Cathay makes history with first loss as public company

Paul Lewis/SINGAPORE

Cathay Pacific Airways has posted the first net loss in its history as a public company, as the airline struggled with tumbling Asian traffic and plumetting yields.

The Hong-Kong carrier announced a net loss of HK$175 million ($23 million) for the first six months, in stark contrast to the HK$1 billion profit a year ago. Sales fell by 16% as traffic fell away. "These figures reflect the extremely difficult environment in which we are currently operating," says soon-to-retire Cathay chairman Peter Sutch.

The relative strength of the local currency, which is pegged against the US dollar, is in part blamed for the decline in travellers from Asia where exchange rates have collapsed over the past year.

Cathay's capacity growth is continuing to outstrip demand, with available seats rising by 2.7% over the half year despite an overall fall in traffic. That left load factors down from 71% to only 66.5% overall, with services to South-East Asia dipping below 60%.

Yields fell by nearly 17%, a figure which Peter Negline, vice-president at investment bank Salomon Brothers, describes as "virtually unheard of". He adds that the underlying problem is an "unbelievably" weak economy.

"There have been some gains on the cost side , but there is going to have to be more savings made if things continue to decline," he says.

Staff redundancies and the introduction of less maintenance-intensive aircraft contributed to an 8.3% reduction in operating costs, as did windfalls from low fuel prices and some cost savings from the relative strength of the Hong Kong dollar. The airline has also begun to lease out or mothball its seven Boeing 747-200s.

With five aircraft on order for delivery this year and Cathay's new HK$6 billion headquarters, plus staff hotel and training centre, at the recently opened Hong Kong International Airport coming on line, it faces rising capital costs in the second half. The period already got off to a bad start with the flawed opening of the airport's new cargo centre, which cost it HK$250 million in lost revenue in July alone.

Cathay's part-owned sister carrier Dragonair managed to remain in the black with an estimated first-half profit of HK$266 million, but still down from HK$351 million in 1997.

Last year's downward spiral appears to be continuing into 1998 throughout the region. Strike-hit Philippine Airlines, which lost over P8 billion ($200 million)for its 1997/8 year to March, has since been racking up losses at a record of around P1.5 billion per month according to latest reports.

Swire Pacific sister maintenance company Hong Kong Aircraft Engineering blamed falling traffic and growing competition as profits slumped over the first half, dropping 22% to HK$140 million.

Source: Flight International