Thursday, March 14, 2013

Sinking Air Freight Revenue Costs Leading Cargo Carrier Dear

Fuel Price Also Contributes to Plunge in Profits
Shipping News Feature

HONG KONG – Following a report by the International Air Transport Association (IATA) which stated that the air freight market shows signs of stabilisation, Cathay Pacific, which claims to be the world’s largest cargo air carrier, posted its worst annual results since 2008, with an 83% drop in its net profit from HK$ 5.5 billion in 2011 to HK$ 916 million in 2012. The airline explained that the high price of jet fuel and weak air cargo demand affected the Groups profitability. Earnings per share fell by a comparable amount, 83.3% to HK23.3 cents whilst turnover for the year increased by 1% to HK$ 99,376 million from HK$ 98,406 million in 2011. Speaking at a news conference, CEO at Cathay Pacific, John Slosar said:

"Cargo was certainly a drag on the results last year. In the first couple of months this year, we haven't seen anything that we could call a sustained pick-up. Air freight, which is often seen as a leading indicator of economic growth, suffered from weak demand on the Asia-Europe and Asia-US routes. Though volume rose late in the year, overall that part of the business lost money in 2012.”

The Group’s cargo revenue in 2012 was HK$ 24,555 million, a decrease of 5.5% compared to 2011. Yield for Cathay Pacific and subsidiary company, Dragonair remained the same as last year at HK$ 2.42. Capacity was down by 3.1% while the cargo load factor dropped by 3 percentage points to 64.2%. The airlines’ cargo business was affected by weak demand in major markets, particularly from Asia to Europe. Demand for shipments from the two key markets of Hong Kong and Mainland China, was well below expectations, although there were short-term upturns in March and in the last quarter. Capacity was adjusted in line with demand.

Fuel remained the most significant cost with fuel prices at sustained high levels and this had a major impact on operating results throughout much of 2012. The Group’s fuel costs (disregarding the effect of fuel hedging) increased by 0.8% compared to 2011. Fuel accounted for 41.1% of total operating costs – a decrease of 0.4 of a percentage point from the previous year. Managing the risk associated with high and sometimes volatile fuel prices remains a key challenge. The Group took advantage of a reduction in fuel prices in May and June to do more hedging with a view to mitigating the impact of future fuel price increases.

In March 2013, Cathay Pacific entered into an agreement with the Boeing Company under which it agreed to buy three Boeing 747-8F freighter aircraft and cancel the agreement to purchase eight Boeing 777-200F freighters that it entered into in August 2011. Under the agreements, the Company also acquired options to purchase five Boeing 777-200F freighters and The Boeing Company agreed to purchase back four Boeing 747-400BCF converted freighters, which were taken out of service in 2012 and early 2013.