Cathay’s 2019 profit down, warns of “substantial” H1 loss

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On Wednesday the Hong Kong carrier reported an attributable profit of HKD 1.7 billion (US$220 million) for 2019, a 28 per cent drop from the HKD 2.3 billion it made in 2018.

Cargo revenue in 2019 came in at HKD 21.15 billion, a decrease of 14.2 per cent compared to 2018. RFTK traffic decreased by 6.7 per cent, while AFTK capacity decreased by 0.3 per cent. Consequently the load factor decreased by 4.4 percentage points, to 64.4 per cent.

Yield decreased by 7.9 per cent to HKD 1.87, reflecting a strong US dollar and weakened cargo demand resulting from intensified US-China trade tensions.

The carrier notes that 2019 was a turbulent year for the Cathay Pacific Group, as widespread and frequently violent protests in Hong Kong battered the carrier’s inbound and outbound passenger traffic. Added to this was the intensifying trade war between the US and China which hit the cargo side.

“We were faced with an incredibly challenging environment to operate as the Hong Kong economy slipped into recession,” says Patrick Healy, chairman of the Cathay Pacific Group. “As a result, our second-half results – traditionally stronger compared to first-half results – fell well below what we would have hoped for.”

Overall, passenger and cargo yields were under intense pressure in 2019 and both were below those seen in 2018.

Cargo demand was depressed all year as a result of US-China trade tensions and was noticeably below that of 2018. “However, it did pick up later in 2019 during the traditional high season, reflecting new consumer product, specialist airfreight shipments and restocking ahead of holiday periods,” Healy says.

“Exports from Mainland China and Hong Kong to trans-Pacific and European markets were more encouraging later in the year. Nevertheless, the cargo business performed significantly below expectations in 2019,” he adds.

Following the impact of social unrest in Hong Kong in the second half of 2019, the first half of 2020 was expected to be extremely challenging financially, with an already reduced winter season capacity, the carrier says. “This has been exacerbated by the significant negative impact of COVID-19. It is difficult to predict when these conditions will improve.

“Travel demand has dropped substantially and we have taken a series of short- term measures in response. These have included a sharp reduction of capacity in our passenger network. Despite these measures we expect to incur a substantial loss for the first half of 2020,” Healy warns.

“We expect our passenger business to be under severe pressure this year and that our cargo business will continue to face headwinds. However, we are cautiously optimistic about cargo following the recent reduction in US-China trade tensions and we have maintained our cargo capacity intact. The US dollar is expected to remain strong in 2020, and intense competition, especially in long-haul economy class, will continue to place significant pressure on yields.”

The carrier has moved to cut capacity (measured in Available Seat Kilometres) by approximately 30 per cent for February and by 65 per cent for March and April, with frequencies cut by approximately 65 and 75 per cent over the same periods.

The carrier is also asking all its vendors and business partners for relief in the form of deferrals and discounts to help it preserve cash. “Cathay Pacific is a very good customer when times are good, but we expect all our vendors and business partners to come to the table now when we need them to,” Healy says, adding that those discussions are ongoing.

Cathay has also asked staff to participate voluntarily in a special leave scheme, under which they may accept three weeks’ unpaid leave over the coming four month period. “I am touched and humbled to report that fully 80 per cent of our entire staff have now signed up for that voluntary programme. It makes me immensely proud to see the entire team come together in solidarity to battle through this crisis,” he adds.

To boost the competitiveness of Hong Kong International Airport as a global cargo hub, the Cathay Pacific Group together with the Airport Authority of Hong Kong announced in December it would introduce a new Terminal Charge concession effective 1 April 2020. The reduction ranges from 18 per cent to more than 20 per cent compared with the current charge levels and is applicable to shipments from Hong Kong on all four of the Group’s airlines.

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