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Wednesday, March 15, 2017, 21:19

Intense competition pushes Cathay to loss

By Duan Ting

Intense competition pushes Cathay to loss
Cathay Pacific Airways Ltd 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. (Bloomberg / Billy H.C. Kwok )

Rising competition from Chinese mainland and low-cost airlines as well as fuel hedging losses pushed Cathay Pacific Airways to a loss last year, its first negative earnings in eight years, John Slosar, chairman at Cathay Pacific, said on Wednesday.

Cathay shares slumped 1.38 percent to close at HK$11.44 on Wednesday, after being down as much as 6.9 percent in early trade, while the benchmark Hang Seng Index declined just 0.15 percent to end at 23,792.85.

READ MORE: Cathay Pacific falls to 7-year low

Slosar said external factors, including a slowing mainland economy, reduction in the number of visitors to Hong Kong and strength of the Hong Kong dollar, as well as intense and increasing competition from other airlines, had hit their earnings. There were more direct flights between the mainland and international destinations, and competition from low-cost carriers had increased.

Hedging losses were the main internal factor hitting profits, he added.

Slosar said Cathay had begun a three-year program of corporate transformation to improve operating efficiency and effectiveness, and achieve returns above the cost of capital.

READ MORE: Cathay Pacific to revamp fuel hedges, workforce; shares r ise

Fuel remained the company’s most significant cost, accounting for 29.6 percent of operating costs last year. After taking into account the hedging losses, the group’s fuel costs had decreased HK$5 billion or 15.2 percent year on year.

Martin Murray, finance director at Cathay, said fuel hedging losses amounting to HK$8.5 billion, similar to those incurred in 2015, had stunted earnings; these losses were expected to continue this year.

Ivan Chu Kwok-leung, Cathay’s chief executive, said the company would endeavor to develop its business and improve income and yields this year. They would continue to improve products and services by purchasing more aircraft and introducing new destinations, as well as increasing flight frequency on their most popular routes. They would also decrease their currency-risk-induced income loss by hedging.

READ MORE: SAR’s aviation hub status in line for a big push

Cathay expected business to grow in the long term, especially within the Asia-Pacific region, and intended to increase passenger capacity 4 percent to 5 percent a year, at least until the third runway at Hong Kong International Airport was open, by adding more aircraft. They planned to add 59 more aircraft between 2020 and 2024.

The company ruled out cutting head-count to save costs – they planned to hire 1,300 more cabin attendants and pilots this year.

Cathay reported a loss of HK$575 million for last year, after earning HK$6 billion for 2015. Loss per share was 14.6 HK cents compared with earnings per share of HK$1.525 previously.

Revenue declined 9.4 percent year-on-year to HK$92.8 billion, with passenger revenue falling 8.4 percent to HK$66.9 billion and cargo revenue 13.2 percent lower at HK$20 billion.

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