Cathay Pacific CEO: Hopes high for repeat earnings performance of 2000-10

HONG KONG – Cathay Pacific Airways chief executive Ivan Chu Kwok-leung thinks his airline may have returned to a long-term period of steady profit delivery for shareholders, four years after the last

HONG KONG – Cathay Pacific Airways chief executive Ivan Chu Kwok-leung thinks his airline may have returned to a long-term period of steady profit delivery for shareholders, four years after the last decade-long run ended.

“I hope so,” Chu said when asked if Cathay’s performance was indicating a return to the 2000-10 period that was regarded by investors as a high-water mark of strong, steady profit delivery.

“If the fuel price environment is benign, if economic growth continues in this region – and we expect that to be the case – and the cargo business continues to recover, then surely [the 2010 high point] is something we can work towards.”

Profit attributable to Cathay’s shareholders was a record HK$14 billion in 2010, and while last year’s HK$3.2 billion remains short of the then record HK$5 billion profit it started the 21st century with in 2000, it was up 20.2 per cent on 2013 despite Chu’s characterisation of 2014 as “a very challenging year”.

Cargo – a business in which Cathay is one of the world’s biggest air carriers – will be crucial to the airline’s ability to regain a stride that saw it hit three profit records and earn close to HK$40 billion for shareholders over the period.

Freight hit a low point in the first three months of last year and remained negative throughout the first half, despite steep falls already experienced in 2013.

It was a different story so far this year, Chu said.

Figures for the first quarter show a 15.4 percent year-to-date rise in revenue per tonne-kilometre, the key measurement metric, compared with a year ago. That growth has come at the same time as the airline has added about 10 percent to cargo capacity.

“So far, we are quite bullish on the cargo situation,” Chu said, while also pointing out that cargo performance remained weak on Asia-Europe routes, given the combination of slack demand in the still struggling European economy and overcapacity, thanks to moves across the airline industry to use space in passenger aircraft for cargo.

Cargo growth is mainly coming from the transpacific route, which Cathay dominates, flying 40 freighter journeys each week across a region that takes in 16 points in the United States – the most important freight route in the world.

“Revenue growth is fast and we are benefiting a lot from the congested sea port situation in North America,” Chu said. “We don’t see that sea port congestion issue being resolved in the short term.

“There are some structural issues there, some capacity-handling issues there that are not going to go away.”

Labour disputes that affected as many as 29 US west coast ports earlier in the year had seen companies from carmakers to restaurant chains begin to switch some cargo to air from sea to help unclog choked supply chains.

Analysts estimate it will be mid-year before the backlog of cargo caught up in the disruption is cleared.

Fuel cost trends were also positive, Chu said, pointing to the continued weakness in Brent crude prices that began in the second half of last year and which left the oil price averaging between US$50 and US$60 per barrel in the first quarter.

“We are seeing a lot of benefit coming through on the net fuel cost even after hedging losses,” he said.

Cathay hedges 50 to 60 percent of its fuel bill, which makes up about 40 per cent of the airline’s total costs.

Losses from fuel hedging cost it HK$911 million in earnings and HK$12.5 billion in reserves last year, eroding its book value by about 20 percent.

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