Cathay losses mount under pressure from low-cost rivals

Airline loses HK$2.05 billion in first half 2017

A Boeing Co. 777 aircraft operated by Cathay Pacific Airways Ltd. prepares to land at Hong Kong International Airport in Hong Kong, China, on Saturday, August 12, 2017. With the company expected to announce another loss this week, Cathay needs to shift strategy from being the region's top airline for premium fliers and make a bigger effort to woo some of the millions of mainland leisure travelers who have enriched its state-owned rivals in China, analysts say. Photographer: Vivek Prakash/Bloomberg
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Hong Kong flag carrier Cathay Pacific on Wednesday reported a massive net loss of HK$2.05 billion (Dh962 million) for the first half of the year as the airline struggled with intense competition from rivals.

The results, which were worse than analysts predicted, came after Cathay saw its first annual loss in eight years in 2016, as lower cost Chinese carriers eat into its market share.

Wednesday's results pave the way for the first ever back-to-back annual losses in the company's 70-year history.

Bloomberg analysts had forecast a year-on-year loss of HK$1.2bn for the first half of 2017.


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Chairman John Slosar described the results as "disappointing" to reporters and said competition was the most significant factor.

Companies like China Eastern and China Southern Airlines are offering direct services to Europe and the United States from the mainland, while budget carriers like Spring Airlines have targeted regional travellers, undermining Cathay's position.

The airline is also losing premium travellers as it comes under pressure from Middle East rivals which are expanding into Asia and offering more luxury touches.

That has led to promotional prices for Cathay's top tickets as they are sold to leisure travellers.

The airline said passenger revenue decreased by almost four per cent, with passenger yield - the average amount paid per passenger per mile - dropping 5.2 per cent.


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"Demand for air travel continues to grow, which is good, but capacity growth has outstripped demand growth in many of the key markets that we serve," Slosar told reporters.

Higher fuel prices, including the cost of hedging, a strong Hong Kong dollar and rising aircraft maintenance costs also weighed on Cathay, Slosar said, as did fines from the European Commission over the airline's cargo surcharges.

Fuel was the biggest cost, up 12.7 per cent year on year from HK$13.26bn to HK$14.94bn, Cathay said in a statement to the Hong Kong exchange.

That reflected a rise in fuel costs and consumption, even though hedging losses had been reduced, it said.

Oil hedging is when an airline locks in prices of fuel at a pre-determined level for a certain amount of time.

Founded in 1946, Cathay has only reported annual losses three times, including in 2016, according to Bloomberg.

Last year's annual loss prompted a management shake-up and promises to slash staff costs by 30 per cent.

Current chief executive Rupert Hogg took over in May, replacing Ivan Chu, who had been in the job for three years.


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Cathay said in May it would cut 600 staff including a quarter of its management, as part of its biggest shakeup in two decades to repair its bottom line.

Slosar said Wednesday there were no further announcements on job losses.

Analysts said they expected no quick turnaround for the airline.

Cost cutting would be key, said analyst Jackson Wong of Huarong International Securities, who also said Cathay should abandon its hedging policy.

But Dickie Wong of Kingston Securities said the airline would also have to reinvent itself and provide a better quality experience to customers.

"If we talk about the service and the food quality of the economy class, it's just like a budget airline," Wong, a long-time Cathay flier, said.

He forecast challenges would continue, although he predicted the effects of the firm's cost cutting could pick up in the second half of 2017 and 2018.

"We do not expect the operating environment in the second half of 2017 to improve materially," Slosar said.