Cathay Pacific Airways has turned in a steady set of 1996 financial results, despite struggling with a falling Japanese yen and soaring fuel costs, while the airline's net profits also received a hefty boost from the sale of part of its share in sister carrier Dragonair.
Overall, the airline added more than HK$800 million ($103 million) to its net profits in 1996, to end the year at HK$3.8 billion, although a major slice of the increase came from HK$541 million which the carrier netted from the sale of a 17% stake in Dragonair to China National Aviation.
Underlying operating profits were largely unchanged as Cathay battled with a 20% decline in the value of the yen and a 21% rise in fuel prices. Cathay says that a "sophisticated hedging policy" on fuel managed to save it HK$281 million, although the airline concedes that there is little it can do against a falling yen, from which it derives some 25% of sales.
International competition also added to the pressure on yields, which dropped by 5.7%. "Yields in most markets were affected by ever-increasing capacity," says Cathay chairman Peter Sutch.
The performance was nevertheless well received by analysts and is broadly in line with expectations. "It seems to be a fairly solid performance in a difficult operating environment," observes Peter Negline, analyst at investment bank Salomon Brothers.
Most analysts predict a better performance in 1997, on the back of lower fuel prices and a rally in the yen. In the longer term, the airline is banking on traffic expansion.
Cathay's associate maintenance company, Hong Kong Aircraft Engineering (HAECO), also received a one-off boost to profits through the payment of HK$177 million from Rolls-Royce, as part of the new Hong Kong Aero Engine Services joint venture. That helped HAECO towards a 50% rise in net profits, to HK$495 million. A firming up of airframe heavy-maintenance work rates in the second half of 1996 also helped to arrest the recent fall in profitability.
Source: Flight International
