HONG KONG • Hong Kong's troubled flagship airline Cathay Pacific yesterday posted its first annual loss since the height of the financial crisis, hit by intense competition and losses from fuel hedging.
Its HK$575 million (S$105 million) net loss last year reversed a profit of HK$6 billion a year ago, after sales dropped 9.4 per cent to HK$92.8 billion, with chairman John Slosar warning that this year would be similarly "challenging".
Cathay is struggling despite an expansion of international air travel in the region as lower cost carriers, particularly from mainland China, have been eating into its market share.
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.
Other high-profile carriers have also felt the pinch of competition. Singapore Airlines saw net profit drop 35.6 per cent in the final three months of last year, while Japan Airlines reported a 24.6 per cent fall in the period from April to December.
But analysts said Cathay's major fuel-hedging losses put it in an even weaker position. Analysts polled by Bloomberg had predicted full-year results ranging from a profit of HK$1.5 billion to a net loss of HK$1.5 billion, with the disparity reflecting varying estimates of fuel-hedging losses.
Losses from fuel hedging totalled HK$8.46 billion last year. Cathay said it expects further fuel-hedging losses this year, although they should be less than for last year.
Cathay announced a major restructuring programme in January that will see jobs axed, but it has not said how many.
Analyst Jackson Wong of Huarong International Securities said Cathay had lost its niche and would find it hard to turn the corner. Mr Wong said cost-cutting was the path back to profitability but believed the firm needed to be clearer about what its restructuring would entail to win back investor confidence.
Other observers said Cathay was not offering a quality experience that justified its prices.
"As a passenger of Cathay Pacific, when I travel business class, it's OK. But if I travel economy class, I feel like I'm sitting in a budget airline cabin. This is a big problem," said Mr Dickie Wong of Kingston Securities.
AGENCE FRANCE-PRESSE, BLOOMBERG