Cathay Pacific Group – financial and operational results for 2012

by Devesh Agarwal

Cathay Pacific Group FY2012 overall results

Hong Kong based, Cathay Pacific Group reported an attributable profit of HK$916 million (approximately $118.08 million) for 2012 – an 83.3% fall compared to the profit of HK$5,501 million reported for 2011, even though turnover for the year increased by 1.0% to HK$99,376 million (approximately $12.81 billion). Earnings per share fell by 83.3% to HK23.3 cents. (US$1=HK$7.75. 1HK$=INR6.99).

With a strong presence in the air cargo services area, the continuing slowdown in the Eurozone countries during 2012, and their resultant impact on the exports from China and Hong Kong, affected the group. The Group was also adversely affected by the high price of jet fuel, and pressure on passenger yields due to increased competition. The Group has investments in Air China, which also showed a significant decline due to similar reasons.

Cathay Pacific results FY2012 – pperating statistics

Annual passenger revenue for 2012 was HK$70,133 million, up 3.5% from 2011. Capacity was increased by 2.6%. The Group’s two airlines (Cathay Pacific and DragonAir) carried 29 million passengers, up 5% from 2011. Passenger load factor fell 0.3%. Yield increased by 1.2% to HK67.3 cents, largely due to higher fuel surcharges but fuel prices increased 1.7%.

Economic uncertainty caused corporate customers to belt tighten, which pressured yields in the premium classes, while strong competition on key routes and the same economic FUD (fear, uncertainty, doubt) factor squeezed the economy class yields. Cathay does have a reasonably portion of its fleet as older fuel guzzlers, which made long distance operations under cost pressures. Cathay Pacific announced measures designed to protect its business in an environment of high fuel prices and weak revenues. The group accelerated the retirement of the less fuel-efficient Boeing 747-400 passenger aircraft and withdrew four Boeing 747-400BCF (Boeing converted freighters) from service.

Annual cargo revenue fell 5.5% to HK$24,555 million. Capacity decrease of 3.1%, helped keep yield for Cathay Pacific and Dragonair, unchanged, at HK$2.42. Cargo load factor dropped 3% to 64.2%.

Cathay Pacific Group FY2012 – sales by geography. Indian sub-continent and middle east is the smallest contributor

Fuel remained the most significant cost, and even discounting the effects of fuel hedging, increased by 0.8% to account for 41.1% of total operating costs. Fuel, as a percentage of total operating costs decreased 0.4%.

Through 2012, the Cathay Pacific Group kept a clear focus on its key strategic goals: developing its network and its Hong Kong base; maintaining and enhancing the quality of its services; strengthening its relationship with Air China; and maintaining a prudent approach to financial risk management.

On the passenger side, Cathay Pacific added frequencies on routes to India, Japan, Malaysia, Singapore, Taiwan, Thailand and Vietnam and introduced a new service to Hyderabad in India last year. Dragonair added frequencies on routes to secondary cities in Mainland China and introduced or resumed flights to eight destinations in 2012. In the first quarter of 2013, Dragonair is launching another four new destinations. On the cargo side, Cathay Pacific introduced freighter services to Zhengzhou, Hyderabad and Colombo last year.

Cathay Pacific Group FY2012 – capacities, load factors, and yields by geography

During the year, Cathay Pacific introduced a new Premium Economy Class product, a new long-haul Economy Class seat and a new Regional Business Class seat. See images and read details here and here.

Cathay Pacific and Dragonair received 19 new aircraft as part of their fleet upgrade plan. At the end of the fiscal, the Group had 92 aircraft on order for delivery up to 2020. An order was placed for six Airbus A350-900 aircraft in January 2012. In August the Group ordered 10 Airbus A350-1000 aircraft and converted an existing order for 16 Airbus A350-900 aircraft into an order for 16 Airbus A350-1000 aircraft. In March 2013, Cathay Pacific entered into an agreement with The Boeing Company under which it agreed to buy three Boeing 747-8F freighter aircraft and cancel the agreement to purchase eight Boeing 777-200F freighters that were entered into in August 2011. Under the agreements, the Company also acquired options to purchase five Boeing 777-200F freighters and The Boeing Company agreed to purchase four Boeing 747-400BCF converted freighters, which were taken out of service in 2012 and early 2013. The transaction is part of a package of transactions between the Group, The Boeing Company, Air China Cargo Co., Ltd and Air China Limited.

About Devesh Agarwal

A electronics and automotive product management, marketing and branding expert, he was awarded a silver medal at the Lockheed Martin innovation competition 2010. He is ranked 6th on Mashable's list of aviation pros on Twitter and in addition to Bangalore Aviation, he has contributed to leading publications like Aviation Week, Conde Nast Traveller India, The Economic Times, and The Mint (a Wall Street Journal content partner). He remains a frequent flier and shares the good, the bad, and the ugly about the Indian aviation industry without fear or favour.

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