Cathay Pacific hit by record losses

13 Mar 2009

Hongkong’s home carriers Cathay Pacific and Dragonair have reported record losses of around US$1.1billion for 2008, raising fears that the airlines may cut routes, jobs or services to reduce costs.

Cathay Pacific and its subsidiary Dragonair also reported a 7.4 percent drop in passenger numbers, to 1.8 million, for February year on year and a senior executive has spoken of a "deep slump" in non-economy classes.

However, the airlines attributed much of the decline to the fact that Chinese New Year fell in January this year in contrast to February last year.

Overall for the first two months of 2009, the combined airlines’ passenger numbers were down just 2.4 percent. The airlines’ passenger load factor for 2009 is 76 percent, down 1.8 percent from the same period last year.

Cathay Pacific General manager revenue management Tom Owen said: “Our passenger numbers showed a decline in February, partly due to the Chinese New Year peak falling in February last year, and also due to the continuing deep slump in premium cabin demand. Leisure demand held up relatively well, but needed to be stimulated by a raft of promotional fares in most markets, although the drop in passenger numbers was still bigger than the decline in capacity.

“The outlook for premium-cabin demand remains persistently weak and this, coupled with a downward pressure on fares and negative currency movements, is putting tremendous pressure on yield,” he said.

Published data does not show the extent to which business and first-class travel has been affected, despite the airline unveiling a number of discounted fares.

Caroyln Leung, corporate communications manager, public affairs, pointed out that: “We do not quantify the drop in our front-end demand. Our fares are driven by market demand and, for example, there are quite a number of promotional fares.”

The airlines have also been hit by their fuel-hedging strategy, where airlines buy fuel in advance at a fixed cost. This has resulted in huge losses as aviation fuel prices, which reached their peak last year, tumbled well below the price Cathay Pacific committed itself to.

Kenny Coyle

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