CATHAY PACIFIC produced a better-than-expected performance for the first half of 1995, after overcoming what the airline admits was a poor start to the year.

Japan's Kobe earthquake early in the year resulted in the cancellation of ten Cathay flights and added further gloom to the already depressed Japanese market. Cathay says that the strength of European, Japanese and Taiwanese currencies partially offset the Kobe effect, however, helping towards a 2.4% rise in passenger yields.

Despite this early setback, the Hong Kong carrier managed to end the half showing profits of HK$983 million ($127 million), up by more than 22% on 1994's weak performance. The second half of the year, traditionally Cathay's strongest, put the airline on course to beat its 1994 result.

Chairman Peter Sutch repeats warnings about Hong Kong inflation and over-capacity, but admits that there are "some signs of recovery" in depressed yields. He adds that benefits are showing through from the airline's drive to improve productivity and lower costs, even though staff costs were up by nearly 12% for the first half.

Sutch also says that Cathay remains concerned over the intentions of China National Aviation following its application for an air operator's licence in Hong Kong. "We are in discussion both in Hong Kong and Beijing in this regard," he says. "Severe shortage" of capacity at Kai Tak airport is also raised as a concern, likely to constrain the airline's future growth.

While passenger traffic rose at a steady 7.3%, cargo grew at an unexpectedly high 25%. The cargo unit, now utilising Airbus A340 and A330s in place of the smaller Lockheed L-1011s, saw revenues leap by nearly 40%, to account for more than one-fifth of the airline's total turnover.

Hong Kong Aircraft Engineering (HAECO) in which, Cathay Pacific holds a 25% stake, posted a 19% drop in net profits over the first half, as the result of low maintenance rates and rising local costs. Profits ended the half at HK$174 million, despite holding turnover steady at just under HK$1.2 billion.

As well as industry over-capacity and high Hong Kong inflation, HAECO suffered a HK$17 million write down on the sale in June of its stake in Australia's ASTA Aircraft Services.

Source: Flight International