Cathay returns to profit on fuel hedging gains

Cathay Pacific Airlines Ltd. said Wednesday it returned to profitability in the first half, rebounding from its biggest-loss ever last year — thanks to gains on its jet fuel contracts.

Hong Kong's flagship carrier earned 812 million Hong Kong dollars ($104.8 million) for the six months ended June 30, compared to a loss of HK$663 million ($85 million) in same period last year.

The better-than-expected results reveal the first, faint signs of recovery after Cathay, like many airlines around the world, took a beating as the economic crisis sent demand for passenger and cargo traffic into a tailspin over the last year. The recent swine flu threat only made matters worse.

Last year, the company lost a whopping HK$8.6 billion ($1.1 billion) — its first annual red ink since the height of the Asian financial crisis in 1998. But for 2009, the company is expected to post a profit a little over HK$600 million, according to analysts polled by Thomson Reuters.

"There are cautious signs that the fall in demand has bottomed but there is, as yet, no indication when a sustained pick-up will begin," Cathay's Chairman Christopher Pratt said in a statement.

Demand for premium business travel and cargo traffic remained low in the first six months, with the number of passengers traveling with Cathay and its subsidiary Dragonair falling 4.2 percent to 11.9 million, according to Cathay's interim results.

Cargo and mail shipments for the two airlines combined also recorded a decline of 15.3 percent to 700,693 tonnes for the same period, the company said.

Beyond actual demand, Cathay benefited from the recent advance in oil prices, saving money on contracts it entered into as a way to hedge against spiking jet fuel prices during the first half of 2008.

The company booked a market gain of HK$2.1 billion ($271 million) in the first half, compared to the massive loss of HK$7.6 billion ($981 million) in wrongway bets last year.

During the depths of the downturn, Cathay undertook companywide measures to scale back costs, including offering unpaid leave to employees and suspending construction on a cargo terminal to cut costs.

The company had said previously said it would aim to keep passenger growth flat in 2009 and avoid cutting destinations.

Cathay shares traded 2 percent higher at HK$12.9.