Cathay Pacific Falls on Profit Drop, ‘Challenging’ Outlook

Cathay Pacific Airways Ltd. (293) was the biggest decliner in Hong Kong’s Hang Seng Index after predicting a “challenging” year and suffering a 63 percent drop in second-half profit.

Economic uncertainties will probably dent passenger and freight sales in 2012, while fuel prices are continuing to rise, the Hong Kong-based carrier said in a statement today. Net income at Asia’s biggest international airline dropped to HK$2.7 billion ($348 million) in the six months ended in December from HK$7.2 billion a year earlier, according to calculations based on annual results.

Cathay Pacific’s freight volumes fell 8.6 percent last year, and it filled a smaller percentage of seats, as the economic slowdown sapped demand in Europe and the U.S. for Asian-made goods. Singapore Airlines Ltd. (SIA) also had a drop in profit in 2011 because of the slowdown and a 40 percent jump in fuel prices.

“This year doesn’t look really rosy,” said Tim Bacchus, an analyst with CCB International Securities Ltd. in Hong Kong. “The first half is not going to be good for cargo, but I am counting on some kind of rebound in the second half.”

Cathay fell 2.8 percent, reversing earlier gains, to HK$15.14 at close of trading in Hong Kong. The benchmark Hang Seng Index dropped 0.2 percent.

Dividend Drop

The carrier cut its year-end dividend to 34 Hong Kong cents from 78 HK cents a year earlier. Full-year net income fell 61 percent to HK$5.5 billion, missing the HK$5.8 billion average of nine analyst estimates compiled by Bloomberg.

Excluding year-earlier one-time gains, the decline in annual profit was 50 percent, Cathay said. Sales for the year rose 9.9 percent to HK$98.4 billion.

“Last year’s economic uncertainties have continued into the first half of this year,” Chairman Christopher Pratt told reporters today in Hong Kong. “2012 looks set to be even more challenging than 2011.”

The company booked fuel-hedging gains of HK$2.25 billion last year, compared with HK$959 million a year earlier. That includes unrealized gains. Disregarding hedging, fuel costs increased 44 percent because of higher prices and increased flying, the carrier said.

The airline filled 67.2 percent of cargo space last year, a decline of 8.5 percentage points. The carrier and Singapore Airlines have both pared freight capacity because of waning shipments. Demand may pick up later this year helped by the introduction of Apple Inc. (AAPL)’s new iPad, Nomura Holdings Inc. analysts Jim Wong and Shirley Lam said in a March 12 note.

Cargo Outlook

“The outlook for air cargo business in the next few months is still quite weak,” Chief Operating Officer Ivan Chu told reporters. “So we are still predicting some softness in the market.”

Cathay filled 80.4 percent of seats in 2011, a drop of 3 percentage points from a year earlier. Traveler numbers rose 2.9 percent to 27.6 million. The figures include unit Hong Kong Dragon Airlines Ltd.

The carrier faces increasing competition in its home market from Hong Kong Airlines Ltd., which introduced an all-business class service to London this month. Rivals including Korean Air Lines Co., China Southern Airlines Co. (1055) and Singapore Air also serve Hong Kong with Airbus SAS A380s.

Cathay is rolling out new business-class cabins to lure lucrative corporate travelers, as well as introducing premium- economy seating. It last month took delivery of its first Boeing Co. (BA) 777-300ER fitted with a premium-economy cabin and with new long-haul coach seats.

Premium-Economy Seats

The airline has so far sold more than 5,000 premium-economy seats which are as much as 80 percent higher in fares, Chu said. Hong Kong, London and Toronto as the most popular markets for the product, he said.

The airline plans to boost both cargo and passenger capacity by “single digit percent” this year, according to Chief Executive Officer John Slosar.

The company is due to receive 15 new planes at its main unit this year, comprising 11 passenger aircraft and four freighters. Dragonair received two single-aisle Airbus planes last month. Another two A320s will arrive in November and December. The group fleet, including a freight venture with DHL, totaled 175 planes at the end of last year.

To contact the reporter on this story: Jasmine Wang in Hong Kong at jwang513@bloomberg.net

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

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