HK's Cathay posts $120M loss in 1H on fuel costs

HONG KONG (AP) ? Cathay Pacific Airways Ltd., Hong Kong's biggest airline, posted its biggest first-half loss in a decade on Wednesday because of persistently high fuel prices, the global economic slump and poor air cargo demand.

Cathay, which blamed jet fuel prices for "significantly" affecting profitability, is fighting back by upgrading its fleet and confirmed it's beefing up an existing order for Airbus A350 jets by adding 10 more to the deal and converting 16 others into larger models.

The company said Europe's economic instability was having a big effect on both its passenger and cargo services, while revenue from many other international routes was also under pressure because of increased competition.

The Asian carrier is the latest in a string of global airline companies plagued by grim economic conditions that have reported poor results.

"Cathay Pacific's core business was significantly affected by the persistently high price of jet fuel, passenger yields coming under pressure and weak air cargo demand," Chairman Cristopher Pratt said in a statement. "These factors are common to the aviation industry as a whole. Airlines around the world are being adversely affected by the current business environment."

Profits from associated companies, including Air China, in which Cathay has a substantial stake, showed a "marked decline." Air China, one of China's three major state-owned airlines, warned last month that first-half profit would fall by half because of the economic slowdown in China, the world's second biggest economy. Other Asian airlines including Korean Air Line Co., South Korea's biggest carrier, and Singapore Airlines, have reported quarterly losses this year because of the global slump and high fuel prices.

Cathay, which also owns regional Hong Kong-based carrier Dragonair, posted a loss of 935 million Hong Kong dollars ($120.5 million) or 23.8 Hong Kong cents a share for the first six months of 2012. That's down from a profit of HK$2.8 billion ($360 million), or 71.4 cents, last year and the biggest first-half loss since a HK$1.2 billion loss in January-June, 2003 amid the Sars health crisis.

Revenue rose 4.4 percent to HK$48.9 million.

The airline had warned in May that first half results would disappoint and that it would respond to the challenges by freezing hiring and allowing cabin crew to take unpaid leave.

Cathay is also modernizing its fleet by replacing older, fuel-thirsty jets with newer, more efficient ones and confirmed plans announced in July to beef up an existing 30-jet Airbus order.

It's converting 16 jets to the larger A350-1000 model and ordering 10 more of the same model. Pratt said the airline would speed up retirement of older, gas-guzzling Boeing 747 aircraft used because they made it hard to operate long-haul routes profitably. The average price the airline paid for fuel rose 4.6 percent in the period.

The upgrade will add $4.4 billion to the list price but the airline said it's paying less because it's getting a "significant" discount from Airbus. It's common practice for plane makers to give airlines discounts, and the final selling price for aircraft is rarely disclosed.

Source: http://news.yahoo.com/hks-cathay-posts-120m-loss-1h-fuel-costs-045145784--finance.html

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