Cathay Pacific net profit soars thanks to dive in oil prices

HONG KONG, China – Hong Kong flag carrier Cathay Pacific said net profit almost doubled last year as tumbling oil prices slashed fuel costs and boosted passenger numbers, although global demand dented the cargo unit.

With fuel accounting for a huge chunk of most airlines’ outlay, the slump in crude since mid-2014 has provided a much-needed boost to their bottom lines.

Cathay reported a net profit of HK$6 billion ($773 million) in 2015, up 90% from HK$3.15 billion the year before and beating an average forecast of HK$5.32 billion in a Bloomberg survey. 

“The group’s performance in 2015 was better… the business benefited from low fuel prices,” chairman John Slosar said in a statement filed to the Hong Kong Stock Exchange. He added there was a “significant reduction in fuel surcharges.”

Cathay said it and subsidiary Dragonair had seen their fuel costs sink 37.8%, although that was partly offset by huge losses in its hedging exposure – when an airline locks in prices at a pre-determined level for a certain amount of time. “Fuel hedging losses reduced the benefit of lower fuel costs,” Slosar said.

The lower surcharges helped boost passenger numbers 7.9%, driven by strong economy class demand, the company said.

“Overall passenger demand remains strong and we expect to continue to benefit from low fuel prices,” Cathay Chairman John Slosar said in the statement.

“We are confident of longer-term success… overall passenger demand remains strong and we expect to continue to benefit from low fuel prices,” he said.

Trouble for cargo

But he added competition from other airlines in the region and foreign currency fluctuations could put pressure on yield, the amount of cash earned from carrying passengers each kilometer.

Investors were buoyed by the announcement, with the firm’s shares closing up 4.93% at HK$14.04 in Hong Kong.

Aviation analyst Robert Poon, of Aspire Aviation, told AFP: “The end of fuel surcharges, translating to more affordable fares, has attracted more passengers.”

In a bid to take advantage of the continuing rise in demand for air travel in Asia-Pacific, Cathay said it will be adding a dozen new Airbus A350XWB aircraft, which boast new cabins, seats, and entertainment systems, to its fleet in 2016.

However, while the passenger side enjoyed a healthy year, Cathay’s cargo services suffered a 9% fall as the sector faced “many challenges” in the face of a slowdown in the global economy, with European business particularly hit.

This in turn dragged on overall revenues, which were down 3.4% at HK$102.3 billion.

“Demand was strong in the first quarter of 2015… overall demand was weak for the rest of the year, particularly on European routes,” Slosar said.

Financial analyst Jackson Wong, associate director of Simsen Financial group, told AFP it is “hard to predict” when cargo services can bottom out with a slowdown in China, the world’s number two economy and crucial driver of global trade and growth.

China on Tuesday unveiled data showing exports plunged more than 25% last month, the sharpest fall since May 2009 at the height of the financial crisis, while imports tumbled nearly 14%. – Dennis Chong, AFP / Rappler.com