Hong Kong's Cathay Pacific Airways Ltd on Wednesday said it did not see operating conditions improving over the rest of 2017 after posting its worst first-half loss in at least two decades as it continued to lose customers to lower-cost rivals.
The airline has in recent years seen its market share on international routes eroded by aggressively expanding mainland Chinese and Gulf airlines. This, with poor fuel hedges and its lack of a budget arm, have hurt its competitiveness.
On Wednesday, it reported a loss of HK$2.05 billion ($262.07 million) for the six months ended June, versus a profit of HK$353 million a year ago, putting it on track for its first ever back-to-back annual loss since it was founded in 1946.
Group revenue edged up 0.4 percent to HK$45.9 billion and its fuel costs grew by 33.4 percent in the first half to HK$2.87 billion. "We do not expect the operating environment in the second half of 2017 to improve materially," Cathay Chairman John Slosar said in the statement.
The airline posted an annual loss last year for the first time since the global financial crisis and is also in the midst of a three-year reorganisation plan, the benefits of which Slosar said would begin to surface in the second half of 2017. Its first-half results were impacted by a number of one-off events, including the European Commission's decision in March to levy a fine of around HK$498 million against it and other cargo carriers for infringing European competition law.
The reorganisation of its head office, which was almost completed, had also resulted in HK$244 million in redundancy costs, Cathay said. It also made gains of HK$830 million from share disposals. "But even excluding the exceptional items, gains and losses, it's about HK$2.1 billion in net losses, so it is worse than expected," said UOB Kay Hian analyst K Ajith, which had forecasted a net loss of HK$1.2 billion.
In its passenger business, Cathay said its Australia and New Zealand routes performed below expectations while it was facing increased competition on routes to Canada which put increased pressure on yield. Yields on its cargo services, however, rose 4.4 percent on strong demand for mainland China exports.
There were already earlier signs that Cathay was experiencing a difficult first-half after its revenue passenger kilometres (RPK), a measure of traffic, grew by just 1.4 percent, its lowest growth rate since the turn of the decade. In comparison, the RPK of mainland rival China Southern Airlines' rose 12.49 percent year-on-year over the same period, according to company data.