Despite a difficult trading environment during the first half of 1997, the Cathay Pacific Group produced a profit of HK$1,068 million. This represents a marginal reduction from the profit before exceptional item for the equivalent period in 1996 which amounted to HK$1,106 million. Turnover for the period was HK$15,775 million, an increase of 4 percent over that of the first half of 1996.
The most dramatic event of the first half of this year was the suspension of operations on 24th May of our Airbus Industrie A330-300 fleet due to reliability concerns with the Rolls-Royce Trent 700 engine. Cathay Pacific places the safety of its passengers and staff first and the decision to suspend operations was taken when three similar inflight shutdowns, including one on a Dragonair aircraft, occurred in a period of less than three weeks.
Caused by insufficient lubrication to a bearing in the step-aside gearbox, the problem was quickly rectified and our A330-300 fleet resumed operations just over two weeks later. The engine is now performing very satisfactorily. During the period, we leased a number of aircraft from other carriers and we operated an average of more than 85 percent of our scheduled flights. We have made satisfactory arrangements with the supplier regarding this incident. The understanding of the public and the huge extra effort by our staff was very much appreciated.
In the first half of the year, continuing downward pressure on yields and weak currencies offset good load factors and increased operational efficiencies. The Japanese Yen and certain European currencies have suffered from the considerable strength of the US dollar.
The travel peak predicted for the period surrounding Hong Kong's reunification with China on 1st July failed to materialise to the extent anticipated. Additionally, there has been some negative impact, on our South East Asian sectors in particular, due to restrictions on travel from mainland PRC to Hong Kong during that period.
Cargo revenue improved in the first six months of 1997, exceeding targets. However, the cargo market remains volatile and vigilance will be required to ensure our hard-fought gains are not lost to falling yields and rising costs.
During the period we continued to invest in our product. As at 1st August we had over half of our passenger fleet equipped with Economy Class personal televisions. This product upgrade programme is scheduled for completion in 1999. We have also introduced a number of improvements to our service procedures to enhance the enjoyment and satisfaction of our Economy Class passengers.
We have completed an extensive interior re-fit of our Boeing 747-200 fleet, creating a two-class configuration which provides additional comfort and space. Our A340-300 fleet has also been reconfigured to provide a larger Business Class cabin to take advantage of the product's popularity on routes such as Auckland and Rome.
Despite capacity restrictions at Kai Tak International Airport, in the past six months we have been able to increase services to a number of destinations, including Kuala Lumpur, Osaka, Bahrain and Dubai. We have also resumed freighter services to Chicago, although we will be terminating our joint venture service to Mauritius for commercial reasons. Our New York service recently celebrated its first anniversary and has been a success since the first departure.
Our home, Hong Kong, is now a Special Administrative Region ("SAR") of the People's Republic of China. A new chapter has opened in the history of Hong Kong and Cathay Pacific Airways is proud to be a part of the SAR's success story. To celebrate this event, we have painted a B747-200 in a special livery, and will fly this aircraft throughout the region until the middle of next year when yet another notable event in Hong Kong will capture the attention of the world: the opening of the new airport at Chek Lap Kok.
The new airport is scheduled to open in less than nine months' time. Our HK$4,900 million investment at Chek Lap Kok, Cathay Pacific City, is on schedule and fitting out is well under way. So are the plans to move the entire Company into our new home, with its three ten-storey office blocks, 23-storey staff hotel, safety training and simulator facilities - an exercise that will be completed by the end of next year.
In early 1998 we shall start taking delivery of the 10 aircraft ordered for that year as part of our fleet expansion plan so that we can begin to take advantage of the long-awaited extra capacity at Chek Lap Kok.
As in previous years we expect the results for the second half year to show an improvement over those for the first half, although operating conditions are clearly going to stay difficult with yields continuing to be under pressure and some markets remaining very soft.
Peter Sutch
Chairman
Hong Kong, 6th August 1997
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