Cathay Pacific’s short-term outlook remains “challenging”, but the Hong Kong carrier is “absolutely confident” on the long-term future and its competitive position. Cathay Pacific Group reported a record loss of HK$-21.648 billion on March 10, which confirmed 2020 as the most challenging year in its 70-year history.

The loss compares to a HK$1.691 billion profit in 2019. The operating loss was HK$-18.144 billion versus a HK$3.441 billion profit in the previous year. Revenues fell by -56.1 percent to HK$46.934 billion as the Group’s carried 86.9 percent fewer passengers at just 4.6 million. Cargo revenues were up by 16.2 percent to HK$24.573 billion. Although tons were down by 34.1 percent to 1.332 million, yields were up 58.3 percent to HK2.96 million. Cathay Pacific Cargo was operating at full capacity for most of the year, with additional capacity coming from cargo-only services on (reconfigured) passenger aircraft as well as by chartering services from subsidiary Air Hong Kong. There was a strong demand for medical supplies and vaccines.

Capacity dropped by 78.8 percent
Worldwide travel restrictions caused by the pandemic severely impacted Cathay’s long-haul operations as well as its China-Asia operations, which weren’t helped by political unrest in Hong Kong either. Passenger revenues of Cathay Pacific and Cathay Dragon fell by -84.3 percent to HK$11.313 billion, the combined loss was HK$-17.393 billion.
Available Seat Kilometers or capacity were down by -78.8 percent, with North Asia hit hardest by an 85.3 percent reduction. The airline operated a skeleton schedule from April for most of the year, only adding extra flights during the summer period until the second wave of Covid-cases on many continents negated any recovery made so far. The average load factor dropped by 24.3 percent to 58 percent, with October the lowest point at just 18.2 percent. There were numerous days in 2020 when Cathay carried only a few hundred passengers on its aircraft.
On October 21, the airline’s owners decided to cease all operations of Cathay Dragon with immediate effect and integrate its operations within Cathay Pacific, resulting in the loss of 8.500 jobs.

Low-cost carrier Hong Kong Express ended the year at an HK$-1.723 billion loss compared to -246 million in the second half of 2019 when the airline was acquired. The result can be largely blamed on the temporary suspension of its operations. Cargo airline Air Hong Kong was the only subsidiary to show a profit at HK$715 million, while Airline Services was HK$-2.031 billion in the red.

Cathay Pacific survived in 2020 thanks to a HK$39 billion recapitalization plan in June, which helped to restructure its debts. The Group also benefitted from HK$2.689 billion in Covid-related government grants. Restructuring costs amounted to HK$3.973 billion, including a HK$1.590 billion write-off in a deferred tax asset on Cathay Dragon. The Group took a HK$4.056 billion impairment, of which HK$2.764 billion on the of 34 aircraft that are unlikely to return to service.
Monthly cash burn was down in December to HK$1.0-1.5 billion, a reduction of some HK$500 million from the previous quarter. Following the introduction of new quarantine requirements in Hong Kong in February, cash burn is expected to hit HK$1.3-1.8 billion per month in Q1 of this fiscal year.

Operating at such reduced capacity, Hong Kong’s Check Lap Kok had become a huge parking lot for most of Cathay’s fleet. By the end of December, it has transferred 92 aircraft or 44 percent of the total outside Hong Kong to places like Alice Springs (Australia) and Ciudad Real (Spain) for deep storage. As mentioned above, Cathay expects 34 aircraft to leave the fleet as their operating leases expire before they are set to return to service. This year, Cathay Pacific and the former Cathay Dragon have 11 leased aircraft on which the lease contract expires, in 2022 nine, and three each in 2023 and 2024. Hong Kong Express has three aircraft that reach the end of lease this year.

777-9 deliveries to be deferred, but Cathay still committed to 21
Cathay says it is in advanced negotiations with Boeing over deferral of deliveries of its 21 777-9s but this indicates it is still committed to the original number of aircraft. This should be good news for the US airframer, which reduced its 777X backlog in January by 118 aircraft. The carrier has also deferred deliveries of its A350s: one -900 and two -1000s are to be delivered this year (one -1000 arrived this month), three -1000s will arrive in 2022, but two -900s have been deferred to 2023 and beyond. Deliveries of A321neo’s originally destined for Cathay Dragon have also been pushed out from 2020-2023 to 2020-2025. This affects four aircraft, but this year the airline still expects four of them (three on lease) and seven six in 2022. Hong Kong Express will take delivery of one lease A320neo this year.

By January, Cathay had HK$28.593 billion in unrestricted liquidity, including HK$9.396 billion in committed undrawn facilities. In January, another HK$6.74 billion has been raised by issuing convertible bonds with a maturity in 2026. Net borrowings were down 10.4 percent to HK$73.788 billion.

Last year, Cathay reduced its by 5.900 to a total of 25.600 employees. As the outlook remains most uncertain, chairman Patrick Healy said that a third special leave scheme has been opened up for completion by July. Over eighty percent of its Hong Kong-based and overseas staff have subscribed to the leave scheme. Depending on the recovery of air travel, Cathay Pacific reaffirms its expectation that it will operate this year well-below fifty percent capacity of 2019 levels.

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