The Hong Kong-listed carrier said Thursday that it will inject 980 million yuan into its 49%-owned Air China Cargo Co., which is jointly operated with Air China, which owns the remaining 51% stake in the cargo operator.
Air China—China's flag carrier, which has a 30% stake in Cathay Pacific—will inject 1.02 billion yuan into the Shanghai-based air cargo joint venture. Cathay Pacific in turn holds a roughly 20% stake in Air China.
The capital injection into the freight operator comes as cargo yields, a measure of profitability, remain under pressure because of oversupply despite signs of a pickup in demand for air freight.
The International Air Transport Association, an industry trade group, this year nearly doubled its air cargo growth forecast, to 4% for 2014 from 2.1%, signaling a turnaround after the industry lingered in the doldrums for nearly three years. However, analysts expect freight rates to stay weak as the region's airlines continue to boost capacity with new widebody passenger aircraft, whose greater belly space compared with older models will improve efficiency, as well as dedicated freighters.
Cathay Pacific said the capital injection would provide funds to assist Air China Cargo to adjust its fleet, reduce its operating costs and improve its operational performance.
It will also "assist Air China Cargo to develop its cargo charter flight business with China Postal Airlines and to establish a sound and sustainable basis" for the development of its overall business, it added. China Postal Airlines is the nation's first express cargo operator, established in 1996, and has a freighter fleet of 20, according to its website.
The two carriers in 2011 launched the joint venture to tap rising air freight between China and its trading partners. However, Air China Cargo has since remained unprofitable as a weak global economy and persistently high fuel prices battered demand for freight services. In 2013, the company's net losses narrowed to 349 million yuan, thanks to the retirement of older aircraft, which were less-fuel efficient. It didn't give year-earlier figures for comparison.
As of the end of 2013, Air China Cargo, which operates a fleet of eight freighters, flies to seven cities in mainland China and 10 cities outside the country.
Source: Wall Street Journal by Joanne Chiu
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