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CX announces 2008 interim results

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CX announces 2008 interim results

Old 6th Aug 2008, 07:26
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CX announces 2008 interim results

Cathay Pacific records HK$(663) million profit in 2008 interim results.
Results

Cathay Pacific Airways today announced a loss of HK$663 million in its 2008 Interim Results. This compares to a profit of HK$2,581 million in the first half of 2007. The big change in the company’s financial performance was entirely due to the relentless rise in the cost of jet fuel in recent months.

Group turnover rose by 22.6% over the same period in 2007 to HK$42,448 million, with a significant increase in both passenger and cargo revenue. However, ever-increasing fuel prices completely undermined the airline’s business, with the average into-plane fuel price increasing by 60% to US$132 per barrel. As a result the fuel bill rose from HK$10.55 billion to HK$19.31 billion, a climb of 83%.

Fuel as a percentage of total operating cost rose to 45.3% for the first half of 2008, compared to 33.6% this time last year. Cost per ATK increased to HK$2.79 while the cost per ATK without fuel increased by 2.4% due to strong foreign currencies and inflation driving up operating costs . The steep rise in fuel prices was not matched by the increase in fuel surcharges. The fuel surcharges approved by the Hong Kong Civil Aviation Department in the first half were less than half of the increased fuel bill and were significantly behind those charged by major international competitors.

Passenger revenue for the Cathay Pacific Group increased by 21.9% to HK$25,566 million and the Group’s two airlines, Cathay Pacific and Dragonair, carried a total of 12.5 million passengers in the first six months of the year – a rise of 13.7% over the same period in 2007. This compares to a capacity increase of 14.3%. The overall passenger load factor rose by 1.9 percentage points to 80.0%. There was some softening in demand for premium travel in the latter part of the first half, though yield still grew by 4.1% to HK55.9 cents.

The amount of cargo carried by Cathay Pacific and Dragonair grew by 6.8% to 828,399 tonnes, with demand more robust than originally anticipated. The cargo load factor rose by 1.1 percentage points to 66.4% against a capacity increase of 6.9%. Yield fell 1.8% to HK$1.60 due to pricing pressures.

The Cathay Pacific Group continued to expand and modernise its fleet in the first half of 2008 with three more Boeing 777-300ERs, Extended Range, passenger aircraft arriving for Cathay Pacific plus two Airbus A330-300s. The current high fuel prices make it vital to operate the most efficient freighter fleet and in May the airline took delivery of the first of six Boeing 747-400ERF Extended Range Freighters which benefit from higher fuel efficiency. The Group also has 10 new-generation Boeing 747-8F freighters on order and at the same time has begun a programme to retire the older, more inefficient Boeing 747-200/300F “Classic” freighters in its fleet. Two have already left – one from Cathay Pacific and one from Dragonair.

The Cathay Pacific Group remains committed to further building Hong Kong’s position as a leading international passenger and airfreight hub and in the first half of 2008 undertook an important expansion of services to India. Cathay Pacific and Dragonair added a total of 27 more flights a week to and from the country, with two new destinations added – Bengaluru (Bangalore) and Chennai. The Group also announced that it will design, construct and operate a new cargo terminal at Hong Kong International Airport. Work on the project, to be operated under a 20-year franchise agreement, has already begun and the terminal will open in 2011 with an annual throughput capacity of 2.6 million tonnes.

In terms of product and service, more passengers are now benefiting from the ongoing rollout of new three-class cabin designs, which are now found on 28 of Cathay Pacific’s medium- and long-haul aircraft. The Group also opened new lounges in Beijing, Melbourne, Seoul and Shanghai as part of an ongoing commitment to improve passengers’ travel experience.

Cathay Pacific Chairman Christopher Pratt said: “Global aviation is making a painful adjustment to the new reality of US$100-plus oil. Cathay Pacific is reducing other costs where it can but there is a limit to how much cost can be saved before quality and brand are compromised. It is thus inevitable that fares for passengers and shippers will have to rise to reflect the new cost of operation. It is difficult to forecast with any degree of accuracy the extent to which these higher fares will reduce demand but thus far it has remained robust. Despite the current difficulties Cathay Pacific remains confident in its future. Hong Kong remains Asia’s premier aviation hub and Cathay Pacific’s superb international network affords unrivalled connectivity to and from China. The company’s priority at this time is to protect the integrity of this network. There will be some redeployment of capacity within the network but it is not envisaged that the company will withdraw from any destination it now serves.”

Posted On: 06 Aug 2008
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Old 6th Aug 2008, 07:28
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Message from the Chief Executive

Message from the Chief Executive
Posted On: 06 Aug 2008

Dear colleagues,

The extent of the impact high fuel prices are having on our business became very clear today. In our 2008 interim results we announced a loss of HK$663 million, which might seem hard to believe at a time when our revenues reached record highs. All the great work of the team has been eroded by a factor that is, to a large extent, out of our control.

These are certainly tough times for our airline – and of course for the industry as a whole. And things will stay tough if fuel prices stay at such high levels. True, there’s been a dip in the price of crude in the past couple of weeks, but jet fuel prices remain close to historic highs and we expect them to stay there for a while. We’ve seen a very sudden reversal from the record results of last year.

Our interim results show that that the revenue-generation aspect of our business remains very strong. Our performance on the passenger side, for example, was terrific, with revenue rising by almost 22% over the same period last year and passenger numbers up by 13.7%. Cargo did better than expected, too, with income up by 10.4% and tonnage rising by 6.8%. Well done the sales teams, who are rising to the challenge of pushing up revenue in the face of soaring fuel costs.

This example makes me confident about the long-term future of our airline – the strong team spirit we have here combined with fundamental strength of our business. We have strong finances, a great network, a powerful brand and intense customer loyalty, excellent product and service, an efficient fleet and a good order stream of aircraft. We operate from the world’s best airport in a city that’s a true aviation hub. These elements put us in a very good position to survive the current crisis – though we will need to work together as a team and share the pain if necessary.

The situation looks bleak right now but there will be an end to the crisis. At some point fuel prices will stabilise or even begin to edge down and meanwhile we will be raising fares to levels at which we can make profits – although of course we will still be offering some good deals to keep demand lively.

The important thing now is to ensure we’re ready to make the most of any opportunities that arise. That means working together to contribute as much as we can to the success of the company. We have been through crises before and we have always emerged stronger. Some airlines won’t survive the fuel crisis but Cathay Pacific can and will, as long as we all pull in the same direction. Our plan is to maximise the revenue-earning potential of our business. This means we must maintain our powerful network and make sure we continue to excel at service to our customers. Our aim is to keep our team together, as we have in previous difficult times.

Thank you all once again for your hard work in the first six months. Let’s hope we start to see an improvement in our fortunes in the second half. But let’s remember that while we can’t do much about fuel prices, 20,000 Cathay Pacific people working well together can make a big difference.



Best regards, Tony Tyler Chief Executive
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Old 6th Aug 2008, 07:32
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The money set aside for the US price fixing fines seems to make up a big part of that reported loss. Yet management don't seem keen to mention it. Strange.
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Old 6th Aug 2008, 07:32
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So Tony

Does this include your mistake of that $60 million for that price fixing? Where does fit into your profit/loss calculations?

Would it come out of your Management Bonus??? Because you certainly can't pass it onto the hard working girls/ & boys on the shop floor can you!

Meow!
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Old 6th Aug 2008, 07:35
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creative accounting eh?
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Old 6th Aug 2008, 08:04
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I think it is a fair assumption that were it not for the price fixing and the profits that it generated (>60mil) the loss would have been far greater.
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Old 6th Aug 2008, 09:26
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Well ladies and gents......it's time to assume the position. Try and find something to bite down on....it makes the pain easier to handle. (I hear it stings a bit when it goes in, but when it comes out.....lets just say it's not the worst feeling in the world!)

It's been said a thousand times, but I feel the need to say it again. Who thinks that there is even a remote chance that conditions won't deteriorate more. I won't even bother fantasizing about anything getting better!

I wasn't at CX during the last time the belts were tightened. (Was is SARS?). Could someone tell me if the whole leave without pay requests were preceded by a message from TT's equivalent that kinda looked something like the one below?
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Old 6th Aug 2008, 09:36
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Standby for lots of CX CCD spin, to prepare the troops for no 13th month this year.
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Old 6th Aug 2008, 09:41
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SARS involved people not travelling to Hong Kong and a subsequent reduction in services. This is not anything like that. CX are still going to be flying aeroplanes full of people and will still need pilots to do it.
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Old 6th Aug 2008, 09:47
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True it's very different, but I wouldn't say completely so.

I would reckon that it's still in the same ballpark. Higher costs eats into margins.... the company sacrifices some less profitable routes.... or, they cut services from 3 daily to 1 daily due to weakening demand....etc.

My point is, there's going to be a point that they need less from the people they have. Yes, that may never happen. It may even be very very improbable, but for the sake of the argument, humor me.
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Old 6th Aug 2008, 11:24
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According report AHK made profit
I hope we will see pay increase
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Old 6th Aug 2008, 13:01
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Correct me if I am wrong, but wasn't the fine US$60M, which is close enough to HK$470M, which is about 70% of the loss!

The Messiah, I agree, over the years I hear what you are saying!
 
Old 6th Aug 2008, 16:31
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NO matter how much profit the illegal "price fixing" has generated - its was illegal and wrong.
To put this bad corporate conduct into a different perspective than what it is, is simply pure low moral and ethics.
It speaks for it self that the CEO and Board of Directors are not mentioning the influence of the 60M USD fine in their public reports! Corporate conduct is something created for the man on the floor - not the ones up in the hirachy.
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Old 6th Aug 2008, 22:22
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messiah,
the fine was for years of price fixing, not just the price fixing for first half 2008. So I think it would be a fair assumption that without the fine, the loss for first half 2008 would have been much smaller. Either that or we have to assume that the price fixing led to profits in excess of over $60million US every six months and the US kindly only fined CPA less than six month's worth of cargo price fixing profit!
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Old 7th Aug 2008, 01:59
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To put this bad corporate conduct into a different perspective than what it is, is simply pure low moral and ethics
I don't think anyone is defending their corporate conduct on moral or ethical grounds. This discussion is only about the bottom line.

the fine was for years of price fixing, not just the price fixing for first half 2008.
Thanks I didn't realise that. So that extra profit share we got last year might have been due to their price fixing. Maybe those who feel morally abhorred may want to give theirs back.
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Old 7th Aug 2008, 13:45
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Don't forget that everyone will be expecting 6% pay rise over and above any payscale increment to cover the galloping inflation...
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Old 7th Aug 2008, 14:05
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It doesn't gel with me either. No way can this company cry a loss. Fuel hedged, Pax surcharges beyond the ridiculous, and breaking revenue records every week.......... mmm.......... seems to me a plan to buy back it's shares nice and cheap. From 1st half profit of 2 point whatever billion last year, to now, don't tell me the fuel bill has been 3 Billion,............
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Old 7th Aug 2008, 21:12
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Interesting, Sleeve!

I love a good conspiracy theory. Your one though, is actually believable! I never thought about it that way, but the company really does have lot to gain by reporting a loss like that. They can effectively kill about a dozen birds with that stone.

And we, my friends......are birds.......
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Old 8th Aug 2008, 02:16
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There was an article in the paper about the silver lining for CX and other airlines regarding it's low(er) share price.

CX will make the usual killing in the second half of the year, cry foul about the first half and say what wonderful work has been done to have this fantastic turnaround. However things are not looking rosy for 2009 so will have to continue to work hard!
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Old 8th Aug 2008, 04:37
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Not a good time to be at the bottom of the seniority
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