Cathay Pacific Airways Limited

12 March, 1997

Cathay Pacific Airways has announced an attributable profit of HK$3,809 million (US$488 million) for 1996, 27.9 percent above the previous year's figure of HK$2,978 million. The 1996 figure includes an exceptional profit of HK$541 million from the disposal of part of Cathay Pacific’s shareholding in Dragonair. Operating profit for 1996 was HK$3,790 million (US$ 486 million), an increase of 0.6 percent over last year’s figure of HK$ 3,769 million. 

Turnover, at HK$32,381 million (US$4,151 million), was 6.3 percent higher than in 1995. The company's profit margin was 11.8 percent, compared with 9.8 percent the year before. The directors recommended a total dividend for the year of HK$0.53.

Cathay Pacific Chairman Peter Sutch expressed satisfaction with the 1996 results, noting that achieving them required constant attention to increasing cost pressures and declining yields in most markets. The effects of adverse exchange rates and spiralling fuel prices were also cause for concern during the year.

"Yields in most markets were affected by ever-increasing capacity," said Mr Sutch. "Passenger fares also faced downward pressure, particularly on European routes."

Load factors for 1996 remained encouragingly high, averaging 72.6 for the year, an increase of 1.8 percentage points over 1995. However, the weakening of the Japanese yen caused a fall-off in revenue from North-East Asian markets that was only partially redressed by an increase in passenger traffic.

"While it is out of our hands, we will be watching the performance of the yen closely in 1997. However, I’m confident our revenue strategy will cushion any adverse effect," said Mr Sutch.

A very positive development for Cathay Pacific took place in June when the airline and long-time partner CITIC Pacific agreed to a new placement of just over 572.9 million shares worth HK$6,302 million. Subscribed to entirely by CITIC Pacific, the share issue increased their shareholding in Cathay Pacific to 25 percent. While Swire Pacific’s shareholding was diluted to 43.9 percent, the Group’s management role remained unchanged. The disposal of shares in Dragonair took place at the same time in a related transaction.

"This re-alignment of shareholdings provides a strong and stable environment for the development of aviation in Hong Kong," said Mr Sutch. "It has also provided much of the necessary capital to fund the airline’s move to the new airport at Chek Lap Kok, our future aircraft purchases and the other initiatives through which we plan to secure Cathay Pacific’s future as the pre-eminent airline in Asia."

Groundbreaking for the HK$3,500 million Cathay Pacific City, the airline’s new headquarters at Chek Lap Kok, took place in November, and construction is well underway. The airline also completed the replacement phase of its HK$70,000 million aircraft acquisition programme, as it retired the last of its TriStar L1011s. The replacement phase, which began in 1994, has witnessed the introduction of a new fleet of Airbus Industrie A340-300s, A330-300s and Boeing 777-200s valued at HK$24,000 million. Firm orders and options worth more than HK$46,000 million are still outstanding, including a September 1996 order for three new A340-300s and a January 1997 order for a further two A340-300s and an A330-300 .

"These orders will help Cathay Pacific take advantage of the additional capacity expected at Chek Lap Kok," said Mr Sutch. "The move to the new airport will be a welcome relief from the congestion and capacity constraints of Kai Tak airport although it is expected to bring increases in our operational costs."

1996 also saw the introduction of a new Cathay Pacific service philosophy called Service Straight from the Heart. "During the past year, and for the years to come, we will encourage staff to embrace this philosophy by emphasising sincere, personal service and individual responsibility," said Mr Sutch. "It is intended to change the way staff think about their jobs, and provides tangible benefits for passengers who will already be able to appreciate the difference in the way we approach their individual needs."

While Hong Kong remains an expensive place to do business, Cathay Pacific is confident about its future prospects. "We face the future from a position of considerable strength and are hopeful that the opportunities presented by Chek Lap Kok will not be undermined by excessive landing charges or associated fees," said Mr Sutch. "With a stable operating environment, a superb new fleet and a healthy balance sheet, I believe we have the resources to ensure Cathay Pacific enters the new century as a world-class, customer-driven airline producing superior financial returns."

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