Cathay Pacific’s 2014 Earnings Come In Below Expectations

March 19, 2015 – Earnings at Hong Kong flag carrier Cathay Pacific came in slightly below expectations. Net profit for 2014 rose 20 per cent after a bump up in passenger numbers and cargo, but the drop in oil prices has not worked in Cathay’s favour.

Cathay Pacific did benefit from lower fuel prices in the fourth quarter – when global oil prices halved compared to the middle of last year. Problem is, Cathay also hedges up to two-years in advance – that is why its fuel bill jumped almost 6 per cent to over US$5 billion. The slump in oil caused it almost US$120 million in hedging losses.

Cathay Pacific’s management said it was satisfied with the current hedging position and insists that the decline in oil prices has been a net positive for Cathay.

Cathay also welcomed news that the third runway at the Hong Kong International Airport has been approved, with construction to be completed by 2023.

Mr Ivan Chu, chief executive of Cathay Pacific Airways, said: “Airport Authority Hong Kong is one of the most profitable airport operations in the world, having a profit margin of more than 40 per cent and the return on investment for the taxpayer is more than 14 per cent.

“From our point of view, we see that the Airport Authority can fund itself through retained earnings and also through borrowings or bonds. We believe that given the social and political climate in Hong Kong, it will be fantastic if the third runway could be built by the authority’s own funds.”

The airline’s management did not provide guidance for the current year, but said it is “positive about the overall prospects.”

Still, there are headwinds. Mr Andrew Sullivan, managing director of sales trading at Haitong International Securities, said: “The fact the results did not see the expected contribution from Air China shows that there are more airlines going into China and eating away at their business.

“It is a highly competitive market and there is no let-up in that. Their cargo side has always been a big driver for the company’s profit. It is going to be very much determined by the global economy and whether we see a recovery coming through.”

Cathay Pacific said that it is investing heavily in its fleet – 16 new aircraft were delivered in 2014, with nine more set to arrive this year. A total of 79 aircraft is also on order for delivery up till 2024.