Cathay sputters to first half loss of $85 million

The relentless rise of fuel costs in 2008 contributed to Cathay Pacific losing $85 million in the first half of the year, a 125 percent drop compared to the $330 million in profits the Hong Kong airline earned in the first half of 2007.

Cathay's group turnover from January through June rose 22.6 percent, to $5.4 billion, with modest increases in cargo revenue and volume. But that hasn't been enough to stave off the pain of higher fuel costs.    

Ever-increasing fuel prices completely undermined the airline's business, with the average into-plane fuel price increasing by 60 percent to $132 per barrel, Cathay said. As a result the fuel bill rose from ($1.35 billion) to ($2.47 billion), a climb of 83 percent. The fuel surcharges approved by the Hong Kong Civil Aviation Department in the first half were less than half of the increased fuel bill and were significantly behind those charged by major international competitors.

The airline said fuel as a percentage of total operating cost rose to 45.3 percent for the first half of 2008, compared to 33.6 percent during the same period last year.

The amount of cargo carried by Cathay Pacific and (sister airline) Dragonair grew by 6.8 percent to 828,399 tons, with demand more robust than originally anticipated, Cathay said. The cargo load factor rose by 1.1 percentage points to 66.4 percent against a capacity increase of 6.9 percent. Yield fell 1.8 percent to (20 cents due) to pricing pressures.

Cathay Chairman Christopher Pratt said from Hong Kong Wednesday that customers will have to recognize that rates and fares will rise.

Global aviation is making a painful adjustment to the new reality of $100-plus oil, Pratt said. Cathay Pacific is reducing other costs where it can but there is a limit to how much cost can be saved before quality and brand are compromised. It is thus inevitable that fares for passengers and shippers will have to rise to reflect the new cost of operation. It is difficult to forecast with any degree of accuracy the extent to which these higher fares will reduce demand but thus far it has remained robust. Despite the current difficulties Cathay Pacific remains confident in its future.