Cathay Pacific became the latest carrier to confirm that the going is getting tougher, with operating profits halving in 2011 to HK$5,514 million (US$710 million) on revenue up just under 10% at HK$98,406 million.
The main culprits was the weak freight market and high fuel prices. “The passenger business of Cathay Pacific and Dragonair held up relatively well, mainly as a result of strong demand for premium class travel. Cargo business was adversely affected by a substantial reduction in demand for shipments from the two key export markets of Hong Kong and Mainland China,” says the carrier.
Fuel costs, meanwhile, were up HK$12,455 million (or 44.1%) in 2011. although this partly reflected the capacity increase. However, the group made a profit of HK$1,813 million from fuel hedging activities, with additional unrealised mark-to-market gains of HK$436 million in the reserves at 31st December 2011.
Passenger yields performed well under the circumstances – up 8.7% to HK66.5 cents. Passenger revenue for the year was HK$67,778 million, an increase of 14.2% compared with 2010. Capacity increased by 9.2%. Cathay and Dragonair carried a total of 27.6 million passengers, a rise of 2.9% compared with 2010, but the load factor fell by 3.0 percentage points.
“Demand for premium class travel remained robust in 2011, and the firm demand for Business Class seats on short-haul routes reflected the relative strength of the Asian economy,” says Cathay. “Load factors in Economy Class remained generally high, particularly on the North American and Southeast Asian routes. However, there was a reduction in Economy Class yield on long-haul routes.”
Cargo load factors declined by a huge 8.5 percentage points to 67.2%. After a reasonable first quarter, Cathay says that “from April onwards, demand for shipments from its two most important markets, Hong Kong and Mainland China, weakened significantly and remained weak for the rest of the year.” Cargo revenue for 2011 increased by 0.3% to HK$25,980 million compared with 2010. Yield was up by 3.9% to HK$2.42. Capacity increased by 6.9%. “Capacity was managed in order to keep it in line with demand,” says the airline.
Cathay says that it also benefitted from its shareholding in mainland carrier Air China. The carrier says it plans to increase capacity by around six-to-seven per cent this year.