Cathay Pacific expects first-half profit to jump 75% to HK$6.5 billion

Growth in passenger and cargo volumes, plus HK$1.4 billion one-off gain, boosts earnings Cathay Pacific carried 12 per cent more passengers in June compared with the same month last year and reported a 17 per cent increase for the first six months. Photo: Sam Tsang Hong Kong flag carrier Cathay Pacific Airways expects its first-half net profit to jump by as much as 75 per cent to HK$6.5 billion (US$829 million) from HK$3.7 billion a year earlier, as passenger and cargo traffic grew despite the Middle East war. The airline said on Wednesday that earnings were also boosted by a one-off gain of about HK$1.4 billion from the dilution of its interest in Air China following a share sale. The United States and Israeli strike on Iran on February 28 triggered a war that severely disrupted flights to the Middle East and sent oil prices skyrocketing, leading airlines to sharply raise fuel surcharges. Cathay Group said it expected net profit to range between HK$6 billion and HK$6.5 billion in the first half of the year. “Although jet fuel prices remained elevated, Cathay Pacific and HK Express carried a combined total of more than 3.1 million passengers [in June], while Cathay Cargo transported around 145,000 tonnes of freight, both up 9 per cent year on year,” said Lavinia Lau Hoi-zee, chief customer and commercial officer. Cathay’s interim earnings were last as strong in 2019, when it recorded HK$1.34 billion in the first half. Growth was recorded across the group’s premium services, low-cost and cargo operations. Cathay Pacific carried 12 per cent more passengers in June compared with the same month last year and reported a 17 per cent increase for the first six months. “The start of June has historically been a softer period for passenger travel demand, but this year, load factors remained elevated, amplified by increased traffic through Hong Kong due to the Middle East situation,” Lau said. She said that demand was also bolstered by the Dragon Boat Festival long weekend, during which passengers flew out of Hong Kong to short-haul destinations. Activity was fuelled in the latter half of June by inbound student traffic from long-haul markets, Lau added. “Demand in our premium cabins also remained robust, driven by strong corporate and premium leisure travel,” she said. Unhandled type: inline-plus-widget {"type":"inline-plus-widget"} HK Express, the group’s budget arm, saw passenger numbers fall by 4 per cent to around 560,000 in June year on year, but it recorded a 10 per cent rise for the first half overall. Destinations such as the mainland, the Philippines and Thailand saw passenger load factors above 85 per cent, a double-digit percentage point increase compared with June last year. Cathay Cargo’s total tonnage rose by 9 per cent from a year earlier in the first half, driven by flows from China into Southeast Asia, where internal regional demand remained steady, Lau said. Cargo traffic to mainland China and Hong Kong remained resilient, she noted, adding that semiconductor and pharmaceutical shipments did well. Looking ahead, Lau said that the summer peak “remains encouraging, particularly across our long-haul network”. Demand from Hong Kong for short-haul destinations continued to be robust, with the mainland and other areas in northeast Asia being especially popular, she said. The group announced on Friday that it had postponed resuming direct flights to Dubai until October 25 and the Saudi Arabian capital of Riyadh to October 26 due to signs the Middle East crisis was rekindling. Earlier last week, Cathay announced its fuel surcharges had been adjusted to HK$165 for flights to the mainland, HK$448 for South Asian destinations and HK$965 for long-haul flights. Just before the conflict broke out in late February, Cathay’s fuel surcharge was HK$142, HK$264 and HK$569 per leg for short, medium and long-haul flights. The charges were previously as high as HK$389, HK$725 and HK$1,560 respectively. Andrew Yuen Chi-lok, executive director of the Chinese University of Hong Kong’s Aviation Policy Research Centre, said that the conflict, particularly the closure of airspaces around Iran, had severely disrupted traditional routing between Europe and Asia that relied on Gulf hubs or overflights. Many passengers and cargo shipments shifted to more reliable alternative routes, he noted. Cathay responded by increasing flight frequencies and adding capacity on key European routes, including extra services to London and enhanced operations serving Zurich and Paris. “This strengthened its Hong Kong hub-and-spoke network, offering more comprehensive and seamless connections across Asia and to Europe without depending on conflict-affected airspace,” Yuen said. But the airline still faced two major challenges for the remainder of the year, he warned, pointing to the growing risk of higher oil prices should the war intensify and delays in the delivery of aircraft and broader constraints in the supply chain. “Although fuel surcharges have been reduced recently as prices eased somewhat, any resurgence would sharply increase costs,” Yuen said. “With limited hedging in place, this would pressure margins despite revenue management efforts.” Network expansion and growth in capacity could also be hampered by delays in aircraft deliveries, the analyst cautioned. “Slower deliveries could constrain its ability to scale the hub-and-spoke model or respond to sustained demand, forcing greater reliance on optimising existing aircraft utilisation and protecting yields amid geopolitical and economic uncertainties,” he said. Cathay shares were up by 2.57 per cent, closing 34 HK cents higher at HK$13.59.