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Cathay Pacific slumps to surprise loss
MORE passengers, higher ticket prices and a cargo rebound couldn't save Cathay Pacific Airways from slumping into yet another loss. For chief executive officer Rupert Hogg, that means his restructuring efforts need to strengthen further to turn the tide.
After back-to-back annual losses, the carrier is midway through a transformation programme under Mr Hogg, who has been cutting jobs and improving services to lure back the premium traveller since taking over as CEO in May 2017. Rival Singapore Airlines, which has a budget carrier under its wings and earned a profit in the quarter through June, has also been restructuring as Asia's two marquee airlines grapple with the threat from low-fare carriers and the expansion of Chinese and Middle Eastern companies.
"They need to take more drastic and deeper measures in their restructuring efforts," said Shukor Yusof, founder of aviation consulting firm Endau Analytics. "They need to endure more pain."
Cathay Pacific is "on track" to achieve sustainable long-term performance, Cathay Pacific chairman John Slosar wrote on Wednesday in a note to shareholders after saying earnings were dragged down by oil hedging losses and rising prices of jet fuel. Cathay shares fell as much as 3.3 per cent in Hong Kong after the numbers, the biggest intraday loss since June 19.
Under Mr Hogg's transformation programme to tackle competition, Cathay Pacific has taken steps to improve its cabin offerings by providing wider choice of meals in business-class cabins on long-haul flights, added newer and more fuel-efficient aircraft to its fleet and started services to more destinations.
Also, at the back end of the aircraft - the economy class - the carrier is trying to boost revenue by adding another row of seats on its Boeing 777 planes. The change will result in a 3-4-3 configuration, in line with the industry standard adopted by many premium carriers, although legroom would remain the same, Cathay said in March last year.
"Cathay Pacific's earnings recovery should accelerate as it is benefiting from continued improvement in its core passenger business," Bloomberg Intelligence analysts Rahul Kapoor and Chris Muckensturm wrote after the earnings. "Passenger yields rebounding sequentially" is a key takeaway, they said, adding, "second-half profit should see a strong rebound if yield recovery is sustained, barring an oil price shock".
The carrier reported a net loss of HK$263 million (S$45.7 million) for the six months through June, according to a statement on Wednesday. That compares with a loss of HK$2.05 billion a year earlier and the median estimate for a profit of HK$140 million in a Bloomberg News survey of five analysts.
Cathay Pacific and Cathay Dragon paid 32 per cent more for fuel, the biggest expense for carriers in Asia, as a 19 per cent surge in Brent crude during the period weighed on costs. Although fuel-hedging losses narrowed as Mr Hogg scaled back contracts that were hurting the bottom line, they stood at HK$653 million, versus HK$3.24 billion a year earlier.
Still, all's not bad news for Cathay. Some of the measures under the revamp plan are paying off. Passenger yield - a key metric of profitability measured by the money earned from carrying a customer per kilometre - rose 7.6 per cent in the first half from a year ago to 55.4 Hong Kong cents, helped by increasing demand for its premium products. Cargo and mail yield jumped 16 per cent to HK$1.93. Both the figures are their highest since 2015.
Cathay Pacific's loss doubled to HK$1.26 billion in 2017 as the emergence of Chinese carriers such as Air China, China Southern Airlines and China Eastern Airlines took the sheen off Hong Kong as a transit hub. BLOOMBERG