The first six months of 1998 produced a loss for the Cathay Pacific Group of HK$175 million, a decrease of HK$1,243 million over the same period last year. Turnover was HK$12,991 million, a decrease of 16.1% over 1997.
These figures reflect the extremely difficult environment in which we are currently operating. The Asian economic downturn and the weakness of Southeast Asian currencies against the US dollar have continued to impact adversely on traffic within the region. The comparatively higher prices in Hong Kong have also discouraged in-bound tourists. These factors are reflected in the reduction in load factors over those we enjoyed during the first six months of 1997.
Prudent management has ensured that we are a financially strong company. Nevertheless, in order to maintain our financial strength we have embarked on a programme designed to reduce our unit operating costs. Both the staff retrenchment and the removal from service of seven Boeing 747 'Classic' aircraft form part of this programme. This programme will, however, ensure that neither safety nor the integrity of our product will be compromised.
In order to further conserve resources, the interim dividend has been reduced by 73.9% and an interim dividend of HK3¢ per share will be paid.
Hong Kong's new airport opened on 6th July, 1998. The move from Kai Tak to Chek Lap Kok went exceedingly well, but unfortunately this cannot be said of the start-up of operations at the new airport, particularly in respect of cargo.
HACTL experienced significant cargo handling problems, both in and outbound, which cost Cathay Pacific an estimated HK$250 million in lost revenue during the month of July. This cost will increase until the problems are rectified. Passengers in the first week were subjected to fairly lengthy flight delays and to very long waiting time for baggage retrieval. Indeed, many sadly suffered the loss of their baggage for a number of days.
This is very much regretted. However, Cathay Pacific staff, working under exceedingly difficult conditions, did a magnificent job in smoothing over the difficulties as best they could.
Five weeks after the opening, operations on the passenger side have finally settled down. It will need hard work though to overcome the disappointing start.
The phased move of Cathay Pacific staff to our new headquarters complex, Cathay Pacific City, is proceeding. Equipped with a new information technology infrastructure and modern, well planned facilities, this building will provide an efficient, comfortable and attractive working environment for the more than 3,000 staff who will be based there by the end of the year.
In May, Cathay Pacific took delivery of the world's first B777-300 aircraft. This aircraft is longer than a B747 and has already proven as versatile and reliable as its smaller relation, the B777-200.
Despite the very difficult market conditions, Cathay Pacific is committed to take delivery of all the aircraft it has on order. By planning ahead, we are positioning ourselves to benefit from the next market upswing. Our strategy of investment in our fleet has stood us in good stead in the past and we firmly believe our future profitability depends upon ensuring that our product is second to none.
Our ongoing programme to install personal televisions in every seat is continuing with more than 60% of the passenger fleet now completed. We are also making small but important adjustments to inflight services on our routes - refining them to suit passenger preferences.
While the Asian market remains soft, demand for long-haul flights to Europe and North America remains reasonably strong, although yields are under a great deal of pressure. We have adjusted our schedules to reflect this with increased services to London, Los Angeles and Sydney, all of which are now served on a double-daily basis. A new twice weekly service to Istanbul, Turkey commences on 8th August and from 1st December a daily non-stop service to San Francisco is scheduled to commence. We are continuing to evaluate the benefits of membership of a major global alliance.
Our cost management programme together with our continuing focus on "Service Straight from the Heart" will benefit the Company during the second half and into the future. However, the operating environment is expected to remain very tough and as such no significant improvement in the second half results is foreseen.
Peter Sutch
Chairman
Hong Kong , 5th August 1998
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