Cathay Pacific plunges to first loss since 2008

Cathay Pacific Airways has reported its first loss in eight years and scrapped plans for a second-half dividend after competition from Chinese airlines and losses from fuel hedging dented earnings.

The net loss totalled HK$575 million (Dh271.7m) in 2016, while sales dropped 9.4 per cent to HK$92.8bn, Hong Kong-based Cathay, one of Asia’s largest international airlines, said on Wednesday. Jefferies said the losses could continue in the current year as well.

Cathay said the operating environment in 2017 would remain challenging, and that premium travel from Hong Kong was below expectations, prompting the airline to sell such tickets at promotional prices to leisure travelers. The carrier is “facing structural problems from competition headwinds, given Chinese airlines continue to aggressively expand international capacity, yield pressures from weak premium-class traffic and cost-conscious leisure travelers,” Andrew Lee, an analyst at Jefferies, said on Wednesday.

Cathay, whose parent is the Swire Group, last posted a loss in 2008, of HK$8.7bn, according to data compiled by Bloomberg. The carrier, in which Air China holds almost 30 per cent, has been widening its discounts to premium offerings in a bid to fill seats as it competes against rivals such as China Eastern Airlines.

Cathay’s passenger yields, the money earned from flying a traveler for one kilometer and a key measure of profitability, dropped 9.2 per cent to 54.1 Hong Kong cents last year. Cargo yield declined 16 per cent to HK$1.59.

Losses from fuel hedging totaled HK$8.46bn last year, compared with HK$8.47bn in 2015. Cathay said it expects further fuel-hedging losses in 2017, although that should be less than for last year. The carrier had unrealised hedging gains of HK$3.57bn at the end of 2016.

It was expected to pay a second interim dividend of 27 Hong Kong cents, according to estimates compiled by Bloomberg.

Despite challenges, Cathay plans to increase passenger capacity by 4 to 5 per cent a year, at least until the Hong Kong airport’s third runway begins operating, and will increase frequencies on the most popular routes in addition to introducing new destinations.

“For Cathay, it’s committed to a premium strategy in the Hong Kong hub,” said Will Horton, a Hong Kong-based analyst at CAPA Centre for Aviation. “They’re going to ride this out.”

* Bloomberg

business@thenational.ae

Follow The National's Business section on Twitter