Hong Kong flag carrier Cathay Pacific said Wednesday that net profit for 2015 rose 90 percent, beating expectations, with the firm attributing the surge to huge savings on fuel as oil prices tumbled.
Cathay Pacific Airways has posted a net profit of HK$6 billion ($774 million) for 2015, up 90.5% compared to a net profit of HK$3.15 billion for 2014.
Cathay’s overall operating expenses (ex-fuel) increased 2.3% in 2015, which was partly attributed to congestion and flight restrictions at Hong Kong International Airport and across Greater China, as well as a workforce increase.
The company also noted that “unfavorable foreign currency movements” had contributed to a drop in overall yield, which slipped 11.4% to HK59.6 cents.
This helped push overall Cathay Group revenue down 3.5% to HK$73 billion compared to the 2014 figure. This came despite a 6% rise in capacity from the introduction of new routes to Boston, Düsseldorf, Hiroshima and Zurich. During the year, Cathay Pacific cut its services to Moscow and Doha, as well as subsidiary Dragonair’s Manila service.
“The operating environment was better in 2015 than in 2014, but we faced some significant challenges, which we expect to continue in 2016. Strong competition from other airlines in the region, foreign currency movements and weak premium class passenger demand will put pressure on passenger yield. Cargo demand will be adversely affected by industry overcapacity. Overall passenger demand remains strong and we expect to continue to benefit from low fuel prices. Our subsidiaries and associates are expected to continue to perform well” Cathay Pacific Chairman John Slosar said.
The company also reported a weaker than expected demand for premium class seats on some long-haul routes. It said cargo demand was weak, especially in 2H 2015. The cargo division reported a 9% year-over-year drop in cargo revenues to HK$23.1 billion.
However, the carrier’s overall load factor increased 2.4% to 85.7%.
Cathay took delivery of three Airbus A330-300s and six Boeing 777-300ERs in 2015. Over the 12-month period, four 747-400s and four A340-300s were retired. The carrier expects to take delivery of the first of its order of 36 A350-900 XWBs in May 2016, following a two-month delay for interior retrofits.
The Group’s performance in 2015 was better than in 2014, with the business benefiting from low fuel prices. The high passenger load factors experienced in the first half of the year continued in the second half, reflecting strong economy class demand. Premium class demand was not as strong as expected on some long-haul routes. Air cargo demand, which came under pressure during the second quarter of the year, remained weak in the second half. There was an improved contribution from the Group’s subsidiary and associated companies.
The Group’s operating expenses exclusive of fuel increased by 2.3% in 2015 compared to 2014. This was mainly due to increased operations and a corresponding increase in the size of the workforce. Congestion at Hong Kong International Airport and air traffic control constraints in the Greater China region also increased operating expenses. Productivity improvements and favourable foreign currency movements kept the increase in non-fuel costs below the increase in capacity. There was a 3.1% reduction in non-fuel costs per ATK.
The contribution from Air China (the results of which are included in the Group’s results three months in arrear) was significantly higher in 2015 than in 2014. The improvement principally reflected low fuel prices and strong passenger demand. In August 2015, devaluation of the Renminbi led to significant foreign exchange losses for Air China. However, the foreign exchange losses were more than offset by savings from low fuel prices.
Dragonair introduced passenger services to Haneda in Tokyo (in March 2015) and to Hiroshima (in August 2015). Frequencies on some other routes were increased. Cathay Pacific passenger services to Moscow and Doha and the Dragonair passenger service to Manila were discontinued. Cathay Pacific introduced a freighter service to Kolkata in March 2015 and increased freighter frequencies to North America and India. The freighter network and capacity were adjusted in line with demand.
In 2015, Cathay Pacific took delivery of six Boeing 777-300ER aircraft and three Airbus A330-300 aircraft. The Boeing 777-300ER delivered in September 2015 was the 53rd and final aircraft of this type to join the fleet.
“We are confident of longer-term success, and we will continue to help our passengers to travel well. In January 2016, we announced that Dragonair is to be rebranded as Cathay Dragon, as part of an effort to create a more consistent travel experience between the two airlines. We will continue to invest in aircraft, in our products and in the development of our network. Our financial position is strong. Supported by our world-class team, we remain deeply committed to strengthening the aviation hub in Hong Kong, our home city for the past 70 years” Cathay Pacific Chairman John Slosar said.