Cargo faint bright spot in Cathay Pacific’s darkest year

Cathay Pacific CX
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Amidst the worst loss in its 70-year history, posting a 2020 net loss of HKD 21.65 billion (USD 2.79 billion), Cathay Pacific Airways eked out some tiny joy from cargo, with revenue up 16.2 per cent.

Cathay’s loss compares with its 2019 profit of HKD 1.69 billion and includes the receipt of HKD2.69 billion of COVID-19-related government grants globally.

Cathay’s cargo business was virtually the only bright spot, although it too was affected by the substantial contraction in capacity usually provided by the bellies of our passenger aircraft.

The market imbalance between available capacity and demand helped boost yields resulting in improved revenue. Cargo revenue in 2020 was HKD 24.57 million, an increase of 16.2 per cent compared to 2019, which the carrier notes reflects this imbalance in the market between demand and available capacity which helped boost yields.

The carrier increased its cargo capacity by chartering services from its all-cargo subsidiary, Air Hong Kong; operating cargo-only passenger flights; and carrying select cargo in the passenger cabins of some of its aircraft; as well as removing some seats in the economy class cabins of four B777-300ERs to provide further cargo space.

Revenue freight tonne kilometre (RFTK) traffic decreased by 26.5 per cent, while available freight tonne kilometre (AFTK) capacity decreased by 35.5 per cent. Load factor increased by 8.9 percentage points, to 73.3 per cent. Yield increased by 58.3 per cent to HKD 2.96.

Among the substantial cost-cutting efforts undertaken across the board by the carrier, it also transferred 82 passenger aircraft (46 per cent of its passenger fleet), which had been parked at Hong Kong International Airport, to locations outside of Hong Kong.

This includes Alice Springs in Australia, and Ciudad Real in Spain. These locations provide better environmental conditions than those to which the aircraft were exposed in Hong Kong.

The carrier also reached an agreement with Airbus to defer delivery of its A350-900 and A350-1000 aircraft from 2020-21 to 2020-23, and to defer delivery of A321neo aircraft from 2020-23 to 2020-25.

It also notes that “advanced negotiations” are taking place with Boeing for the deferral of the delivery of its B777-9 aircraft.

Market prospects
The International Air Transport Association (IATA) estimates that global passenger traffic will not return to pre-COVID-19 levels until 2024.

“Market conditions remain challenging and dynamic,” Healy says. “It is by no means clear how the pandemic and its impact will develop over the coming months.”

From 20 February 2021, the Hong Kong SAR Government implemented stricter quarantine requirements for its Hong Kong-based pilots and cabin crew.

The new measures have also resulted in a reduction to its passenger capacity of about 60 per cent and a reduction to its cargo capacity of about 25 per cent compared to January 2021 levels.

This has also increased the cash burn adding approximately HKD 300-400 million per month to the existing HKD 1.0–1.5 billion range. “All our cash preservation measures will continue unabated,” Healy says.

“We stated at the end of last year that we expected to operate at well below a quarter of pre-pandemic passenger flight capacity in the first half of 2021 with improvement in the second half of the year.”

The carrier premises this on the fact vaccines would prove to be effective and would be widely adopted in its key markets by summer 2021.

“Consequently we expected to operate at well below 50 per cent passenger capacity overall in 2021. These statements are still largely valid. The correlation between the roll-out of vaccination programmes in our key markets and the potential future relaxation of travel restrictions remains highly uncertain and difficult to predict.

“We will remain agile and will respond according to the situation as it develops,” Healy adds.

Cathay Pacific Cargo is already handling shipments of COVID-19 vaccines using what Healy describes as “an expert, next-generation air cargo vaccine solution”.

“Our short-term outlook continues to be challenging. However, we remain absolutely confident in the long-term future and competitive position of our airlines.

“Our important role at the centre of the Hong Kong aviation hub, and the critical role that Hong Kong will play in the Greater Bay Area and beyond, will continue to place us in good stead as we recover and rebuild from the impact of COVID-19,” Healy says.

 

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