
Cathay, which has a market value of US$6.6 billion, flagged disappointing interim earnings in May amid high jet fuel prices, weak cargo demand and increasing competition.
Singapore Airlines, the world's No. 2 carrier by market value, said in July it swung to a quarterly profit but warned that earnings at its cargo and passenger units remained under pressure.
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