Cathay Pacific has posted a significant drop in full-year profits, as rising costs offset an upturn in passenger traffic.
The Hong Kong-based airline group reported a profit of HK$916 million (US$118m) for 2012 – 83.3% lower than the HK$5.5 billion profit it posted in 2011. Group revenues actually increased 1.0% during the year, to HK$99.4bn, including a 3.5% rise in passenger revenues, which hit HK$70.1bn, or 70.6% of group’s the total turnover. This followed a 5.5% rise in passenger traffic, as the group’s two airline units – Cathay Pacific and Dragonair – boarded a total of 29m passengers.
The reduced profit was blamed however, on rising expenses – most notably fuel costs. Fuel remained Cathay’s biggest expense in 2012, accounting for 41.1% of total operating costs. While the company’s fuel bill increased just 0.8% year-on-year, Cathay said fuel prices “had a major impact on operating results”.
“Managing the risk associated with high and sometimes volatile fuel prices remains a key challenge,” the airline said in a statement. “The high cost of fuel made it more difficult to operate profitably, particularly on long-haul routes operated by older, less fuel-efficient aircraft.”
To mitigate this impact, Cathay has accelerated retirement of its less fuel-efficient Boeing 747-400 aircraft and reduced capacity on some long-haul routes.
The airline also said that uncertain economic conditions and strong competition on certain routes impacted performance, while its premium cabins were affected by changes to corporate travel policies.
“The Cathay Pacific Group operates in a volatile and challenging industry, one that will always be highly susceptible to external factors that remain largely beyond our control. The cost of fuel remains the biggest challenge, particularly for an airline such as ours where long-haul operations form a significant part of our total operations,” commented Cathay Pacific’s Chairman, Christopher Pratt.
“Our focus will remain on protecting the business and managing short-term difficulties while remaining committed to our long-term strategy. Our financial position remains strong and we will continue to invest in the future. Our core strengths remain the same as ever,” he added.
In terms of investing in the future, Cathay continued upgrading its fleet in 2012, with the addition of 19 new aircraft. It will now take delivery of at least another 92 new aircraft between now and 2020, including 48 Airbus A350 XWBs.
