Cathay Pacific Returns to Profit on Fuel-Hedging Gain
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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
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
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My understanding of the 'paper profit' is that because it's not really there, that cash reserves are being used to pay normal operating costs, loans for new a/c and the normal everyday running costs (i.e. you and me) etc etc, with the actual operating costs or whatever it is being a loss of HKD795 million, then cash reserves are being eaten up.
Some measures are being looked at, I'm told, to reduce this cost and although the statement is that jobs are not under threat, don't forget they also denied that unpaid leave was an option, shortly before it became one, bearing in mind it had taken some 3 months of planning and checking on legalities etc before it was introduced.
At this time I would be very worried about yours and my future, it is not rosey and it may be shorter than you think unfortunately, or fortunately for some that want out.
Some measures are being looked at, I'm told, to reduce this cost and although the statement is that jobs are not under threat, don't forget they also denied that unpaid leave was an option, shortly before it became one, bearing in mind it had taken some 3 months of planning and checking on legalities etc before it was introduced.
At this time I would be very worried about yours and my future, it is not rosey and it may be shorter than you think unfortunately, or fortunately for some that want out.
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It's difficult to believe them.
It's always be dire: terrible: the sky is falling.
Whenever we say the loads are great they say "ah but the yields are bad", something that unlike the thousands of bums on seats we can't physically verify.
They set profit targets ridiculously high and then moan when their 9% year-on-year improvement (or whatever) is "behind target" so alas things are terrible.
And we as gullible fools are meant to lap it all up.
Yes this is a downturn but there have been downturns before and there will be again. Asia is already seeing the signs of improvement and CX just announced in excess of US$100 million profit.
So firstly, I take all their doom and gloom with a pinch of salt and secondly by their own rationale, the staff who took SLS can very obviously expect that profit to be returned to them.
As sure as night follows day this enterprising part of the world will imminently be marching again on the highway of prosperity and any airline that decides to shed staff (particulary highly-skilled staff) at this time will be very much caught short when that march gathers pace.
I suspect CX know this and all their hoopla is yet another means by which to manipulate staff and psychologically condition them.
I'm conditioned enough thanks.
It's always be dire: terrible: the sky is falling.
Whenever we say the loads are great they say "ah but the yields are bad", something that unlike the thousands of bums on seats we can't physically verify.
They set profit targets ridiculously high and then moan when their 9% year-on-year improvement (or whatever) is "behind target" so alas things are terrible.
And we as gullible fools are meant to lap it all up.
Yes this is a downturn but there have been downturns before and there will be again. Asia is already seeing the signs of improvement and CX just announced in excess of US$100 million profit.
So firstly, I take all their doom and gloom with a pinch of salt and secondly by their own rationale, the staff who took SLS can very obviously expect that profit to be returned to them.
As sure as night follows day this enterprising part of the world will imminently be marching again on the highway of prosperity and any airline that decides to shed staff (particulary highly-skilled staff) at this time will be very much caught short when that march gathers pace.
I suspect CX know this and all their hoopla is yet another means by which to manipulate staff and psychologically condition them.
I'm conditioned enough thanks.
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According to StileProject:
If you own an asset that increases in value, any increase in value is a paper profit, or unrealized gain. If you sell the asset for more than you paid to buy it, your paper profit becomes an actual profit, or realized gain.
The same relationship applies if the asset has lost value. You have a paper loss until you sell, when it becomes a realized loss.
You owe no capital gains tax on a paper profit, though you use the paper value when calculating gains or losses in your investment portfolio, for example. The risk with a paper profit is that it may disappear before you realize it. On the other hand, you may postpone selling because you expect the value to increase further
The same relationship applies if the asset has lost value. You have a paper loss until you sell, when it becomes a realized loss.
You owe no capital gains tax on a paper profit, though you use the paper value when calculating gains or losses in your investment portfolio, for example. The risk with a paper profit is that it may disappear before you realize it. On the other hand, you may postpone selling because you expect the value to increase further
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Has anyone been able to open the PDF versions of the Interim report on Intracx? Call me a cynic, but it is convinient that we can't get hold of the raw numbers. I especially wanted to check the note under staff expenses which talked about 'a rise in the average number of staff' offsetting the gains made from SLS/no bonus.
I thought it was the end of the world and we had frozen all hiring! Apparently not.
I thought it was the end of the world and we had frozen all hiring! Apparently not.
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FLAP 10 wrote:
OK, I think you need to sit down FLAP 10, maybe an anger management course!!!!!
A. Le Rhone wrote.
A. le Rhone,
May I request that you edit your post and remove my name from the list of 3 individuals you mentioned in your first post. If you think it's warranted to include me purely because of my choice of wording i.e. Stupid in my assumption towards FLAP 10 then I feel you are completely wrong.
I would appreciate if you could get off your high horse and give up the notion that you are the godfather of maturity and my assumption of FLAP 10 was indeed spot on, please see his reply on this and other threads if you fail to see my point.
Actually badairsucker you are one dumb little bitch that has gotten slapped one too many times. Lets face it you'll be the first to defend the AoA and the first to abandon your AoA mates. You've already proved it! 
A. Le Rhone wrote.
Please tell me Flap10, badairsucker and Squak7700 are 15 year-old boys playing on dad's computer?
I would find it regrettable that professional pilots could be so abusive and childish in their discourse towards each other. "One dumb little bitch" - surely you can play grown-ups long enough to provide posts that are at least slightly more eloquent.
Now back to the kids throwing tantrums at each other..........
I would find it regrettable that professional pilots could be so abusive and childish in their discourse towards each other. "One dumb little bitch" - surely you can play grown-ups long enough to provide posts that are at least slightly more eloquent.
Now back to the kids throwing tantrums at each other..........
A. le Rhone,
May I request that you edit your post and remove my name from the list of 3 individuals you mentioned in your first post. If you think it's warranted to include me purely because of my choice of wording i.e. Stupid in my assumption towards FLAP 10 then I feel you are completely wrong.
I would appreciate if you could get off your high horse and give up the notion that you are the godfather of maturity and my assumption of FLAP 10 was indeed spot on, please see his reply on this and other threads if you fail to see my point.
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Wait a second.... The unrealised loss of las year is why we were all asked to take a paycut, while the lesser operating loss was being played down.
And now we have an unrealised profit and it's equally as bad because they're emphasizing the operating loss?
My... If I wasn't blinded by my unconditional support for our dear managers, I'd almost begin to let my mind wander towards considering the unimaginably faint possibility that they might, just might, have been trying to manipulate us towards making sacrifices that might not have been completely warranted?
And now we have an unrealised profit and it's equally as bad because they're emphasizing the operating loss?
My... If I wasn't blinded by my unconditional support for our dear managers, I'd almost begin to let my mind wander towards considering the unimaginably faint possibility that they might, just might, have been trying to manipulate us towards making sacrifices that might not have been completely warranted?
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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.”
“We don’t displace revenue-paying passengers,” Mr Pratt said. “But of late that hasn’t been much of an issue.”
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So they say the next step is to park some (I think they said 2 and 4 respectively) 340's and 744s. It seems to me that this is being played. By calling it "parking" instead of "retiring" or" selling" they really make it seem much worse that it is.
They tried to delay the new 777s but now we are told that we are getting a bunch (I think it was 11 by the end of 2010.) This just seems like a fleet renewal plan being twisted to suit the tone of the day. We may not grow as quickly as planned in the past but this "sky is falling" stuff is getting old.
As A le rone mentioned, the targets are set so high that we are set up to fail in this environment.
They tried to delay the new 777s but now we are told that we are getting a bunch (I think it was 11 by the end of 2010.) This just seems like a fleet renewal plan being twisted to suit the tone of the day. We may not grow as quickly as planned in the past but this "sky is falling" stuff is getting old.
As A le rone mentioned, the targets are set so high that we are set up to fail in this environment.
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badair,
You're quick to point out how stupid everyone else is, but you can't even intelligently answer the question I posed to you, maybe because you fail or deny to see the hypocrisy in your various posts. If you can't think for yourself, just call the AoA hotline, I am sure they will be able to assist you.
For some of you posting here complaining that we have been somehow duped by the company, were you really that naive to believe company propaganda? Or does it make you feel better convincing yourselves that you participated in SLS to help the company, rather than because you were intimidated.
You're quick to point out how stupid everyone else is, but you can't even intelligently answer the question I posed to you, maybe because you fail or deny to see the hypocrisy in your various posts. If you can't think for yourself, just call the AoA hotline, I am sure they will be able to assist you.
For some of you posting here complaining that we have been somehow duped by the company, were you really that naive to believe company propaganda? Or does it make you feel better convincing yourselves that you participated in SLS to help the company, rather than because you were intimidated.
Last edited by Flap10; 8th Aug 2009 at 04:44.
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Operating Loss vs Paper Profit
spannersatcx.........spot on. The operating loss is the concern.
If you were running a business that sold widgets, and due to the downturn you were losing cash each month, your company would be operating at a loss. A 'paper fuel hedging gain' has, for illustration purposes, a similar effect to a charity giving your company a million dollars. It increases your net tangible assets and, on paper, you'll then make a profit for the reporting period. It doesn't, however, bode well for the future, as your company's core business is still running at a loss. That's why our CEO is concerned despite the 'paper' profit.
Yes, like any company, Cathay employs PR spin doctors to the company's advantage. But, if we believe the auditors, the picture isn't pretty.
lmh
If you were running a business that sold widgets, and due to the downturn you were losing cash each month, your company would be operating at a loss. A 'paper fuel hedging gain' has, for illustration purposes, a similar effect to a charity giving your company a million dollars. It increases your net tangible assets and, on paper, you'll then make a profit for the reporting period. It doesn't, however, bode well for the future, as your company's core business is still running at a loss. That's why our CEO is concerned despite the 'paper' profit.
Yes, like any company, Cathay employs PR spin doctors to the company's advantage. But, if we believe the auditors, the picture isn't pretty.
lmh
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TT suggested on RTHK that CX might have to Officially become a low cost no frills airline if those first and business class time travellers who are unpatriotic and deserting the brand in droves did not mend their ways and start coughing up full fare payment and pledges to travel always at exorbitant CX rates again
sad news no brand loyalty especially in a recession when CX expects.......
sad news no brand loyalty especially in a recession when CX expects.......
mr Q, spot on...
The fuel is costing what plan called for, flights are bursting at the seams with passengers, but we still not making any money. Somebody is not doing their job properly!
If we stopped overbooking to the extent that we are doing, and if we stopped upgrading those diamond and gold MPOs, the B?ankers would start buying in the class of travel which they desire. There is currently absolutely no incentive to pay the going rate for a ticket because they all know that they will be pushed up at least one class, at the expense of everyone else...
The staff who have bought ID90 first, business, or even EY tickets are losing out.
The cabin crew who have to deal with the great unwashed upgrades are losing out
Yes, even TT and CP are losing out with the present policy, due to lost revenue.
The B?ankers are loving it.
If we are continuing to make a loss with load factors as they are we need a change of policy.
The fuel is costing what plan called for, flights are bursting at the seams with passengers, but we still not making any money. Somebody is not doing their job properly!
If we stopped overbooking to the extent that we are doing, and if we stopped upgrading those diamond and gold MPOs, the B?ankers would start buying in the class of travel which they desire. There is currently absolutely no incentive to pay the going rate for a ticket because they all know that they will be pushed up at least one class, at the expense of everyone else...
The staff who have bought ID90 first, business, or even EY tickets are losing out.
The cabin crew who have to deal with the great unwashed upgrades are losing out
Yes, even TT and CP are losing out with the present policy, due to lost revenue.
The B?ankers are loving it.
If we are continuing to make a loss with load factors as they are we need a change of policy.
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yields...
Just looked up a flight to for a friend. Toronto-Hong Kong-Toronto. $6186. At first I thought wow, that is a really cheap fare, no wonder we are loosing money! Then I realized the price was in CANADIAN dollars ($6186 = 44,311HKD) HOLY S&#T! I had friends fly out two years ago, before the shi-t hit the fan and it only cost them about $1500 CAD each to fly round trip. Where are these low fares people speak of. At $6000+ we are more likely to be pushing people away to other "lesser" carriers than drawing them in. Still, the Toronto flights are pretty much full.
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If you can't make money with 85% LF, then you are doing something wrong. Time to move on and try your managing skills at something different. You can't expect your employees to compensate or be accountable for your bad decisions.
If you run a restaurant and it is empty every night, then the problem is the cook. If the restaurant is full but you are still not making money, then your problem is the manager. Plain and simple.
The time for new leadership has come. I can't believe the shareholders have not taken action yet. They must not care much about making money.
If you run a restaurant and it is empty every night, then the problem is the cook. If the restaurant is full but you are still not making money, then your problem is the manager. Plain and simple.
The time for new leadership has come. I can't believe the shareholders have not taken action yet. They must not care much about making money.
Maybe the front end revenues are down because the product is rubbish?
Recent PX experience from so-called 'First Class': colleague's seat 'manual recline', neither PTV's working properly and the 'thrombosis bar' under the (hard) seat cushions acting like an alarm clock every hour of sleep. Our cabin crew do their best with what they have to work with, but with the opposition, it does not compare.
'Olympus coffins': almost total sensory deprivation (like the back of a military Hercules). You can't talk, see out or read a broadsheet newspaper. You can't feel well in turbulence due to the offset axis of the seat. You can sleep if you are under six feet, in that case the cabin crew won't run into your legs as they walk up and down. Oh yes, Olympus has an 'alarm clock' too: the next seat's occupant's tray table being slammed up and down into the divider next to your face.
If I'd paid full fare then experienced this product it would be a letter to the CEO and never again. Appalling.
Recent PX experience from so-called 'First Class': colleague's seat 'manual recline', neither PTV's working properly and the 'thrombosis bar' under the (hard) seat cushions acting like an alarm clock every hour of sleep. Our cabin crew do their best with what they have to work with, but with the opposition, it does not compare.
'Olympus coffins': almost total sensory deprivation (like the back of a military Hercules). You can't talk, see out or read a broadsheet newspaper. You can't feel well in turbulence due to the offset axis of the seat. You can sleep if you are under six feet, in that case the cabin crew won't run into your legs as they walk up and down. Oh yes, Olympus has an 'alarm clock' too: the next seat's occupant's tray table being slammed up and down into the divider next to your face.
If I'd paid full fare then experienced this product it would be a letter to the CEO and never again. Appalling.
Last edited by Captain Dart; 10th Aug 2009 at 00:30. Reason: punctuation
