Cathay Pacific posts first consecutive annual loss

Cathay Pacific has suffered consecutive annual losses for the first time in its history, as Hong Kong’s flag carrier remains pressured by rivals in mainland China and the Gulf.

The company, which is 45 per cent owned by British conglomerate Swire and 30 per cent owned by Air China, said on Wednesday it lost HK$1.26bn ($160m) in 2017, compared with a HK$575m loss in 2016.

China’s three main state-owned carriers — Air China, China Southern and China Eastern — have made substantial aircraft orders and have been adding more direct routes to Europe, the US and Australasia, partly cutting Cathay out of its lucrative role as a conduit for China’s fast-growing outbound travel.

With Gulf airlines such as Emirates and low-cost regional rivals stepping up competition in east and south-east Asia, economy-class passenger fares have been squeezed, also hitting other legacy carriers including Singapore Airlines.

John Slosar, the chairman, said that “difficult but necessary decisions have been made”, with the airline, paying out HK$224m in redundancy costs as part of a cost-cutting programme.

The airline fared better than analysts expected, with a consensus forecast of a HK$2.26bn loss, according to Bloomberg.

Revenue rose 5 per cent to HK$97bn in 2017, boosted by an increase in demand for Cathay’s air cargo services. But profits were squeezed because of “intense competition”, the airline said.

Cathay’s passenger yield per kilometre — a key measure of airline profitability — fell 3.3 per cent to HK$0.523.

He said Cathay would continue to focus on its turnround programme this year, and was hopeful the decline in passenger yields would slow “as global economic conditions improve”.

The company said it made a profit of HK$792m in the second half of the year, compared with a loss of HK$928m in the second half of 2016, which it cited as “evidence of progress”.

Corrine Png, who runs an equity analysis company called Crucial Perspective in Singapore, said the second-half recovery was a “pleasant surprise”.

But she said she was concerned the airline had not managed to drive down its unit costs, excluding fuel.

“They’re not showing as much efficiency improvement as one would imagine,” said Ms Png.

Analysts expect strong demand for air cargo, which is being driven by resurgent ecommerce in the US and Europe, will help profits recover this year at Cathay, which also owns an 18 per cent stake in Air China.

Cathay’s purchases of new, more fuel-efficient aircraft should help drive down costs in the coming years, while the expiry of expensive fuel hedges will also boost profits.

“We are improving our competitive position by expanding our route network, increasing frequencies on our most popular routes and buying more fuel-efficient aircraft,” said Mr Slosar. “We believe we are on track to achieve strong and sustainable long-term performance.”