Cathay Pacific Sees Record Profit on Travel Rebound

Cathay Pacific Airways Ltd., Hong Kong’s largest carrier, forecast a better-than expected record annual profit on rebounding travel demand and asset sales.

Net income will likely be at least HK$12.5 billion ($1.6 billion) this year, the airline said in a statement today. That’s more than double last year’s profit and it surpasses the HK$11.7 billion average of 18 analyst estimates compiled by Bloomberg.

The airline’s passenger numbers surged 11 percent through October, while freight volumes leapt 20 percent, as business travelers resumed flying and Chinese exporters boosted shipments overseas amid the economic pickup. The carrier has also sold stakes in an air-cargo handler and a maintenance company, as well as benefiting from rising profit at affiliate Air China Ltd.

“Demand for both air travel and cargo has helped Cathay Pacific and that will translate into good earnings,” said Jay Ryu, a Hong Kong-based analyst at Mirae Asset Securities Co., who has a “buy” recommendation on the carrier. “With the economy recovering, business-class travel appears to be coming back and that could help lift earnings next year as well.”

Cathay said its forecast includes a HK$2.2 billion gain from the sale of shares in Hong Kong Air Cargo Terminals Ltd. and Hong Kong Aircraft Engineering Co. as well as a 57.1 million euro ($78 million) fine from the European Union tied to anticompetitive actions in the air-cargo industry.

Air China Stake

The airline expects a HK$1.7 billion profit in the second half from its stake in Air China, the nation’s largest international carrier. Cathay made a net income of HK$4.7 billion in 2009, rebounding from a record loss a year earlier.

“We are expecting an outstanding financial result following a very difficult period brought about by the global financial crisis,” Chief Executive Officer Tony Tyler said in the statement. “We are of course delighted to be so handsomely in the black, but the dramatic turnaround in our fortunes serves to illustrate yet again the volatile and cyclical nature of our business.”

The airline fell 0.2 percent to HK$22.05 in Hong Kong trading today. It has jumped 64 percent in the past year, the second-best performance in the benchmark Hang Seng Index, which has gained 6.5 percent. The forecast came after the market close.

Singapore Airlines Ltd., the world’s second-largest carrier by market value, said last week it would increase capacity 5 percent in the fiscal second half after reporting better-than- expected quarterly earnings.

Air China’s third-quarter net income surged 484 percent from a year earlier to 5.2 billion yuan ($783 million), according to an Oct. 28 Shanghai Stock Exchange statement. Cathay owns about 19 percent of the Beijing-based carrier, the world’s largest by market value.

Asia-Pacific airlines will probably post a combined profit of $5.2 billion this year, more than double an earlier forecast of $2.2 billion, because of rebounding travel demand, the International Air Transport Association said in September.

To contact the reporter on this story: Kyunghee Park in Singapore at kpark3@bloomberg.net

To contact the editor responsible for this story: Neil Denslow at ndenslow@bloomberg.net.

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