Cathay Pacific posts record annual loss of $2.78bn in its 'most challenging' year ever

The airline to continue with cash preservation measures, including executive pay cuts, as market conditions 'remain challenging and dynamic'

Hong Kong carrier Cathay Pacific said it suffered a $2.8 billion loss in 2020 as the coronavirus pandemic hammered its business. AFP. 

Hong Kong's Cathay Pacific reported a record annual loss of HK$21.6 billion ($2.78bn) in 2020, after "the most challenging 12 months" it has endured in its more than 70-year history.

The carrier swung to an annual loss from a profit of HK$1.69bn in 2019, due to a pandemic-induced downturn in global traffic, restructuring costs and impairment charges related to its fleet, Cathay Pacific said in a filing to the Hong Kong stock exchange on Wednesday.

Full-year revenue plunged 56 per cent to HK$46.9bn, as passenger demand declined amid the pandemic while its air cargo business contributed 60 per cent of total revenue.

"Market conditions remain challenging and dynamic," Patrick Healy, Cathay Pacific's chairman, said. "It is by no means clear how the pandemic and its impact will develop over the coming months."

The carrier's shares dropped 1.1 per cent when trading resumed on Wednesday following the results that revealed the extent of damage in 2020. The airline had already warned the figures would be grim following a first-half loss of HK$9.87bn.

The pandemic has wiped out 21 years of global passenger traffic growth in 2020, hurling airlines back to 1999 levels, according to aviation analytics firm Cirium. The health crisis has also led the airlines to burn through their cash reserves to ride out the lull in business.

Cathay Pacific has been particularly hard hit by the pandemic as it does not have a domestic market to rely on.

The loss for 2020 is net of the receipt of HK$2.68bn of pandemic-related government grants. It included impairment and related charges of HK$4.05bn on 34 aircraft that are unlikely to reenter meaningful economic service again before they retire or are returned to lessors as well as subsidiaries’ assets. It also entailed HK$3.97bn of restructuring costs inclusive of a HK$1.59bn write off of a deferred tax asset at Cathay Dragon.

Cathay Pacific said it will continue its cash preservation measures, including executive pay cuts that will remain in place throughout 2021.

It also asked its employees to participate in a third "special leave scheme" during the first half of 2021, which 80 per cent signed up for.

The airline expects to operate at "well below" 50 per cent passenger capacity overall in 2021, noting that the correlation between the roll-out of vaccination programmes in its key markets and the potential future relaxation of travel restrictions "remains highly uncertain and difficult to predict".

The government imposed stricter quarantine requirements for Hong Kong-based pilots and cabin crew starting February 20th, which resulted in a reduction of the airline's passenger capacity by 60 per cent and a reduction to cargo capacity by 25 per cent compared to January 2021 levels. This will result in increased cash burn of approximately HK$300-400 million per month on top of the previous HK$1bn to HK$1.5bn range, it said.

Cathay raised HK$39bn in a recapitalisation in July, and its available unrestricted liquidity stood at HK$28.6bn as of December 2020. It also issued HK$6.74bn in convertible bonds this year to secure more funds.

The group currently has sufficient unrestricted liquidity for at least the next 12 months under various scenarios, including "extended downside scenarios" of continued, heavily subdued passenger demand across the network during the forecast period, it said.

"Our short-term outlook continues to be challenging," Mr Healy said. "However, we remain absolutely confident in the long-term future and competitive position of our airlines... as we recover and rebuild from the impact of Covid-19."