check out this story from Airwise.com
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).
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.
what do yo think? More 333s, 773s or 773ERs ?