Chinese competition puts Cathay Pacific in the red

Fierce competition, including a sharp rise in international flights from mainland China, severely impacted Cathay Pacific’s finances in 2016.

The Hong Kong-based group, which includes Cathay Pacific and the former Dragonair (recently rebranded as Cathay Dragon), fell to a full-year loss of HK$575 million (US$74m) last year – almost HK$6.8 billion lower than the full-year profit it achieved in 2015, and its first annual loss since the global financial crisis in 2008.

Company revenues declined 9.4% to HK$92.75bn, including an 8.4% drop in passenger revenue, to HK$66.93bn.

Cathay said the operating environment was “difficult” in 2016. Factors cited included the surge in direct flights between mainland China and international destinations, increased competition from low-cost carriers, overcapacity, softening economic growth in mainland China, and a decline in the number of visitors to Hong Kong.

The group did manage to reduce its fuel costs by 20.4% to HK$4.91bn, but other expenses increased.
And looking ahead to this year, Cathay Pacific’s chairman, John Slosar, said he expected the operating environment to “remain challenging”.

“Strong competition from other airlines and the adverse effect of the strength of the Hong Kong dollar are expected to continue to put pressure on yield. The cargo market got off to a good start, but overcapacity is expected to persist,” Slosar said.

He added however, that the airline’s long-term prospects remain strong.

“Despite the challenges with which we are faced, we still expect our business to grow in the long-term. Air traffic to, from and within the Asia Pacific region is expected to grow strongly. We intend to benefit from this growth by increasing our passenger capacity by 4-5% per annum, at least until the third runway at Hong Kong International Airport is open. We will continue to introduce new destinations and to increase frequencies on our most popular routes. We are buying new and more fuel efficient aircraft. This will increase productivity and reduce costs,” Slosar commented.

Cathay Pacific and Cathay Dragon boarded a total of 34.32m passengers on 78,830 flights in 2016, up 0.8% and 0.2% respectively. Traffic on routes to and from mainland China, measured in revenue passenger kilometres (RPK), declined 0.5%.