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The worst seems to be over for Cathay Pacific

Analysts say the airline is benefitting from global recovery in cargo market as it posts a smaller-than-forecast annual loss


CATHAY Pacific posted a smaller-than-expected annual loss due to a rebound in the cargo market, moderating ticket price falls and lower fuel hedging losses, prompting analysts to call that the worst was over for the Hong Kong airline.

Poor hedging bets on fuel prices and fierce competition from mainland Chinese and Middle-Eastern rivals have hurt Cathay, pushing it into losses for the past two years and forcing the airline to undertake a three-year turnaround programme targeting HK$4 billion (S$670 million) in savings.

While analysts said it was still too early to say whether the efforts under chief executive Rupert Hogg were bearing fruit, they said the airline was benefiting from a global recovery in the cargo market and profits at its associates and subsidiaries.

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Cathay reported on Wednesday a net loss of HK$1.26 billion for 2017, its biggest in nine years. The loss was wider than the prior year's HK$575 million but much smaller than an average loss estimate of HK$2.15 billion drawn from 11 analysts polled by Thomson Reuters.

Full-year revenue grew 4.9 per cent to HK$97.28 billion. The airline reported an attributable profit of HK$792 million in the second half which offset its first-half loss of HK$2.05 billion.

Cathay shares rose as much as 3.2 per cent on Wednesday to its highest in almost 21/2 years after the results.

They were up 1 per cent in afternoon trading.

"We believe the worst is over for Cathay Pacific and we forecast Cathay to turn around with a small net profit of HK$377 million this year," said Corrine Png, chief executive of transport research firm Crucial Perspective.

"2019 will be a much better year for Cathay Pacific as its expensive fuel hedges finally roll over."

Cathay's loss for 2017 was its fourth since the airline was founded in 1946. Under the revamp plan launched last year, it has announced job cuts and plans to boost productivity including increasing the number of economy-class seats on Boeing 777 planes.

"We are confident of a successful outcome from these efforts," Cathay's chairman John Slosar said in a statement, referring to the turnaround programme.

"We also look to benefit from a slowing of the decline in passenger yields as global economic conditions improve. The outlook for our cargo business is positive and we will take best advantage of opportunities in the growing global cargo market."

He warned, however, that fuel costs were increasing and impacting operating costs, although the firm's losses from expensive fuel hedging contracts shrank 24.6 per cent over the year.

Cathay Pacific reported a 3.3 per cent decline in yields, a proxy for ticket prices, in 2017, although it said they had improved by 3.1 per cent in the second half of the year compared with the first half. Its full-year cargo and mail yield grew 11.3 per cent, helped by the growth of e-commerce and as buoyant consumer confidence spurred companies to restock inventories.

Rivals such as Singapore Airlines and Qantas Airways have also reported a moderating pace of yield declines in recent months amid higher fuel prices that have added to airline cost bases. Cathay's mainland Chinese competitors have yet to report 2017 financial results.

Hong Kong-listed Swire Pacific is Cathay's biggest shareholder with a 45 per cent stake, followed by Air China which owns 30 per cent through a cross-shareholding. Qatar Airways owns a 9.94 per cent stake in Cathay. REUTERS