Cathay Pacific has returned to profitability for the first time since the pandemic, reporting a HK$4.763 billion net profit for the first half year of 2023. The carrier recovered strongly after travel restrictions in Hong Kong and China were lifted, but is still operating well below 2019 capacity levels. Cathay hopes to return to seventy percent capacity by the end of this year, it said on August 9. Cathay Pacific at a profit for the first time in three years.
The HK$4.763 billion profit compares to an HK$-4.999 billion loss for HY1 and includes the airlines and its subsidiaries. The non-airline-associated businesses were still loss-making at HK$-2.632 billion (2022: HK$-2.483 billion). The consolidated net profit for the period is HK$4.268 billion versus HK$-4.999 billion.
Total revenues for Cathay Pacific and HK Express increased to HK$43.593 billion from HK$18.551 billion. Ticket revenues soared to HK$27.563 billion from HK$2.086 billion. Cathay carried 7.8 million passengers versus just 335K in the same period of last year at an average load factor of 87.2 percent. To the Americas, the load factor to six destinations reached even 94.8 percent. Passenger revenue per ASK was HK$ 67.5 cents, down 0.1 cents, while yields were down to HK$ 77.4 cents from HK$ 114.3 cents.
Capacity as in available seat kilometers (ASK) was up by 1.111 percent to 37 million as the airline returned to seventy destinations, but capacity was still at fifty percent of 2019 levels from March to June. All regions saw impressive growth numbers in capacity, but Cathay has come a long way, having been virtually grounded for a long time during the pandemic. South Asia, the Middle East, and Africa saw the lowest capacity increase.
The re-opening of China after January 8 has resulted in consistently strong demand for Mainland China, which includes four destinations now. Traffic to Japan took longer to recover as the Japanese government restricted the number of international flights coming into the country in the first few months. This has now ended and Cathay is flying to five destinations in Japan now or in total 25 in Northeast Asia.
HK Express produced a HY1 profit of HK$333 million versus a HK$-824 million loss in 2022. The airline benefitted from strong demand to short-haul destinations in Asia, which brought it back to pre-pandemic capacity levels in April.
Cargo tonnage up but yields down
Cathay Cargo revenues were HK$12.432 billion, down from HK$13.830 billion in HY1 last year, reflecting the weaker cargo market and lower yields. Yields were down by 51.7 percent to HK$2.76 cents. Total tonnage carried was still up by 23.8 percent to 651 tonnes, up from 526 tonnes. The reopening of Mainland China saw an increase in cross-border cargo trucking but air cargo didn’t benefit to the same level. Cargo specialist Air Hong Kong produced a HK$402 million profit, already reporting a HK$383 million profit for HY1 last year.
As Cathay Pacific and HK Express operated at much-higher capacity levels, fuel costs increased sharply to HK$10.6 billion from HK$2.6 billion last year. Total expenses were up to HK$36.957 billion from HK$19.804 billion. Non-fuel costs were up by 53.5 percent to HK$24.639 billion.
Revenues minus expenses produced an operating profit of HK$8.773 billion versus HK$-1.253 billion last year. The net results include a one-off non-cash gain of HK$1.9 billion as a result of a dilution of the interest in Air China from 18.13 to 16.26 percent following the completion of their A-shares offering in January. The operating margin was back to a positive 9.8 percent.
Cathay Pacific ended June with HK$29.8 billion in unrestricted cash. A HK$7.8 billion bridge loan facility by the Hong Kong SAR Government is no longer needed and has expired on June 8. Net borrowings stood at HK$44.6 billion, with a net debt/equity ratio of 0.69.
Building back connectivity
In its full-year outlook, Chair Patrick Healy notes that “while we are still only part way along our rebuilding journey, our results for the first six months of 2023 demonstrate that we are on the right track. (…) Building back connectivity at the Hong Kong international aviation hub remains our primary focus. We are on track to achieve our target of seventy percent pre-pandemic passenger flight capacity levels covering eighty destinations by the end of 2023, and we are confident of reaching 100 percent by the end of 2024.” Cathay also said this in March in the FY22 results presentation.
“In terms of our cargo business, we expect it will continue to moderate compared with the exceptional levels of the past three years. Nevertheless, we anticipate a continued solid performance throughout the second half of 2023 with some tonnage improvements towards the end of the third quarter as we enter the traditional peak period.”
Cathay Pacific plans to buy back fifty percent of the preference shares before the end of the year at a redemption price of over HK$9.75 billion. The remainder will follow by the end of July 2024, subject to completion of the proposed capital reduction and its business conditions at the relevant time.
Cathay Pacific operated a fleet of 183 aircraft. It took delivery of its 29th Airbus A350-900 in July and has one more up for delivery this year, the only delivery remaining for 2023. In 2024, four A321neo’s are due. The 21 Boeing 777-9s are set to join from 2025.
HK Express has a fleet of 27 aircraft, with three A321neo’s due this year, eight in 2024, and four in 2025 and beyond. Air Hong Kong operates fifteen freighters. The carrier will replace eight Airbus A300-600F with second-hand A330s between this year and 2024.
In a separate filing to the Hong Kong Stock Exchange, Cathay Pacific said that it intends to exercise purchase rights on 32 A320neo family aircraft that it secured in September 2017 before the right expires on September 30 this year.
