During the first half of 1999, the Cathay Pacific Group made an attributable profit of HK$108 million, as compared with a loss of HK$175 million in the same period last year. Turnover was HK$13,167 million, up by 1.4 percent over 1998.
The result reflects modest improvements to the difficult environment the airline faced throughout 1998. The first five months of 1999 saw a recovery in a number of markets, notably the United States, Indonesia, Philippines and Korea; passenger numbers increased on most routes, though yields remained weak. The level of economic activity in many Asian economies remains subdued, although a degree of optimism and stability has returned to financial markets.
The airline's scheduled operation was, unfortunately, severely disrupted in early June during salary negotiations with our aircrew representatives, when a high number of aircrew reported sick. We very much regret the inconvenience suffered by customers and staff who were affected by these disruptions.
Cathay Pacific's return to profitability was greatly helped by the measures we have taken over the past two years to better manage our operating costs, which averaged HK$2.34 per ATK in the first half. This focus on reducing costs must be on-going if we are to compete in the intensely competitive international aviation market. In January, Hong Kong ground staff and the vast majority of our cabin crew agreed to help the Company boost productivity by working longer hours. This extra productivity has placed us on a much better footing to compete in the international aviation market. The agreement reached in June with our aircrew under which they receive stock options in return for salary concessions will also improve our long term competitiveness; although the immediate cost in terms of reduced profit is estimated at HK$500 million, this is fully justified both in terms of recurring savings and improved alignment of the interests of shareholders and aircrew.
We have continued to remove older aircraft from service in order to tailor our capacity to the prevailing market conditions. Over the past six months, we have removed five Boeing 747-300 aircraft from service, bringing the number of aircraft withdrawn to twelve over the past twelve months of which nine are now on long term operating lease to other carriers. This, coupled with the delivery of two new B777-300s during the first half of 1999, has ensured our fleet is younger and more fuel efficient than ever before.
Our new frequent flyer programme Asia Miles and the new global alliance oneworld were launched in February and are meeting with an enthusiastic response from frequent travellers. We are pleased that Hong Kong's largest banking group, HSBC, and our associate airline, Dragonair, have agreed to join Asia Miles. Both new partners will augment what is already Asia's most comprehensive frequent flyer programme.
Oneworld further broadened its global network during the first half of the year with the announcements that Iberia and LanChile would be joining the alliance. Oneworld now delivers significant extra value to our passengers in the form of smoother connections and enhanced services.
Peter Sutch retired at the end of May, after seven years as Chairman. He took up his first position in Cathay Pacific in 1970; his contribution to the airline's development has been very great.
We declared that our internal systems and equipment were Y2K compliant in June. The Company committed substantial resources to this programme to ensure its success and will continue to provide the necessary levels of resources to ensure that we move to the new millennium successfully.
There are increasing indications of a return to sustainable economic growth across the region and we expect the operating results in the second half to show improvement. It is essential that we continue with our efforts to improve our competitive position; we are encouraged by the progress we have made to date.
We remain extremely confident in the airline's long term future and in that of our home base, Hong Kong. We are very proud to be Hong Kong's airline.
James Hughes-Hallett
Chairman
Hong Kong, 11th August 1999
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