Cathay back in the black after surprise fuel hedging gain

HONG KONG's Cathay Pacific has reported a profit of HK$812 million for the first six months of 2009 against last year's first half loss of HK$760 million, crediting a HK$2.1 billion (US$270.9 million) fuel hedging gain.

Otherwise Cathay Pacific and its sister carrier Dragonair, has been hit by a deep and sustained downturn in its key markets, with sharply reduced passenger and cargo revenues resulting in a 27.1 per cent drop in turnover to HK$30,921 million in the first six months.

"There are cautious signs that the fall in demand has bottomed, but there is no indication when a sustained pick-up will begin," said Cathay Pacific chairman Christopher Pratt.

The airlines made an operating loss of HK$765 million in the first half of the year before fuel hedging and tax. The company had a HK$1.2 billion net outflow of cash from operating activities in the first six months, said the Cathay statement.

"Cargo demand was very weak," said the statement. The amount of freight carried by both airlines decreased by 15.3 per cent compared with the first half of 2008 to 700,693 tonnes. The cargo load factor fell by 0.2 percentage points to 66.2 per cent.

Capacity was reduced 14.1 per cent in response to the sustained fall in demand. Yield was under constant pressure for the whole six-month period and fell 32.8 per cent.

Fuel prices fell significantly compared to the first half of 2008, but were still higher than in previous years. "Prices moved up rapidly in the second quarter with May recording the largest monthly rise in 10 years," said the statement.

Increased fuel costs were not matched by the fuel surcharges approved by the Hong Kong Civil Aviation Department. Cathay Pacific's and Dragonair's surcharges remain below those charged by most of the airlines' international competitors.

But there were gains on fuel hedging contracts in the first six months of 2009, with unrealised mark-to-market gains of HK$2.1 billion compared to losses of HK$7.6 billion for the whole of 2008. "These gains reflect increases in the forward prices for fuel during the periods in which the relevant fuel hedging contracts will mature," said the Cathay statement.

On the passenger side Cathay Pacific experienced a fall in premium business as many major corporate clients, particularly in the financial sector, either reduced or downgraded travel. Load factors in economy were maintained at high levels but a combination of low fares, due to strong competition in the market, and the impact of the stronger dollar reduced revenue.

Cathay Pacific continues to take delivery of new, more efficient aircraft, with two more Boeing 777-300ER Extended Range aircraft entering the fleet in the first half of 2009 and the last of six Boeing 747-400ERF Extended Range Freighters arriving in April, said the company.

The airline also accelerated the retirement of older, fuel-inefficient Boeing 747-200/300 freighters to the point where they are no longer part of the fleet. The company also removed six Boeing 747-400BCFs - five from Cathay Pacific and one from Dragonair. One was wet-leased to Air Hong Kong. A total of six passenger aircraft will also be parked, said the statement.

Cathay Pacific also works to defer deliveries of ordered aircraft. Staff willingness to accept unpaid leave scheme is playing an important role in reducing overheads.

Cathay Pacific has reduced passenger capacity eight per cent and cargo capacity (including bellyhold) 11 per cent, while Dragonair reduced passenger capacity 13 per cent.
(Source: www.schednet.com)