Cathay back to profit on fuel-hedge gains
By Tom Mitchell in Hong Kong
Published: August 5 2009 06:28 | Last updated: August 5 2009 19:40
Gains on fuel hedging contracts helped Cathay Pacific record a paper profit of HK$812m ($105m) for the first half, masking a 27 per cent decline in revenues.
Excluding nominal oil-hedging gains, the Hong Kong airline recorded a pre-tax operating loss of HK$765m.
Mark-to-market hedging losses had the opposite effect on the airline’s bottom line last year, when it reported a record loss of HK$8.56bn.
“The simple truth is that we continue to lose money,” said Christopher Pratt, Cathay Pacific chairman.
“Our ultimate aim must be to safeguard the sustainability of our business and conserve cash wherever possible.”
The financial crisis has weakened demand for business and premium class travellers, on whom the airline is heavily dependent.
Employers have reined in perks for investment bankers and other corporate executives who used to fill the front-ends of Cathay Pacific’s aircraft.
The airline has been hit by a slump in cargo volumes, especially for high-value shipments from China’s Pearl and Yangtze delta regions to the US.
“This is one of the worst recessions in recent memory,” Mr Pratt said. “The best we can say is that the worst may be over.”
Cathay Pacific executives are concerned that the fall in demand for premium travel and cargo could be structural rather than cyclical. In that case, executives said they would be willing to reconsider their business model.
“We haven’t decided anything yet, but there are no sacred cows,” Tony Tyler, Cathay Pacific chief executive, said.
“If the new normal is that business and premium doesn’t return, then we’ll review that, but it’s still a work in progress.”
Cathay Pacific and Dragonair, its wholly owned regional carrier, have responded to the downturn by taking six cargo aircraft out of service, parking another half-dozen passenger planes and enforcing an unpaid leave scheme for staff.
Mr Pratt denied speculation that the airline had been approached by potential buyers.
“We haven’t received any offers in any way,” he said. “We’re not sellers.”
The crisis in the aviation industry has yielded at least one benefit at Cathay Pacific, whose own executive travel policy gives priority to passengers over company executives.
Airline employees must forfeit their seats if there is customer demand for them.
“We don’t displace revenue-paying passengers,” Mr Pratt said. “But of late that hasn’t been much of an issue.”
Copyright The Financial Times Limited 2009