CATHAY PACIFIC Airways beat market expectations with a 25% leap in profits for 1995, boosted by higher revenue and improved cost efficiency, but also helped by an accounting change.

The Hong Kong carrier turned in a net profit of just under HK$3 billion ($385 million), while turnover climbed by 12%, to more than HK$30 billion. Cathay chairman Peter Sutch says that the improvement is expected to continue into 1996.

"We saw revenue increase in most markets, particularly North Asia, thanks partly to the strength of the yen," says Sutch. "Exchange rates obviously helped profits....but we also experienced, somewhat firmer yields and a small improvement, in load factors."

Cathay has also been more successful at improving staff productivity and controlling costs than in previous years, despite Hong Kong's rising inflation. Total expenses rose by 10%, to HK$27 billion, compared to 13% in 1994.

Cost-cutting measures have included relocating the airline's computer operations to Australia, introducing new pay contracts for pilots, employing freighter crews from outside Hong Kong and opening a new aircraft-engineering centre at Xiamen, China, to perform labour-intensive heavy-maintenance work.

The introduction of new Airbus A330/A340s and the withdrawal from service of 15- to 20-year-old Lockheed L1011 TriStars has also cut fuel and maintenance costs. Analysts estimate that this has produced an average saving across the fleet of 2-3%.

Cathay's improved financial performance has also benefited from a change in aircraft cost accounting introduced in early 1995. Aircraft depreciation charges are now spread over 20 years instead of 15, producing a one-off 5% boost to profits, equivalent to around HK$150 million.

The airline was further helped by a lower-than-expected 15% taxation charge, as the result of a 1994 tax write-back. "The second-half tax charge was surprisingly low and that distorted the bottom line," says Kleinwort Benson analyst Terence Chan.

Source: Flight International