Hong Kong carrier Cathay Pacific Airways today (Wednesday) reported its first full-year loss since the 2008 global financial crisis, with cargo revenue down 13.2 percent y-o-y. Overcapacity, mounting competition from mainland Chinese carriers and rising costs have eroded earnings.
Cathay posted a net loss of HK$575 million (€69.5 million) for 2016, versus a profit of HK$6 billion a year ago. This is only the third time the company has posted a full-year loss since it was
founded in 1946.
The results fell significantly short of an average estimate for a net income of HK$384.86 million from 13 analysts polled by Thomson Reuters, while the median forecast in a Bloomberg News survey
of nine analysts was for a profit of HK$450 million.
Hong Kong’s role as cargo gateway declines
Chinese carriers, including Hainan Airlines Co and China Eastern Airlines Corp, have added non-stop flights to the U.S. and Europe in the past year, challenging the prominence of Cathay's Hong
Kong base as a transit centre.
"Given Hong Kong's diminishing role as a transfer hub, does it still need so much capacity and such a big carrier?" said Eric Lin, an analyst at UBS Group AG in Hong Kong. Cost cuts can be
helpful, "but it won't address the root cause, that people are not coming to Hong Kong to take flights," Mr Lin said.
Cathay said cargo revenue in 2016 was HK$20.1 billion (€2.4 bn), a decrease of 13.2% compared to the previous year. The cargo capacity of Cathay Pacific and Cathay Dragon increased by 0.6%. The
load factor increased by 0.2 percentage points, to 64.4%. Tonnage carried increased by 3.1%.
Operating costs are too high
The market was very weak in the first quarter. Tonnage recovered from the second quarter, becoming seasonally strong in the fourth quarter. Yield fell by 16.3% to HK$1.59, reflecting strong
competition, overcapacity and the suspension of Hong Kong fuel surcharges. Demand on European routes was weak. Demand on transpacific routes grew slightly in the second half of the year.
Freighter services to Portland and Brisbane West Wellcamp Airport were introduced.
Bloomberg said that Cathay Pacific's main problem is that "its operating costs are consistently above its competitors'". With the big three mainland Chinese airlines fighting for market share and
driving down ticket prices and cargo rates, Cathay's high cost structure leaves it in a most vulnerable position.
Nol van Fenema
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