By Jamie Freed
SINGAPORE (Reuters) – Hong Kong’s Cathay Pacific Airways Ltd reported a HK$2.35 billion (£228.72 million) annual profit after two years of losses, as it benefited from rising airfares and a turnaround plan designed to lower costs and boost revenue.
The airline, however, said the outlook for 2019 was expected to remain challenging due to geopolitical discord and global trade tensions dampening passenger and cargo demand and intense competition, particularly on long-haul routes in economy class.
The result for the year ended Dec. 31, aided also by out-of-the-money fuel hedges rolling off, was in line with Cathay’s guidance for HK$2.3 billion profit issued on Feb. 20.
Its projection was more than double analyst estimates at the time and sent shares soaring 9 percent on the day. The airline lost HK$1.25 billion in 2017.
Cathay reported HK$111 billion in revenue in 2018, up 14.2 percent from the prior year, driven by its passenger and cargo businesses.
This year, Cathay plans to “compete hard” by extending its route network to destinations not currently served from Hong Kong, increasing frequencies on its most popular routes and operating more fuel-efficient aircraft, Chairman John Slosar said in a statement.
Since launching its revamp programme in 2017, Cathay’s initiatives have included cutting jobs at its head office and overseas ports, adding more economy class seats to older Boeing 777 jets and hedging fuel for shorter periods.
The airline has hedged around 30 percent of its fuel for 2019 at prices of between around $62 and $70 per barrel. Global crude prices are currently at around $67 per barrel.
As one of the world’s largest cargo airlines, Cathay last year benefited from an improving freight market. However, in January it reported a 5.2 percent fall in cargo traffic, with the pre-Chinese New Year rush not as strong as last year.
In the passenger market, yields, a proxy for airfares, grew by 5.7 percent last year, with South Asia, the Middle East and Africa the strongest performing markets.
The carrier, which lacks a budget arm, last week said it was in “active discussions” about acquiring HNA’s Hong Kong Express Airways Ltd, although an agreement has yet to be reached. It did not provide any further details on Wednesday.
Cathay’s financial results are expected to improve further this year, with 16 analysts polled by Refinitiv I/B/E/S expecting an average net profit of HK$4.5 billion.
(Reporting by Jamie Freed; Editing by Himani Sarkar and Christopher Cushing)