HONG KONG – Cathay Pacific Airways Ltd, Hong Kong’s dominant airline, on Wednesday posted a bigger-than-expected $1 billion second-half net loss, a record, and warned that the year ahead will be “extremely challenging” on possible hedging losses and weak passenger and cargo demand.
“Passenger and cargo demand are expected to remain weak and, if fuel prices remain at their present levels, further losses on fuel hedging contracts will be incurred,” Chairman Christopher Pratt said in a statement.
Cathay, Asia’s fifth-largest airline by market value, said unrealised mark-to-market losses on fuel hedging was HK$1.9 billion as of the end of February compared with HK$7.6 billion for the whole of 2008.
But if the annual average price of Brent over each of the next three years is about $75 per barrel, there will be no further net cash impact and mark-to-market losses recognised in 2008 would then be released in subsequent periods, Pratt said.
ICE Brent crude oil futures LCOc1 rose 0.57 percent on Wednesday to $44.21 a barrel.
Cathay reported a HK$7.9 billion ($1.02 billion) net loss in the July-December period, according to Reuters calculations based on previously reported figures. That compared with a net profit of HK$4.4 billion in the same period a year ago.
The loss was deeper than an average forecast of a HK$7.3 billion shortfall from 11 analysts polled by Reuters.
For the full year, Cathay posted a record net loss of HK$8.6 billion, its first shortfall in a decade, compared with a net profit of HK$7.02 billion in 2007 and analysts’ mean forecast of a HK$8 billion loss.
The carrier posted a yearly loss per share of HK$2.12, down sharply from earnings per share of HK$1.78 a year ago.
Cathay’s results followed news that Singapore Airlines, the world’s biggest airline by market value, has asked staff to take unpaid leave for up to two years in a bid to reduce costs, and Japan Airlines plans to cut annual procurement costs.
Cathay — which had always been among the world’s most profitable airlines and is controlled by Hong Kong conglomerate Swire Pacific — saw its fortunes take a turn for the worse in 2008, as volatile oil prices and a gloomy economic climate weighed on earnings.
The carrier, like many of its peers, had not anticipated the substantial reduction in oil prices that started in the second half of last year and had locked in supply contracts when fuel prices were higher.
Demand growth was weak last year. Cathay said its passenger load factor fell one percentage point in 2008 to 78.8 percent, while its cargo load factor was down 0.8 point at 65.9 percent.
But revenues rose 14.9 percent to HK$86.6 billion last year.
Shares in Cathay rose 2.1 percent at HK$7.15 in morning trade on Wednesday ahead of the results announcement.
The firm’s stock plunged by 41.3 percent in the second half of 2008, underperforming the 35 percent loss on the benchmark Hang Seng Index .HSI in the same period.