Cathay Pacific has stopped hiring staff, apart from those critically needed, after fierce competition from rivals and economic weakness in China conspired to severely undermine its profits in the first half of this year.
Hong Kong’s biggest airline has posted an interim net profit of HKD 353 million (AUD 59.7 million) an 82% plunge from the same period a year earlier.
The company, which also runs regional airline Cathay Dragon, said passenger numbers rose 2.7% but earnings fell 10%.
Cathay is reviewing productivity and expenditure, has stopped the hiring and replacement of non-operationally critical staff, and is restricting non-essential discretionary spending. It says these are short-term measures and it is still making long-term investments.
“The operating environment in the first half of 2016 was affected by economic fragility and intense competition,” the airline said.
“There was sustained pressure on revenues, reflecting suspension of fuel surcharges, weak currencies in some markets, weak premium class demand, particularly on long-haul routes, and a higher proportion of passengers transiting through Hong Kong. All these factors impacted the Group’s operating performance. The contribution from subsidiary and associated companies increased.”
The group’s passenger revenue in the first six months of 2016 fell by 7.8% compared to the same period in 2015.
Capacity grew by 4.2%, reflecting the introduction of new routes and increased frequencies on other routes. Load factor decreased by 1.4%, to 84.5%.
“Revenue was adversely affected by the suspension (from February) of fuel surcharges, which remained suspended for the rest of the period despite a subsequent rise in fuel prices,” an issued statement said.
“Yield fell by 10.1% to HKD 54.3 cents, reflecting the suspension of fuel surcharges, strong competition and adverse currency movements.”
There was a significant reduction in premium corporate travel, particularly on long-haul routes. Revenue from long-haul routes declined compared to the same period in 2015, despite a 4.7% increase in long-haul capacity.
Cathay Pacific introduced a passenger service to Madrid in June. It says this service has been well received. The airline will introduce passenger services to London Gatwick in September, using new Airbus A350-900XWB aircraft. It stopped operating flights to Doha in February but still offers codeshare services with Qatar Airways on this route.
Cathay Pacific chairman John Slosar said: “We expect the operating environment in the second half of the year to continue to be impacted by the same adverse factors as in the first half. The overall business outlook therefore remains challenging. We expect passenger yield to remain under pressure. Overcapacity and economic fragility will dampen cargo demand.
“Fuel prices have increased this year, but are still lower than in previous periods. The benefits from lower fuel prices will continue to be partially offset by losses on our fuel hedging contracts. The fuel surcharge remains suspended. In this difficult environment, we will manage capacity and strive to make further improvements in operational efficiency. We will also continue to be vigilant on costs.
“The strategic objective of the Cathay Pacific Group is to provide sustainable growth in shareholder value over the long term. To that end we will continue to build a modern and fuel-efficient fleet and to strengthen our network and will strive to provide a high standard of customer service.
“We will continue to develop our strategic relationship with Air China. As we celebrate our 70th anniversary, our commitment to the Hong Kong and its people remains unwavering. We will continue to make long-term strategic investments to develop and strengthen Hong Kong’s position as Asia’s premier aviation hub.”
Written by Peter Needham