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Cathay Pacific H1 net profit down 59 percent

(China Daily)

10:01, August 11, 2011

HONG KONG - Cathay Pacific Airways Ltd, Asia's fourth-largest air carrier by market capitalization, reported on Wednesday a better-than-expected 59 percent fall in first-half net profit, reflecting soaring fuel costs.

Cathay also announced on Wednesday that it had placed orders for four Boeing 777-300ER aircraft and eight Boeing 777-200F freighters with a total list price of $3.28 billion.

Cathay, the dominant airline in Hong Kong, said that after an exceptionally strong 2010, this year was proving to be more challenging.

"High fuel prices are increasing costs and recovering them through higher tariffs may affect demand," Chairman Christopher Pratt said in a statement.

Fuel prices, a key cost driver, rose 49.5 percent year-on-year in the first half and significantly affected profitability, Cathay said.

Shares of Cathay have lost about a quarter of their value this year on rising oil prices and recent market volatility, triggered by Standard & Poor's downgrade of the US long-term credit rating. Analysts said the airline's results, which were better than expected, could support the stock.

Regardless of the "headline or bottom line, they performed well and beat regional rivals such as Singapore Airlines", said Jim Wong, an analyst at Nomura Holdings Inc. "Net profit dropped quite a lot but 2010 was an exceptionally good year."

Regional rival Singapore Airlines Ltd in July reported an 82 percent drop in net profit to S$44.7 million ($36.7 million) in the second quarter.

Boeing made significant price concessions for the aircraft, which are expected to be delivered between 2013 and 2016, the company said.

Hedging profit

Cathay reported first-half net profit of HK$2.81 billion ($360 million), down from a record of HK$6.84 billion a year earlier when it booked profit of HK$2.17 billion from the sale of investments.

But the first-half earnings beat an average forecast of HK$1.5 billion from four analysts polled by Reuters. Revenue rose 13.2 percent to HK$46.79 billion, while the profit margin narrowed 10.5 percentage points to 6 percent.

The passenger business performed well in the first half with strong demand for premium-class travel despite uncertainty in some of the world's major economies, Pratt said.

The cargo business performed reasonably well in the first quarter but was appreciably weaker in the second quarter.

Oil hedging activities resulted in a realized profit of HK$962 million with additional unrealized gains of HK$1.2 billion being recognized in reserves, the company said.

In June, the International Air Transport Association cut its 2011 profit forecast for global airlines by more than half to $4 billion as high oil prices, the March 11 earthquake in Japan and unrest in North Africa and the Middle East weighed on industry recovery.

As the world's largest air-cargo carrier, Cathay added about 15 percent to cargo capacity in the first half but moved 4 percent less cargo on weak European demand and disruptions in Japan.

Cathay and unit Hong Kong Dragon Airlines Ltd, which operates as Dragonair, carried 13.2 million passengers in the first half, up 1.7 percent. But the passenger load factor fell 4.7 percentage points to 79.3 percent, while the cargo load factor slid 9.6 points to 68.4 percent.

Cathay and its units owned, financed and operated 170 aircraft at the end of June.

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