April 25, 2018 / 11:29 AM / 6 months ago

Cathay Pacific expects return to core airline profitability in 2019, CEO says

SINGAPORE (Reuters) - Hong Kong’s Cathay Pacific Airways Ltd (0293.HK) expects its core airline business, which has been operating at a loss, to swing into the black next year as a turnaround plan bears fruit, the carrier’s chief executive said on Wednesday.

FILE PHOTO: Lined up banners are seen at a city check-in counter of Cathay Pacific Airways in downtown Hong Kong August 8, 2012. REUTERS/Bobby Yip

The improvement will be driven by a combination of stronger passenger and cargo markets, cost-cutting measures, a more fuel-efficient fleet, better fuel hedges and revenue gains from new long-haul routes, CEO Rupert Hogg told Reuters.

“There is no one silver bullet,” he said in an interview in Singapore. “There are just lots and lots of small things.”

Poor fuel hedging bets and fierce competition from mainland Chinese and Middle Eastern rivals has hurt Cathay, pushing it into losses for the past two years and forcing the airline to undertake a three-year turnaround programme. Cathay’s top management team did not receive bonuses in 2017.

The airline last year said it would target HK$4 billion (365.6 million pounds) in cost savings as part of the turnaround, which includes more than 740 individual measures, such as adding economy class seats in its Boeing (BA.N) 777 jets.

The main goal is to keep unit costs, excluding fuel, flat over the three-year period, while also driving up revenue by adding capacity, Hogg said.

Cathay will add around 4 percent annual capacity with the launch of new routes from its Hong Kong hub to destinations like Brussels, Dublin, Washington D.C. and Cape Town that are not flown by rivals, the CEO added.

Long-haul capacity is growing faster than short-haul, given the popularity of Hong Kong as a hub for passengers flying from markets like India to the west coast of North America, he said.

Cathay reported a HK$792 million profit in the second half of 2017, but that was driven by earnings from “associates” such as its stake in Air China Ltd (601111.SS) and a cargo joint venture rather than the airline’s performance.

It reported a net loss for the full year, its biggest in almost a decade. Analysts expect the company to post an overall profit of HK$1.2 billion in 2018 and HK$4.1 billion next year.

Cathay has set a 2019 target for a higher return on capital employed versus weighted cost of capital, including associates.

“But actually we’d like to be able to do that for the airline itself,” Hogg said of the return target.

“That implies profitability in 2019.”

The core airline last reported a profit in 2015.

He said the cargo market, which helped fuel Cathay’s second-half improvement in 2017, remained strong despite the risk of a looming trade war between the United States and China.

“We don’t want a trade war,” he said.

“But at the moment we don’t see any physical manifestations coming through from some of the rhetoric.”

Reporting by Jamie Freed; Editing by Himani Sarkar

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