Cathay Pacific Airways Limited

11 March, 1998


Cathay Pacific Airways has announced an attributable profit of HK$1,694 million (US$217 million) for 1997, 55.5 percent below the previous year's figure of HK$3,809 million. Profit excluding exceptional items was down 37.5 percent from HK$3,268 million in 1996 to HK$2,041 million in 1997.

Turnover, at HK$30,647 million (US$3,929 million), was 2.9 percent lower than in 1996. The company's profit margin excluding exceptional items was 6.7 percent, compared with 10.4 percent the year before. The directors recommended a final dividend for the year of HK17.5?per share which, together with the interim dividend of HK11.5?per share, makes a total dividend for the year of HK29.0?per share.

Cathay Pacific Cargo reported turnover of HK$6,584 million (US$844 million) in 1997, a 10.0 percent increase over 1996. Cargo revenue accounted for 23.2 percent of Cathay Pacific Airways' total traffic turnover. The strong performance by Cargo in 1997 provided a welcome boost to the overall results. Demand was strong on most sectors, particularly on trans-Pacific routes. The Chicago service, new in 1997 was successful and the more efficient re-distribution of equipment across the network proved cost effective.

1997 was an undeniably hard year for the passenger operations of Cathay Pacific. After a promising start last year, with the tourist market booming and high load factors, good profits seemed assured. However, from April onwards a severe fall off in tourist arrivals and the turmoil in the Asian economies reduced the level of demand for air travel to and from Hong Kong. The forest fires and haze in South-East Asia and "bird flu" scare in Hong Kong were also contributing factors in the downturn. As a result, the annual average passenger load factor dropped to 68.2% from 74.0% in 1996.

Regional services took the brunt of the downturn, with load factors out of Japan being particularly hard hit. North American and European services tended to remain strong as the Asian economic turmoil had only limited effect, particularly on business travel, on these routes.

"The depth of the trough is greater than expected," said Cathay Pacific Chairman Peter Sutch. In response to the negative economic conditions, the airline announced the redundancy of 760 staff in January 1998. "It was an extremely difficult decision to make but one which was necessary in order to ensure the future well-being of the airline," said Mr Sutch, "It has also been decided to remove from service five Boeing B747 'Classic' aircraft in order to better match capacity and demand."

Not all developments in 1997 were negative. The airline announced a major agreement with IBM and the Sabre Group which designated the two companies as preferred suppliers of information technology to Cathay Pacific. The airline also launched the "Super Offer to Hong Kong" campaign as part of a long-term effort to increase the tourist traffic to Hong Kong, and in celebration of Hong Kong's return to Chinese sovereignty, Cathay Pacific painted one of its aircraft in a special livery, naming it 'The Spirit of Hong Kong.' "Amidst the depressing revenue news, we also had some positive developments," said Mr Sutch.

Great progress has been made at Chek Lap Kok as the airline prepares to move into its new headquarters, Cathay Pacific City. The choice of 6 July as an opening date is prudent and will help to ensure that everything runs smoothly from day one at the new airport. Cathay Pacific's phased move to the new facilities begins shortly and the airline will be ready and operational when the airport opens. Through its significant investment in Chek Lap Kok Cathay Pacific is demonstrating its confidence in Hong Kong as the premier air transportation hub in Asia.

"The airline business is cyclical but we know that we can weather the current storm and that we have the ability to establish Cathay Pacific as the best airline in Asia-Pacific," said Mr Sutch. "As a result of years of prudent management we have a strong balance sheet, and the experience and the resolve to ensure that Cathay Pacific remains a vibrant, profitable company."

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