Cathay Pacific returns to profit on fuel-hedging gain

Cathay Pacific Airways Ltd., Hong Kong’s biggest carrier, posted a better-than-estimated first- half profit as lower fuel costs and a HK$2.1 bn ($271 mln) hedging gain countered a drop in passenger traffic.

The carrier returned to profit with net income of HK$812 million, compared with a restated loss of HK$760 mln a year earlier, the carrier said in a Hong Kong stock exchange filing today. Sales fell 27 percent to HK$30.9 bn.

Chairman Christopher Pratt said a slump in demand may have bottomed out after the carrier offered staff unpaid leave and cut capacity to battle a travel slowdown. Cathay also benefited from a 52 percent decline in fuel prices in the first half.

“Only a recovery in demand will help them make a profit in the second half,” said Allen Wong, an analyst at Quam Ltd. “It’s unlikely the carrier can save that much in fuel costs again as oil prices have already gone up a lot.”

Passenger numbers, including at the Hong Kong Dragon Airlines Ltd. unit, fell 4.2 percent to 11.9 million, as business and leisure travelers pared flying because of the global recession. Passenger yield, a measure of average sales, plunged 20 percent, “slightly more” than Wong expected. Cargo volumes tumbled 15 percent.

“Full-year earnings will depend on a pick-up in premium traffic,” said Winson Fong, who helps manage about $2 billion at SG Asset Management H.K. Ltd. “Fuel-hedging gains really aren’t something to evaluate the company’s performance on.”

Shares rise

Cathay, controlled by Swire Pacific Ltd., rose 2.5 percent to HK$12.96 as of 2:37 p.m. in Hong Kong. The carrier has risen 49 percent this year, compared with a 21 percent gain for Singapore Airlines Ltd.

Cathay was estimated to make HK$475 mln in net income, based on the median of six analysts’ forecasts. It won’t pay an interim dividend.

Across the Asia-Pacific region, international passenger traffic fell 15 percent in June because of the economy and concerns about H1N1, according to the International Air Transport Association. Carriers worldwide may lose a combined $9 bn this year, IATA has said.

Singapore Airlines said last week it may post its first annual loss in 24 years because of plunging traffic. British Airways Plc also reported a quarterly loss last week and said that yields will continue to decline.

“There are cautious signs that the fall in demand has bottomed,” Cathay’s Pratt said in the statement. “But there is, as yet, no indication when a sustained pick-up will begin.”

Fuel costs

The Hong Kong carrier’s gross fuel spending fell 56 percent in the first half from a year earlier to HK$8.65 bn. It bought fuel at an average price of $63.7 per barrel.

“The recent strengthening of fuel prices is a cause for concern,” Pratt said.

The airline is still in talks to delay new planes, according to the statement. The carrier had a fleet of 162 planes as of June 30, with another 39 on order. That includes aircraft operated by Air Hong Kong, a cargo venture with DHL.

Cathay slumped to its first annual loss in a decade last year after making HK$7.6 bn of unrealized losses on fuel hedges stretching out until 2011. The carrier made the losses after oil prices tumbled 69 percent from a record in less than six months last year. Prices jumped 57 percent in the first half.

The airline may make a HK$1.3 bn full-year profit, according to the median of eight analyst estimates complied by Bloomberg.

“Cathay may be profitable in the second half even excluding any fuel-hedging gains,” said Jack Xu, an analyst at Sinopac Securities Asia Ltd. in Shanghai. “Demand for premium travel is recovering slowly.”