Cathay Pacific Airways Ltd., Asia's second most-valuable airline, may report its second six-month profit decline, as record fuel cost sapped the earnings from increasing travel demand.
Net income may have fallen 24 percent to HK$2.01 billion ($247 million) in the second half ended Dec. 31, from the previous year's HK$2.65 billion, according to the median estimate of 10 analysts surveyed by Bloomberg. The Hong Kong-based airline will report 2005 earnings tomorrow.
Chief Executive Officer Philip Chen, who raised levies four times in 2005, will extend surcharges until the end of March and hedge up to 30 percent of fuel purchases to shield Cathay Pacific's earnings from rising oil prices. Chen, 50, urged the airline's staff in December to ``fight for every market'' with rivals including China Southern Airlines Corp.
``Jet fuel is the most critical issue for Cathay,'' said Pauline Dan, who owns airline stocks among the $3 billion of Asian equities she helps manage at Manulife Asset Management in Hong Kong. ``The outlook depends on oil prices.''
Cathay Pacific flew 8.1 million travelers in the second half, 12 percent more than a year earlier, based on the company's announced figures. Cargo volume rose 19 percent to 600,047 tons.
Shares of the airline closed unchanged yesterday at HK$14.20 on the Hong Kong exchange. The stock fell 4.2 percent in the second half last year, lagging behind the 4.8 percent gain in the key Hang Seng stock index.
Full-Year Profit
For the year, Cathay Pacific's profit may have fallen 17 percent to HK$3.68 billion, according to the 10 analysts surveyed. The airline flew a record 15.4 million people in 2005, up 13 percent from 2004, and cargo volume grew 15 percent to 1.12 million metric tons.
``Passenger demand is robust and the cargo business should show healthy growth,'' Manulife's Dan said.
The cost of jet kerosene, which surged to a record $85.36 a barrel on Oct. 3 last year, prevented Cathay Pacific, Singapore Airlines Ltd. and other Asian carriers from turning higher passenger numbers into bigger profits.
Jet fuel rose 35 percent to an average $72.8 a barrel in the six months ended Dec. 31, according to Platts pricing service. Fuel is Cathay Pacific's single biggest cost, making up 31 percent of first-half operating expenses.
The combined profits of Asian airlines fell 42 percent to an estimated $1.5 billion last year, according to the International Air Transport Association, which represents 265 global carriers.
Singapore Airlines, Asia's biggest carrier by value, had a 15 percent drop in third-quarter net income in the period ended Dec. 31.
Hedging Policies
``Fuel remains high and Cathay has not been able to do more than extend its surcharge level of last year,'' Credit Suisse analysts Peter Hilton and Felix Rusli wrote in a March 2 report.
Chen used ticket surcharges and bought futures contracts for fuel to help cover higher costs. The airline, which covered 15 percent of first-half fuel requirements with financial derivatives, plans to increase hedging to 30 percent, former Chairman David Turnbull said.
Surcharges and hedging covered less than half of the increase in costs in the first half, Turnbull said.
``Cathay Pacific has done a very good job in controlling costs but the scope for further cuts may be limited,'' said Jacky Choi, who declines to say if he owns Cathay Pacific shares among the $3 billion of Asian stocks he helps manage at Value Partners Ltd. in Hong Kong. ``It all depends on the fuel price. Some people say prices have peaked but they are still volatile.''
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