Cathay Pacific flags end to record run of losses as revamp takes off

Cathay Pacific Airways said that its passenger business had benefited from capacity growth and improved revenue management, with average airfare prices up despite competitive pressures.
Cathay Pacific Airways said that its passenger business had benefited from capacity growth and improved revenue management, with average airfare prices up despite competitive pressures.PHOTO: AFP

HONG KONG (BLOOMBERG) - Cathay Pacific Airways forecast an end to a record two-year run of losses as a revamp kicked off by Asia's biggest international carrier starts to yield results.

The Hong Kong-based carrier said on Wednesday it expects to announce next month a profit of HK$2.3 billion (S$396.2 million) for 2018, helped in part by a strong cargo business and growth in passenger-carrying capacity. The marquee airline fired workers and pared overseas operations after losses from fuel hedging plunged the company into losses.

Chief executive officer Rupert Hogg, who assumed the top post about two years ago, has been attempting to turn around the company amid a massive expansion by Chinese carriers that reduced their need to fly to Cathay Pacific's Hong Kong base for long-distance travel. With a slew of budget airlines luring the cost-conscious traveler and Middle Eastern rivals such as Emirates and Etihad offering ultra luxury, Asian premium carriers Singapore Airlines and Cathay Pacific have faced intense competition in the recent past.

A drop in global oil prices and paring back of aggressive capacity expansion by rival airlines have helped the cause of Cathay Pacific and SIA, whose profit in the fiscal year ended in March 2018 more than doubled. Qantas Airways, Australia's biggest airline, will report earnings on Thursday.

Cathay Pacific's shares jumped as much as 8.8 per cent in Hong Kong, their biggest intraday gain in more than seven years. The stock has declined in three of the past four years.

"Its overhaul is delivering," Rahul Kapoor and Chris Muckensturm wrote after Cathay Pacific's announcement. "Cathay Pacific's earnings recovery should accelerate as it benefits from continued improvement in its core passenger business."

Cathay's profit forecast of HK$2.3 billion for 2018 tops an estimate of HK$934 million by analysts.

Hogg is in the final year of its transformation program that is seeking to reduce HK$4 billion in expenses. He has added more international routes and lured customers with better service offerings on board its flights. Cathay Pacific has improved in-flight meals for premium passengers and has been adding extra economy seats in its 777-300 family aircraft to squeeze more revenue.

"The company's transformation program has had a positive impact," Cathay Pacific said in the filing.

Fuel-hedging contracts gone awry and intense competition from mainland carriers including China Eastern Airlines Corp. and China Southern Airlines Co. resulted in losses in 2016 and 2017, prompting the restructuring. Late last year, the carrier came under fire for the world's biggest airline data breach, which it reported months after the sophisticated attacks on its computer network.

This month, Cathay Pacific said it is closing its cabin crew base in Toronto as part of the business review, potentially affecting 120 workers. Earlier, it offered a voluntary retirement package to employees in Japan. Still, it plans to hire more than 1,000 cabin crew in Hong Kong this year, the company has said.