The aviation division includes interests in Cathay Pacific Airways Limited and Hong Kong Aircraft Engineering Company Limited, both of which are listed on the Hong Kong stock exchange. In addition to Cathay Pacific which now serves 48 destinations world-wide, the division also includes two other Hong Kong-based airlines, Hong Kong Dragon Airlines Limited (Dragonair), which serves 27 destinations in Asia including 18 in Mainland China and AHK Air Hong Kong Limited (Air Hong Kong), an all-cargo carrier serving destinations in Europe, the Middle East and Japan. Other companies provide aviation related services including flight kitchens, cargo terminal operations, ramp handling services and airport security.
The aviation division's contribution to Group attributable profit in 1997 amounted to HK$1,003 million, as compared with a contribution of HK$2,279 million in 1996. After excluding exceptional items in 1996, the aviation division's contribution declined by 42.8%, caused in the main by the sharp downturn in tourism to Hong Kong in the second half of the year.
Cathay Pacific Airways Limited
Cathay Pacific's consolidated profit for the year was HK$1,694 million, a decrease of 55.5% on 1996's profit. In what promised to be a good year, a number of unexpected forces combined to create one of the worst markets in the history of the airline.
Traffic turnover decreased by 4.1% to HK$28,435 million while capacity, measured in available tonne kilometres (ATK), rose by 3.8%. The total number of passengers carried decreased by 8.8% to approximately 10.0 million. Revenue passenger kilometres decreased by 3.0% against a 5.2% increase in available seat kilometres which resulted in a deterioration in passenger load factor from 74.0% to 68.2%. Passenger yields came under severe pressure and decreased by 4.8%. Cargo services performed well in the face of tough competition. The cargo load factor improved by 6.0 percentage points to 72.9% as cargo tonne kilometres improved by 12.2% against an increase of 2.4% in cargo capacity. Cargo yields decreased by 0.6%.
In May, operations of the A330-300 fleet were suspended for 14 days, as a result of reliability concerns with the Rolls-Royce Trent 700 engines which power these aircraft. During the suspension, flight cancellations were kept to a minimum by rescheduling and combining flights as well as through charter arrangements with other airlines. The engine is now performing with a very high degree of reliability.
The tourist industry has suffered a disappointing downturn since the middle of 1997. In particular, the windfall anticipated by the tourist industry during the period of Hong Kong's reunification with China failed to materialise. Furthermore, the generally high prices in Hong Kong were an additional discouragement for travellers.
The deterioration of Southeast Asian currencies and the weakness of the Yen against the US dollar have resulted in poor load factors and yields, and many of the traditionally profitable flights to Northeast Asia have at times been losing money. The haze problem experienced in Indonesia and Malaysia, and the identification of the H5N1 "bird flu" virus in Hong Kong poultry, during the second half of the year have also had a knock-on effect on travel to and from Hong Kong.
In an effort to promote Hong Kong as a continuing attractive tourist destination, Cathay Pacific has worked with the Hong Kong Tourist Association and Government, and has hosted events to counteract the misguided negative perceptions on Hong Kong. The most significant effort was the launch in November of the Cathay Pacific Super Offer to Hong Kong. Two-for-the-price-of-one airfare and accommodation packages were sold in 37 Cathay Pacific outports during the two week promotion. Over 50,000 passengers took advantage of this offer and travelled to Hong Kong during the first six weeks of 1998.
During the year, the route network was expanded with the introduction of codeshare services to Belfast, Edinburgh and Teesside in February, and the resumption of freighter services to Chicago in June. However, the joint venture service to Mauritius was terminated in October.
The fleet total at the year-end was 62 aircraft comprising 32 Boeing B747 passenger aircraft, four B777-200s, 11 A330-300s, six A340-300s and nine B747F freighters of which three are leased to Air Hong Kong. An A330-300 and an A340-300 joined the fleet in the first half of 1997, while two leased A340-200s were retired.
Cathay Pacific's first B777-300 was rolled out in Seattle in October. Cathay Pacific is the launch customer of the series and has ordered seven of these aircraft, for delivery between May 1998 and October 1999. The B777-300 will be powered by Rolls-Royce Trent 892 engines and will operate on regional routes between Hong Kong and Bangkok, Taipei, Seoul and Japan. These and other new aircraft scheduled for delivery up to the year 1999, and representing an investment of some HK$14,000 million will allow the airline to take advantage of the increased capacity into Hong Kong afforded by the new airport at Chek Lap Kok (CLK).
The airline will soon commence the move into its headquarters building, Cathay Pacific City, at CLK. Cathay Pacific City will accommodate over 3,000 of the airline's Hong Kong-based staff. The construction of the second tower of the hotel, increasing the total number of rooms to 500, is now proceeding. The Flight Training Centre which will accommodate 14 simulator bays on two levels is now under construction next to Cathay Pacific City and will be ready for training at the end of 1998. A dedicated Airline Store Building adjacent to Cathay Pacific City will provide quick access to the airline's inventory of spares and commercial goods, reducing overheads and improving delivery times.
At the new airport at CLK, Cathay Pacific will be unveiling a unique airport product that will include the world's largest and most stunning airport lounges, preferred check-in facilities and a variety of other services tailored to the customers' needs.
There is renewed emphasis on the reduction of costs which has sadly included the retrenchment of staff.
Hong Kong Aircraft Engineering Company Limited
The profit for the year attributable to shareholders was slightly lower than in 1996, after excluding an exceptional item from that year. Turnover and operating profits were lower as a result of the transfer of HAECO's engine overhaul business to Hong Kong Aero Engine Services Limited (HAESL), the company's 50:50 joint venture with Rolls-Royce plc, which commenced operations on 1st January 1997. The volume of technical and non-technical line maintenance work has continued to grow as the number of aircraft movements at Kai Tak has increased slightly, but margins are under pressure. In the heavy airframe maintenance sector, worldwide rates for such work have been stable throughout the year, and HAECO's hangars have been busy. Net finance income for the year was slightly higher than that for 1996. Contributions from associated companies improved with profits being recorded by HAESL and by Taikoo (Xiamen) Aircraft Engineering Company Limited (TAECO).
The turmoil which affected economies in the Asia-Pacific region in the second half of 1997 will inevitably have an impact on air travel patterns, on airlines and on the suppliers of services to airlines. Airlines are continuing to face poor load factors and revenue yield deterioration and these, coupled with the higher costs of operating at CLK, will inevitably bring further pressure to bear on HAECO's margins.
The number of aircraft movements handled by HAECO grew by 4.1% as compared with 1996 which produced marginally higher line maintenance revenues.
At the end of 1997 HAECO, either directly or through TAECO, had comprehensive maintenance contracts covering 38 B747s, four B777s, six A340s and 11 A330s for Cathay Pacific, seven A320s and five A330s for Dragonair and three B747s for Air Hong Kong. During 1998 Cathay Pacific and Dragonair will continue to introduce further A320, A340, A330 and B777 aircraft.
The volume of heavy airframe maintenance carried out by HAECO for Cathay Pacific in 1997 was at a lower level than that of 1996, due principally to the progressive transfer of much of the B747 heavy maintenance to TAECO.
HAECO has concluded contracts with a number of important carriers covering the provision of technical and non-technical line maintenance during the remaining life at Kai Tak and the first few years of operation at CLK. These contracts are of varying duration and will enable HAECO to maintain a strong competitive position at the new airport.
Two B747 combi-to-freighter conversions were completed during the year, one for Whirlpool Finance Corporation and one for Air China. Heavy maintenance work packages were also carried out on B747 aircraft for Continental Airlines, Polar Air Cargo, Evergreen International Airlines, British Airways, Virgin Atlantic Airways and Qatar Airways. Extensive programmes were also performed on aircraft for Air India, TransAsia Airways, American Trans Air, Air Macau, Philippine Airlines and Sichuan Airlines.
Utilisation of HAECO's component overhaul facilities during the year was good, with a significant amount of work performed for Cathay Pacific.
AHK Air Hong Kong Limited
Air Hong Kong, in which Cathay Pacific has a 75% interest, is a Hong Kong-based cargo carrier with scheduled services to Brussels, Dubai, Manchester and Osaka. Its fleet consists of three B747-200Fs leased from Cathay Pacific. Overall capacity as measured in ATKs increased by 32.9% to 978 million. Aircraft maintenance costs for the new fleet were kept at comparatively low levels and the overall operating costs were successfully maintained at target levels. A satisfactory result was achieved in 1997.
Hong Kong Dragon Airlines Limited
Dragonair is a Hong Kong-based airline operating scheduled and charter services to 27 destinations in Asia, 18 of which are in Mainland China.
Dragonair continued to enjoy growth in revenue and profitability in 1997 as capacity in terms of available seat kilometres increased by 15.8%. Chongqing and Wuhan were added to the route network in April and October 1997 respectively, while frequencies were increased on services to several Chinese cities during the year. Services to Fuzhou began in February 1998. Dragonair carried 2.14 million passengers and 39,300 tonnes of cargo in 1997, increases of 13.9% and 44.8% respectively over 1996. The grounding of the A330-300 fleet in May due to reliability concerns with the Rolls-Royce Trent 700 engines resulted in some loss of revenue.
The Japanese market suffered a significant decline, as did the South East Asian market. However, China routes held up reasonably well. The average passenger load factor was 68.5%. Passenger and cargo yields rose by 5.9% and 7.0% respectively from 1996 levels.
In June, Dragonair took delivery of an A330-300 on an operating lease. The total number of aircraft at the year-end was 12, comprising seven A320s and five A330s. All are on operating leases, except for one A330 which is under a finance lease. Dragonair will roll over its existing fleet of A320s for new A320/A321 aircraft, powered by International Aero A5 engines, in 1998 and 1999. To enhance Dragonair's image and product services, all the new A320 aircraft will be delivered with Business and Economy Class configuration.
Cathay Pacific Catering Services (H.K.) Limited
This wholly-owned subsidiary of Cathay Pacific is the principal flight kitchen in Hong Kong serving 39 scheduled carriers. After a good first half, the company was hit by the downturn in Hong Kong traffic numbers. In 1997, 15.2 million meals were produced, a decrease of 6.2% on 1996. The construction and fitting out of the new catering facility at CLK proceeded satisfactorily during the year. Installation and commissioning of the specialist catering equipment has begun and the facility is on schedule for the airport opening in July 1998.
CLS Catering Services Limited
This joint venture flight kitchen operator is 60% owned by Cathay Pacific and is based in Vancouver and Toronto, serving 12 scheduled and charter carriers. In 1997, the company produced 4.0 million meals, a growth of 14.3% over 1996. The company made a satisfactory profit in 1997.
Cathay Pacific Catering (Holdings) Pty Limited
This wholly-owned subsidiary of Cathay Pacific operates flight kitchens in Sydney and Darwin, serving 15 scheduled carriers. The 1997 production of 2.2 million meals represented a decrease of 4.3% over 1996. Cost reduction initiatives continued during the year and the company made a modest profit.
VN/CX Catering Services Limited
The company, which is a 60:40 joint venture between Vietnam Airlines and Cathay Pacific, operates a flight kitchen at Ho Chi Minh City's International Airport, serving 14 international scheduled and charter carriers. A new 12,000 square metre facility with total capacity of 15,000 meals per day began operations in December 1996. The production in 1997 was 1.9 million meals and the company achieved a satisfactory profit.
Cebu Pacific Catering Services Inc.
The company, which is a joint venture between Cathay Pacific and two Philippines investors, operates a flight kitchen at Mactan-Cebu International Airport. It began operations in October 1996 and serves two scheduled international carriers as well as charters. The company produced 100,000 meals in 1997, its first full year of operations. It sustained a small loss for the year.
China Pacific Catering Services Limited
The company, which is a joint venture between Swire Pacific and China Airlines, operates a flight kitchen at Taoyuan Airport in Taipei. It began operations in November 1996 and serves nine scheduled carriers. Production in 1997 was 4.7 million meals and the company made a satisfactory profit in 1997.
Associated Engineers Limited
This multi-discipline engineering company is based at Kai Tak International Airport with wholly-owned subsidiaries both in Hong Kong and Australia as well as joint ventures and liaison offices in Mainland China. Despite increasing market competition, the company managed to achieve satisfactory results during 1997.
Construction of its HK$150 million new workshop facility at CLK is progressing well which will, upon completion, provide repair and maintenance services for ground support equipment at the new airport.
Hong Kong Air Cargo Terminals Limited
1997 was another record year and tonnage handled was 1.69 million tonnes representing 13.8% growth over the previous year. The growth element alone of 206,000 tonnes was considerably more than the 176,000 tonnes of cargo handled in the company's first year of operation in 1976. The compound annual growth rate since 1976 has been 11.7%.
The construction of the new cargo terminal at CLK, known as SuperTerminal 1, with a handling capacity of 2.4 million tonnes is nearing completion. The testing and commissioning timetable for CLK is intense but the facility will be ready for airport opening.
Hongkong Air Terminal Services Limited
This company provides aircraft handling services at Kai Tak Airport under a franchise from the Hong Kong Government. During 1997, it handled in excess of 165,000 aircraft movements, 29 million passengers and 1.78 million tonnes of cargo. In terms of aircraft movements handled, it is one of the largest ramp handling companies in the world, but it will cease operations with the closure of Kai Tak Airport.
Cathay Kansai Terminal Services Company Limited
The company provides a comprehensive range of integrated ground handling services including passenger, luggage and ramp handling, aircraft maintenance, security, export and import cargo handling services at Kansai International Airport. It handles over 130 flights per week and achieved a slightly higher profit than in 1996.
Vogue Laundry Service Limited
This Hong Kong-based laundry and dry cleaning operation serves 20 hotels, 28 airlines, nine clubs and some major restaurants. During 1997, approximately 1,500 metric tonnes of laundry and dry-cleaning items were processed monthly. In 1997, the production facility was enhanced to improve productivity and increase capacity by 18% via an investment of HK$19 million. The enhancements included a new tunnel washer, a new dry-cleaning production line, a waste water treatment plant and ventilation system improvement. The company also opened two valet shops, bringing the total number of shops to eight. Despite the dramatic downturn in tourism in the second half of the year which adversely affected the company, a satisfactory growth in profit was achieved in 1997.
Securair Limited
The company provides a wide range of security services in and around Kai Tak International Airport, which include passenger and baggage screening, baggage reconciliation, permit and access control and aircraft guarding. The company attained ISO 9002 accreditation in September 1997 and remained profitable, although profit in 1997 was slightly eroded by high labour costs and lower passenger numbers. Following the announcement that the Airport Authority will itself provide security services at CLK, the future of the company is now uncertain but it will be looking to provide certain security services at CLK and elsewhere in the region.
Abacus Distribution Systems (Hong Kong) Limited
ABACUS (Hong Kong) is a comprehensive electronic travel information system designed for the travel agency industry in Asia-Pacific. It accounts for more than 90% of the total automated agency market in Hong Kong and has successfully penetrated the Macau market. The company achieved a good profit for the year and will continue to expand into other areas of travel agency automation.
Asian Frequent Flyer Pte Limited
This company is equally owned by Cathay Pacific, Malaysia Airlines and Singapore Airlines. Its principal activity is to administer Passages, a frequent flyer programme launched on 1st July 1993 on behalf of its shareholders and partners. The company achieved a modest profit in 1997 and as at 31st December 1997, the company had 27 partners.
 |  |
* Before net finance charges.
** Net assets employed comprise shareholders' funds, minority interests and net external borrowings of Cathay Pacific Airways Group.
| © Copyright 1996-2008 irasia.com Ltd. All rights reserved. |
|
DISCLAIMER: irasia.com Ltd makes no guarantee as to the accuracy or completeness of any
information provided on this website. Under no circumstances shall irasia.com Ltd be liable
for damages resulting from the use of the information provided on this website.
TRADEMARK & COPYRIGHT: All intellectual property rights subsisting in the contents of this website belong to irasia.com Ltd or have been lawfully licensed to irasia.com Ltd for use on this website. All rights under applicable laws are hereby reserved. Reproduction of this website in whole or in part without the express written permission of irasia.com Ltd is strictly prohibited. TERMS OF USE: Please read the Terms of Use governing the use of our website. |