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Bumper profit for Cathay Pacific
HONG KONG, China (Reuters) -- Asia's fourth-largest airline, Cathay Pacific Airways Ltd, has said its 2002 profit soared six-fold, beating analysts' expectations, on stronger passenger demand, increased cargo revenues and cost cutting. Bouncing back from the post-September 11 travel slump in the year-ago period, Hong Kong's main carrier expressed confidence in its future business, although it said the near-term outlook was cloudy. The profit report sparked a 0.9 percent rise in Cathay shares on Wednesday as the overall stock market slid. "A conflict in Iraq would trigger higher oil prices and precipitate further weakness in the global economy," Chairman James Hughes-Hallett said at a press conference. "Based on past experience, war has also prevented a number of passengers from flying at all. Despite these very significant short-term threats and challenges, we remain very confident about our long-term future," he added. Cathay's relatively upbeat forecast contrasted with Asia-Pacific peer Qantas Airways Ltd, which last month reported record six-month results, but announced it planned to cut flights due to a possible travel slump in the wake of a war in Iraq. Cathay reported a net profit of HK$3.98 billion (US$510 million) for 2002, compared with a profit of HK$657 million in 2001. The earnings beat analysts' estimates for a HK$3.4 billion net profit and exceeded earnings growth reported recently by Qantas and Thai Airways International Plc. Unlike their U.S. and European peers, many Asian airlines racked up huge profits in 2002. Analysts warn the sector is vulnerable to soaring fuel costs should a war break out, but many are upbeat about this year's earnings. "There's still the issue of fuel and obviously if there is a war, what the impact will be," said Singapore-based John Casey, regional aviation analyst at DBS Vickers. "But it's my view that 2003 will be a year of peak earnings for most (Asian) airlines and this set of data seems to suggest that that view is reasonable." Cathay's turnover rose to HK$33 billion from HK$30.4 billion in 2001, with turnover for cargo services rising almost 13 percent and that for passenger services adding about nine percent. Cathay's shares initially rose 2.59 percent to HK$11.90 in afternoon trade. They later eased to HK$11.70, up 0.9 percent on the day. Fuel costs downCathay's operating expenses fell to HK$28.3 billion from HK$29.6 billion, with fuel costs dropping about eight percent to HK$4.9 billion. Cathay hedges about 40 percent of its fuel costs. Operating profit leapt to HK$4.75 billion from HK$832 million a year ago. Although Cathay reported a record passenger load factor of 77.8, weaker demand for first and business class seats eroded passenger yields by 0.7 percent. Cargo yields, meanwhile, fell 2.7 percent. Load factor refers to percentage of seats filled. ING Financial analyst Philip Wickham said Cathay's operational performance was in line with expectations and added the better-than-forecast earnings were partly helped by lower depreciation and leasing costs, "because they got rid of some older aircraft they had in their fleet." He also said Cathay's 56 cent dividend proposal, compared with 5 cents the previous year, was higher than expected. Some investors said they preferred rival Singapore Airlines, although its share price has underperformed that of Cathay. "We own Singapore Airlines and there has to be a substantial reason for us to switch or to have both," said Stephanie Lee, fund manager at Aberdeen Asset Management, which oversees US$3 billion in the region. "In terms of its reputation worldwide, I think you hear more people talking about SIA than you do about Cathay," she added. Cathay stock rose 6.5 percent in 2002, outperforming an 18.2 percent drop in the Hang Seng Index and a 7.3 percent fall in Singapore Airlines. Cathay's earnings will help lift financial results of parent Swire Pacific Ltd, the property-to-aviation conglomerate which is due to report on Thursday. Swire owns about 46 percent of Cathay. Swire shares closed up 1.17 percent at HK$34.50 on Wednesday. Copyright 2003 Reuters. All rights reserved. This material may not be published, broadcast, rewritten, or redistributed.
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