HONG KONG (REUTERS) - Hong Kong's Cathay Pacific Airways posted on Wednesday (March 9) an annual loss of HK$5.5 billion (S$960 million), narrowing from the prior year's HK$21.65 billion, thanks to cost-cutting efforts and strong air cargo demand.

In January, the airline forecast a 2021 annual loss of HK$5.6 billion to HK$6.1 billion after reporting positive cash flow generation in the second half.

Cathay has since returned to burning cash due to Hong Kong's tighter quarantine rules for air crew and bans on passenger flights from major markets like the United States, Britain and Australia as part of an effort to contain Covid-19 cases.

Since January, the airline has been operating just 2 per cent of its pre-pandemic passenger capacity and less than a third of its pre-pandemic cargo capacity due to those constraints.

"We are trying our best to maintain our passenger and cargo networks as far as possible and will try to increase our cargo capacity as much as practicable," chairman Patrick Healy said in a statement.

Cathay earned 79 per cent of its HK$45.6 billion of revenue from cargo flights last year and can benefit from rising prices as a result of disruptions to the Europe-Asia market as European and Japanese carriers avoid Russian airspace.

The Hong Kong carrier, like rivals in mainland China and South Korea, is continuing to use Russian airspace on flights to Europe, according to flight tracking website FlightRadar24.

However, the crew quarantine rules make it difficult for Cathay to add freight flights to take advantage of rising demand.