Cathay Pacific soars back to profit as it eyes budget carrier

Airline in “active discussions” on an acquisition involving Hong Kong Express Airways, after previously denying plans for no-frills business

Cathay chairman John Slosar, (R), and CEO Rupert Hogg. Airline has reversed two straight years of losses. EPA

Hong Kong's Cathay Pacific Airways reported a HK$2.35 billion (Dh1.09bn) annual profit after two years of losses, as it benefited from rising airfares and a turnaround plan designed to lower costs and boost revenue.

The airline, however, said the outlook for 2019 was expected to remain challenging due to geopolitical discord and global trade tensions dampening passenger and cargo demand and intense competition, particularly on long-haul routes in economy class.

The result for the year ended December 31 was aided also by out-of-the-money fuel hedges rolling off, according to Reuters

Cathay reported HK$111bn in revenue in 2018, up 14.2 per cent from the prior year, driven by its passenger and cargo businesses.

This year, Cathay plans to "compete hard" by extending its route network to destinations not currently served from Hong Kong, increasing frequencies on its most popular routes and operating more fuel-efficient aircraft, said the chairman John Slosar.

Since launching its revamp programme in 2017, Cathay's initiatives have included cutting jobs at its head office and overseas ports, adding more economy class seats to older Boeing 777 jets and hedging fuel for shorter periods.

The airline has hedged around 30 per cent of its fuel for 2019 at prices of between around $62 and $70 per barrel. Global crude prices are currently at around $67 per barrel.

As one of the world's largest cargo airlines, Cathay last year benefited from an improving freight market. However, in January it reported a 5.2 per cent fall in cargo traffic, with the pre-Chinese New Year rush not as strong as last year.

In the passenger market, yields, a proxy for airfares, grew by 5.7 per cent last year, with South Asia, the Middle East and Africa the strongest performing markets.

The return to profit comes as Cathay Pacific is having a change of heart about the budget-airline business, according to Bloomberg.

At the earnings briefing in Hong Kong Wednesday, a reporter asked Mr Slosar why the premium airline was looking to the low-cost carrier business now after spurning that model earlier. Cathay said last week that it was in “active discussions” on an acquisition involving Hong Kong Express Airways, the city’s only budget airline.

“We never said never on that. In aviation you can never say never,” Mr Slosar said. “You have to be willing to change when events change, when opportunities present themselves.”

Less than two years ago, chief executive Rupert Hogg had ruled out starting a budget business. “Broadly speaking, we have no plans to start a low-cost airline,” Mr Hogg said in August 2017.

While he did note that Cathay competes with low-cost carriers on different routes and needed to have a proposition that price-sensitive travellers would find attractive, the executive said Cathay planned to focus on better services such as Wi-Fi on board planes and more dining options to nurse the carrier back to financial health.

Cathay's financial results are expected to improve further this year, with 16 analysts polled by Refinitiv I/B/E/S expecting an average net profit of HK$4.5bn.