March 13, 2019 / 4:18 AM / 9 days ago

Cathay Pacific 'reasonably optimistic' on outlook after swinging to annual profit

SINGAPORE/HONG KONG (Reuters) - Cathay Pacific Airways Ltd is “reasonably optimistic” about passenger and cargo markets this year despite recognizing challenges ahead, its chairman said, after the Hong Kong airline earlier reported a profit for the first time in three years.

FILE PHOTO: A Cathay Pacific Airways passenger plane flies, in Hong Kong, China August 15, 2017. Picture taken August 15, 2017. REUTERS/Tyrone Siu

The challenges include geopolitical discord, global trade tensions and intense competition that could dampen cargo demand as well as passenger demand particularly on long-haul routes in economy class, Chairman John Slosar said in a statement.

Cathay raked in a HK$2.35 billion profit ($299.37 million) for the year ended December as it benefited from rising airfares and a turnaround plan designed to lower costs and boost revenue.

The result for the year was also aided by out-of-the-money fuel hedges rolling off and was in line with Cathay’s guidance for HK$2.3 billion profit issued on Feb. 20.

Its projection was more than double analyst estimates at the time and sent shares soaring 9 percent on the day. The airline lost HK$1.25 billion in 2017.

Cathay reported HK$111 billion in revenue for 2018, up 14.2 percent, driven by passenger and cargo businesses.

This year, Cathay plans to “compete hard” by extending its route network to destinations not currently served from Hong Kong, increasing frequencies on its most popular routes and operating more fuel-efficient aircraft, Slosar said.

He told reporters that the airline was in a far better position than it was 12 months ago.

Since launching its revamp program in 2017, Cathay’s initiatives have included cutting jobs at its head office and overseas ports, adding more economy class seats to older Boeing 777 jets and hedging fuel for shorter periods.

The airline has hedged around 30 percent of its fuel for 2019 at around $65 per barrel, Chief Financial Officer Martin Murray told reporters on Wednesday. Global crude prices are currently at around $67 per barrel.

Cathay did a better-than-expected job in containing costs in 2018, Jefferies analyst Andrew Lee said in a note to clients.

Cathay’s shares closed 2.3 percent higher.

TRADE UNCERTAINTY

As one of the world’s largest cargo airlines, Cathay benefited from an improving freight market in 2018. However, in January it reported a 5.2 percent fall in traffic, with the pre-Chinese New Year rush not as strong as last year.

“Trade uncertainty is yet to be clear,” CEO Rupert Hogg said. “Growth in online shopping in e-commerce continues ... actually cross-border air freight is the fastest growing segment. That is a big change.”

In the passenger market, yields, a proxy for airfares, grew by 5.7 percent last year, with South Asia, the Middle East and Africa the strongest performing markets.

The carrier, which lacks a budget arm, last week said it was in “active discussions” about acquiring HNA’s Hong Kong Express Airways Ltd, although an agreement has yet to be reached. Slosar on Wednesday declined to comment further.

Cathay’s financial results are expected to improve further this year, with 16 analysts polled by Refinitiv I/B/E/S expecting an average net profit of HK$4.5 billion.

Reporting by Jamie Freed and Donny Kwok; Editing by Himani Sarkar

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