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Cathay Pacific Buys 36 Jets as Profit Tops Estimates

Cathay Pacific buys 36 jets as profit tops estimates
The Boeing 777-300ER. Source: Boeing Co. via Bloomberg

Aug. 4 (Bloomberg) -- Cathay Pacific Airways Ltd., Hong Kong’s largest carrier, will buy 36 Airbus SAS and Boeing Co. planes after posting better-than-estimated profit because of rebounding passenger and cargo traffic.

The carrier agreed to order 30 Airbus A350-900 planes and six Boeing 777-300ERs, it said in a statement today. First-half net income surged more than eightfold to HK$6.84 billion ($881 million) helped by the sale of a stake in a maintenance provider and an 8.5 percent jump in passenger numbers.

Cathay shares climbed to the highest in more than two years as demand recovers from a travel slump during the global recession that had forced the carrier to park planes and give staff unpaid leave. The airline also boosted first-half cargo revenue 63 percent as rising job confidence stokes U.S. and European demand for Asian-made televisions and Apple Inc. iPads.

“Core business and yields improvements were much better than expected,” said Jim Wong, an analyst with Nomura Holdings Inc. in Hong Kong. “The second half will be even better, unless oil prices surge.”

Passenger Numbers

The carrier, which has a group fleet of 166 planes, flew 13 million travelers in the first half. The tally includes unit Hong Kong Dragon Airlines Ltd. Passenger yield, a measure of average sales, rose 17.5 percent to 58.4 HK cents, while cargo yields surged 36 percent. Operating profit before one-time gains more than doubled to HK$4.96 billion.

“We’re confident that we will return robust results” in the second half, Chairman Christopher Pratt told reporters at a Hong Kong briefing. “The business mix is good.”

The airline, controlled by Swire Pacific Ltd., also expects to begin operations at an air-cargo venture with affiliate Air China Ltd. in October, the statement said.

The carrier jumped 3.9 percent, the most in three months, to HK$18.08. The stock has risen 25 percent this year, the best performance in the Hang Seng Index, which has lost 1.5 percent.

Cathay proposed an interim dividend of 33 HK cents a share. It didn’t make a payout a year ago. The airline sold its 15 percent stake in Hong Kong Aircraft Engineering Co. to Swire for HK$2.62 billion in June. It also sold a stake in an air-cargo handler in Hong Kong.

Singapore Airlines

Singapore Airlines Ltd. and United Airlines parent UAL Corp. both posted profits in the quarter ended June compared with year-earlier losses. The airline industry is heading for its first global profit in three years, according to the International Air Transport Association.

Cathay was expected to make a first-half profit of HK$4.5 billion, based on the average of three analyst estimates compiled by Bloomberg.

“From the earnings perspective, it has never been this good,” said Andrew Orchard, a Hong Kong-based analyst at Royal Bank of Scotland Plc. As for the new planes, “the A350 is the right candidate because Cathay does a lot of cargo.”

The Rolls-Royce Group Plc-powered A350s will enter service beginning in 2016. The 30 planes have an aggregate list price of $7.8 billion, while the six 777s are priced at a total of $1.6 billion, according to the statement. The carrier will pay less than these amounts, it said, without elaboration.

To contact the reporter on this story: Wing-Gar Cheng in Hong Kong at wgcheng@bloomberg.net

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

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