Cathay Pacific Posts First Loss in 10 Years on Hedges
By Wendy Leung
March 11 (Bloomberg) --
Cathay Pacific Airways Ltd., Hong Kong’s biggest carrier, posted its first annual loss in 10 years after making wrong-way bets on fuel prices and suffering from slowing demand because of the global recession.
The HK$8.56 billion ($1.1 billion) net loss, or HK$2.175 a share, compared with a HK$7.02 billion, or HK$1.78, profit a year earlier, the carrier said in a Hong Kong stock exchange filing today. The loss was in line with the HK$8.72 billion median of seven analyst estimates complied by Bloomberg. Sales climbed 15 percent to HK$86.56 billion.
Cathay Pacific had its first unprofitable year since the 1998 financial crisis after booking a HK$7.6 billion paper loss from fuel hedging.
British Airways Plc and Delta Air Lines Inc., the world’s largest carrier, have also reported losses as business and leisure travelers pare flights amid a global recession and rising job concerns.
“It will take at least three years for travel demand to come back as the global economy recovers,” said
Winson Fong, who helps manage $2 billion at SG Asset Management H.K. Ltd. “Things don’t look too optimistic, but, hopefully, they can make a small profit in 2009.”
Fuel Hedging
Cathay Pacific, China Eastern Airlines Corp. and Air China Ltd. have all reported hedging losses after locking in fuel prices at higher than current rates.
Fuel prices have plunged 74 percent from a record in Singapore trading in line with slumping oil prices.
This year, the carrier’s paper fuel-hedging losses totaled HK$1.9 billion as of the end of February, it said. The contracts cover fuel purchases up to 2011, it said in January. The airline may recoup some of the paper losses if fuel prices rise again.
Cathay Pacific has curbed capacity growth, offered staff unpaid leave and delayed a new cargo terminal in Hong Kong by two years to mid-2013 on waning demand. It also scrapped its final dividend.
The airline, controlled by Swire Pacific Ltd., rose 2.1 percent to HK$7.15 at the 12:30 p.m. trading break. The carrier slumped 57 percent last year.
Spending on jet fuel jumped 92 percent last year to HK$47.3 billion, the airline said. The carrier and its Hong Kong Dragon Airlines Ltd. unit carried 25 million passengers last year, a 7.3 percent increase. Cargo volume fell 1.6 percent to 1.65 million tons.
Airlines worldwide lost as much as $8 billion last year because of the recession and fuel-hedging losses, the International Air Transport Association said on March 2. The industry may lose as much $2.5 billion this year as traffic declines, with carriers in the Asia-Pacific region accounting for almost half of the losses, it added.
“The current deterioration in demand for air travel is driving a major earnings crisis,” Merrill Lynch & Co. analysts
Paul Dewberry and
Hou Ying Ying said in a March 6 note to clients.
Cathay Pacific may make a HK$696 million profit this year, according to the median of seven analyst estimates complied by Bloomberg.