March 12 (Bloomberg) -- Cathay Pacific Airways Ltd. profit missed analysts’ estimates as cargo demand weakened at Asia’s biggest international carrier, which plans to increase freight and passenger capacity this year to reach new customers.
Net income climbed to HK$2.62 billion ($338 million) last year from a restated HK$862 million a year ago, Cathay said in a stock exchange statement today. That compares with the HK$2.77 billion average of 16 analyst estimates compiled by Bloomberg. Revenue rose 1.1 percent to HK$100.5 billion.
Incoming Chief Executive Officer Ivan Chu, 52, is set to take over this week amid a slump in the the cargo business, which posted a revenue decline of 3.6 percent last year on slowing economic growth in China. The airline intends to raise freight capacity by 9 percent this year to adds services to growing manufacturing hubs in inland China, Vietnam and Mexico, it said today.
“There’s still a lot of cargo capacity in the market,” Andrew Orchard, a Hong Kong-based analyst at CIMB Group Holdings Ltd. “There had been freighters taken out, but there’s still a lot of belly space in passenger flights that will continue to increase.”
Cathay dropped 2.4 percent, the most since Feb. 24, HK$15.40 at the close in Hong Kong trading, compared with a 1.7 percent decline in the benchmark Hang Seng Index. The carrier has fallen 6.1 percent this year, while the Hang Seng dropped 6 percent.
Freight volumes dropped 1.5 percent and cargo yields, which measure revenue per kilometer that goods are carried, tumbled 4.1 percent last year, the airline said in the statement. Airfreight capacity was little changed last year.
The airline will expand services as manufacturing hubs in countries such as China and Mexico, relocate, Chu in a briefing in Hong Kong today said. “We are going to the places where our cargo clients are,” he said.
Passenger yields increased 1.8. percent. North America, Cathay’s biggest market, showed the steepest climb, followed by North Asia, according to the statement. The airline plans to increase capacity by 8 percent this year, Chu said.
Cathay and its affiliate Hong Kong Dragon Airlines Ltd. carried 29.9 million passengers last year, 3.3 percent more than a year earlier.
Freight declined amid weak demand from Europe and intensified competition from Gulf carriers such as Emirates. Cathay, the world’s biggest international air-cargo carrier after Emirates, started operating a HK$5.9 billion cargo terminal last year, its first independently owned facility in Hong Kong.
The airline said in February that cargo demand late last year wasn’t as strong as expected. The traditional rush of freight before Chinese New Year holidays in late January didn’t materialize, it said.
Chu, chief operating officer since March 2011, is taking over from John Slosar, who becomes chairman March 14. Chu joined the airline in 1984 and has worked in China, Taiwan, Thailand and Australia.
Chu said he plans to ramp up product investments when he takes over the CEO position.
Carriers worldwide will earn a combined $18.7 billion in net income this year, 5 percent lower than the December projection of $19.7 billion, the International Air Transport Association said today. Of the total, Asia-Pacific carriers should lift earnings to $3.7 billion, IATA said.
Cathay extended fuel price hedging programs to 2016 to take advantage of the “brief” decline in prices, according to today’s statement.
The airline’s 2013 fuel bill, 39 percent of total operating costs, dropped 4.6 percent from a year earlier to HK$39.1 billion, according to the statement. The airline proposed to pay a final dividend of 8 Hong Kong cents per share.
Cathay, which is phasing out less fuel-efficient Boeing 747-400s, retired five Boeing Co. 747-400 passenger aircraft from its fleet last year and took delivery of 19 aircraft. The company had a total of 140 planes on its fleet at the end of December, according to the statement.
The airline became the first Asian buyer of Boeing’s new 777X jet for $7.5 billion in December. It ordered 21 of the larger -9 version to fly them to North America and Europe when they are delivered from 2021 to 2024.
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