Cathay Pacific Airways Limited

5 August, 1998



Cathay Pacific Airways made an attributable loss of HK$175 million over the six months ended June 30, 1998, compared to a profit of HK$1,068 million in the first half of 1997. Turnover fell 16.1 percent to HK$12,991 million, and the company made a net operating loss of HK$175 million.

The figures reflect the extremely difficult operating environment facing the company due to the Asian economic downturn and the weakness of Asian currencies against the US dollar. The number of visitors to Hong Kong fell sharply, partly as a result of its relatively higher prices compared to the rest of Asia.

"This year is proving to be a very trying one for Cathay Pacific, as it is for most Hong Kong businesses," said Chairman Peter Sutch. "However we are doing all we can to ensure we weather the storm and remain a strong, competitive airline."

"We are taking decisive steps to manage our costs and improve the efficiency of our fleet by retiring older aircraft. At the same time, Cathay Pacific remains committed to its investment programme demonstrating its faith in Hong Kong's long-term prosperity."

Cathay Pacific's year began in much the same way 1997 ended with declining yields and load factors across most routes, particularly those to Southeast Asia and Japan. Long-haul services to Europe and North America performed better, although even they were not isolated from the regional downturn.

The overall passenger load factor for the six-month period was 66.5 percent, down from 71.2 percent during the corresponding period in 1997.

In addition to setting rigorous cost-control targets, Cathay Pacific adjusted its schedules to reflect the changing market conditions. The airline introduced double-daily flights to key long-haul routes London, Los Angeles, and Sydney, and will start twice-weekly flights to Istanbul on August 8 and a daily non-stop service to San Francisco on December 1.

The airline is proceeding with its investment programme to position itself for the anticipated recovery. It remains committed to taking delivery of five new aircraft during the second half of the year to ensure its fleet remains amongst the youngest and most technologically advanced in the world.

Cathay Pacific is also completing its investment in its new headquarters Cathay Pacific City, located next to the new Hong Kong International Airport. Staff have begun moving into the state-of-the-art facility and more than 3,000 will be based there by year-end.

Cathay Pacific Cargo saw turnover of HK$2,786 million during the interim period, a fall of 9.4 percent compared to the first half of 1997. The airline carried 293,015 tonnes of cargo from January to June, down 2.3 percent year on year. Cargo levels held up relatively well for the first three months of the year before they too succumbed to the economic slowdown.

The cargo-handling problems caused by the opening of the new airport have compounded the difficulties already faced by the airline. The temporary embargo on import and export cargo imposed by Hong Kong Air Cargo Terminals Limited (HACTL) is estimated to have cost Cathay Pacific approximately HK$250 million in lost revenue in July alone and this will impact on the full year's earnings.

Looking ahead, Mr Sutch said: "Our cost management programme together with our continuing focus on 'Service Straight from the Heart' will benefit the company longer term. However, the operating environment is expected to remain very tough and as such no significant improvement in the second half results is foreseen."

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