March 10, 2004
Cathay Pacific Airways said Wednesday its second-half profit fell just one percent, beating forecasts as cost cuts and currency gains offset fare discounts.
Hong Kong-based Cathay, which suffered its worst-ever loss in the first half of 2003 due to SARS, is expected to enjoy a better 2004 as it taps new markets, despite rising competition from traditional rivals and new no-frills carriers.
"The recovery of the second half came quicker than initially expected and was attributable to both pent-up demand, especially from business travellers, and special offers," Cathay Chairman James Hughes-Hallett told a news conference
Airlines in Asia are recovering from an industry slump after the outbreak of Severe Acute Respiratory Syndrome (SARS) last spring, which hit passenger traffic and forced airlines to slash flights.
"We now feel confident that we can resume a growth pattern," Hughes-Hallett added. "But we are in a volatile industry that is extremely subject to external factors."
Cathay, which has a market value of USD$7 billion, said net profit for the six months ended December 31 totalled HKD$2.54 billion (USD$326 million), compared with HKD$2.57 billion (USD$330 million) a year earlier, according to calculations based on Cathay's annual results.
Cost savings, a weaker US dollar and robust cargo business helped Cathay claw back from a massive HKD$1.24 billion (USD$159 million) loss in the first half.
Hong Kong's currency is pegged to the US dollar, which weakened substantially against most major currencies last year and Cathay said gains were expected to continue in early 2004.
Cathay's turnaround contrasts with Japan Airlines System, which on Wednesday widened its year net loss forecast, citing rising fuel costs and a sluggish recovery after SARS.
Analysts expect Cathay to triple profits this year to around HKD$4.1 billion (USD$526 million).
Operating costs fell 3.5 percent despite an 18.5 percent average rise in its fuel price and the airline enjoyed a foreign exchange gain of HKD$244 million (USD$31.3 million), 36 percent higher than in 2002.
Analysts said Cathay's cost reductions were impressive given the industry's high fixed costs, but some said the stock looked expensive compared with its peers.
"The gains mainly come from non-operating items. The currency gain was more than double my estimate," said Phil Wickham, analyst at ING Financial Markets.
Annual earnings totalled HKD$1.3 billion (USD$167 million), down 67 percent from 2002, as full-year turnover fell 10.6 percent to HKD$33.1 billion (USD$4.25 million).
EXPANSION, NEW PLANES
Cathay began flying to Beijing three times a week in December and plans to expand further into the fast-growing China market. It said on Wednesday it will launch a daily non-stop service to New York.
The airline said it is in talks with plane makers Boeing and Airbus and would announce an order in four to six weeks.
But the airline faces stiff competition from local rival Dragonair, which has begun flying to Bangkok and starts flights to Tokyo soon -- two of Cathay's mainstay markets -- as well as from low cost carriers such as Malaysia's Air Asia.
Hughes-Hallett said Cathay was looking carefully at the low-cost carrier model. "Whether we will respond defensively or pro-actively remains to be seen. It's not a given that the low cost model will be successful in Asia," he said.
The airline said it would pay total dividends of HKD$0.48 per share for 2003, 9.1 percent more than the HKD$0.44 in 2002. Cathay took the unusual move of halving its 2002 annual dividend to preserve cash as SARS devastated its business.
Horus From Egypt, joined Feb 2004, 5230 posts, RR: 61 Reply 3, posted (9 years 9 months 1 day 1 hour ago) and read 3761 times:
They might order come B777-300ERs to replace their ageing 744s, as nothing seems to be happening with the rumour that they'll be buying some of BA's 744s. It would fit nicely with their current 773 fleet. Though the A346 might get it. Why did Cathay Pacific only order 3 of them? Seems like a small number for such a large airline.
Jaws707 From United States of America, joined Aug 2001, 708 posts, RR: 1 Reply 4, posted (9 years 9 months 1 day 1 hour ago) and read 3693 times:
CX actually did not order the 3 A346's, but instead leased them, and I would imagine that if they do not order more then the A346's will be going back when the lease expires. I was thinking maybe CX will annouce that they will be leasing the 3 remaining passenger A380's ILFC has available for lease?
Horus From Egypt, joined Feb 2004, 5230 posts, RR: 61 Reply 6, posted (9 years 9 months 1 day 1 hour ago) and read 3623 times:
Wouldn't they order some A380s before leasing 3 from ILFC. As with my previous point about the A346, there is no point operating only 3 aircaft in a fleet that is expected to reach 150 by the end of the decade. I would prefer if they get a mix of A380 and B777-300ERs (rather than A346s).
Carfield From United States of America, joined Dec 2003, 1802 posts, RR: 9 Reply 7, posted (9 years 9 months 1 day ago) and read 3568 times:
I think the lease for Airbus A340-600 will expire at 06 and 07. I am not sure what CX plans to do...
Go to www.cathaypacific.com... go to the press room... you can read the news about the 2003 report... and then it will link you to the detailed version of the report... There are detailed information about the fleet of CX... how many they own and leased and financing... interesting stuff... expiry of lease...
It is hard to speculate, but one thing for sure... CX will not be a launch carrier for any of the new Airbus or Boeing models. CX manage is very conservative these days... but I think the new order should be a mixed batch of Airbus and Boeing. For now, CX seems to focus on Airbus A330 for regional and Australia, and then A340 for long haul, and then Boeing 777 for regional (due to its high capacity). I think CX will not likely change this direction. Boeing 777ER may be too big for CX long haul... CX seems to be pleased with Boeing 777 on the intra-Asian high demanding flights.
I don't expect a big surprise announcement...
Possibly more Airbus A330 and Boeing 777 for regional expansion and Mainland China... maybe a few Airbus A340s to support the ultra long haul flights for secondary destinations...
A380s seem to be a far fetched... Definitely no Boeing 7E7...
Sometimes, I think this conservative manner of CX is stopping the airline from growing... maybe a bit too conservative... sometime this airline business requires some creativity and risks, but with the SARS crisis last year, CX will be back to its more conservative self.
Jaws707 From United States of America, joined Aug 2001, 708 posts, RR: 1 Reply 9, posted (9 years 9 months 21 hours ago) and read 3372 times:
I was thinking they might want to lease a few of the A380's to try them out to see how well they will fit into the fleet and their future plans. I believe CX's network could support 10-15 A380's in the future. CX also carries a lot of cargo so the A380 could help in that sense as well. BTW a few months ago there was talk of CX picking up some used 744's, is that rumor still floating around, or have they decided against the used 744's. I believe they were to come from Brittish Airways.