Sunday, March 19, 2017

Cathay dives to 2016 operating loss on competition woes

The Cathay Pacific Group posted an operating loss of HK$525 million ($70.2 million) for the year ended 31 December 2016, as a strong local currency, slowing Chinese economic growth, and intense competition put pressure on yields.

The poor operating result marks a significant contrast to the operating profit of HK$6.7 billion posed in 2015.

Revenue dropped 9.4% to HK$92.8 billion, and it posted a net loss of HK$575 million. The net loss is its first since 2008, when it posted a deficit of HK$1 billion as it booked sizeable losses from fuel-hedging contracts.

The Oneworld carrier says the biggest challenge is the capacity added by other airlines, as well as the growth of direct flights between China and international destinations, which cuts out its Hong Kong hub. In addition, the strong Hong Kong dollar discouraged mainland Chinese from visiting Hong Kong, and also lowered the value of Cathay’s earnings overseas.

ASKs rose 2.4% as it grew capacity across all regions, but load factor slipped 1.2 percentage points to 84.5%.Southeast Asia was the only region to see an improvement in load factor, rising 1 percentage point to 84.2%.

Passenger yield fell 9.2% to HK$0.54. Cathay says this metric was under “intense pressure…reflecting overcapacity in the market, a decline in premium class demand, and weak foreign currencies.”

Group cargo revenue fell 13.2% to HK$20 million. Cargo capacity at both Cathay Pacific and Cathay Dragon grew 0.6%, but cargo load factor only rose 0.2 percentage points to 64.4%. Demand on European routes was weak, but grew marginally on transpacific routes.

The carrier’s liquid funds as of 31 December stood at HK$20.1 billion, just down from HK$20.6 billion at the end of 2015.

“We expect the operating environment in 2017 to remain challenging,” says Cathay chairman John Slosar. “Strong competition from other airlines and the adverse effect of the strength of the Hong Kong dollar are expected to continue to put pressure on yield. The cargo market got off to a good start, but overcapacity is expected to persist.”

(Greg Waldron - FlightGlobal News)

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