Cathay Pacific Upbeat on 2015

(WSJ) Cathay Pacific Airways Ltd.'s chairman said he was upbeat on the airline's outlook for 2015 after the company posted a 20% rise in full-year net profit on lower fuel prices, strong passenger growth and a recovery in the air-cargo market.

The airline said its net profit for the 12 months ended Dec. 31 rose to 3.15 billion Hong Kong dollars (US$406 million) from HK$2.62 billion a year earlier.

"While we face growing competition in our passenger business, which makes it harder to maintain yield, overall demand remains strong and the outlook is positive," Cathay Chairman John Slosar said, noting that the carrier will also benefit from the sharp reduction in fuel prices since the fourth quarter of last year.

The carrier's heavy use of oil hedging has meant it has so far reaped limited benefit from lower fuel prices. In 2014 the carrier booked a fuel-hedging loss of HK$911 million, reversing a gain of HK$985 million in the previous year. Cathay had said it hedged about 57% of its estimated jet-fuel consumption in 2015 at an average price of US$99 per barrel. Fuel costs, which accounted for 39% of Cathay's operating costs, rose 0.7% in 2014.

The carrier's cargo operations had a strong start this year, with cargo volume rising 20% in the first two months following 12% growth in 2014 as shippers in the U.S. and Europe rushed to get cargo out of China ahead of the Lunar New Year holidays in February.

Meanwhile, full-year revenue rose 5.5% to HK$105.99 billion from HK$100.48 billion as it launched new routes and increased frequency on some existing routes.

The carrier didn't break out fourth-quarter figures.

Despite strong growth in travel demand, the profitability of Asian premium carriers such as Cathay Pacific and Singapore Airlines Ltd. has been hit by competition from Middle Eastern rivals on long-haul routes and budget airlines on regional routes.

Cathay Pacific's passenger yields, a key measure of airlines' profitability, fell 1.8% to 67.3 Hong Kong cents in 2014, despite passenger load factor—or the proportion of seats filled on flights—rising 1.1 percentage points, to 83.3%. A lower yield reflects the airline's weaker pricing power as it seeks to increase market share amid tough competition.

The carrier, which also owns China-focused Hong Kong Dragon Airlines Ltd., recommended a final dividend of 26 Hong Kong cents, compared with a final dividend of 16 Hong Kong cents in the previous year.

Source: Wall Street Journal by Joanne Chiu

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