11 August 1999

FOR IMMEDIATE RELEASE

Cathay Pacific Airways made a profit attributable to shareholders of HK$108 million during the six months ended 30 June 1999. This compares with a loss of HK$175 million recorded in the first half of 1998. Turnover rose 1.4% to HK$13,167 million, while passenger numbers declined by 1%.

The results reflect a modest improvement in the extremely difficult operating environment faced by the airline throughout 1998. The first half of 1999 saw a recovery in a number of markets, including the United States, Indonesia, Korea and the Philippines. However, average fares remained weak.

The company's result in June was adversely affected by significant flight disruptions linked to salary negotiations between the company and its pilots. The high numbers of pilots reporting sick led to cancellation of more than 500 flights over a three week period starting on 29 May. These disruptions cost the company an estimated HK$500 million.

An agreement on salary concessions in exchange for stock options was reached between the company and its pilots' representatives on 10 June. The company believes the short-term loss and adverse impact on customer services, while unfortunate, will be more than offset by the long-term savings resulting from the agreement and a closer future alignment of the interests of pilots and shareholders.

During the first six months, the airline also benefited from productivity improvements arising from agreements reached with Hong Kong ground staff and cabin crew in January. Both groups agreed to work longer hours in return for a pay rise.

The Group's Cargo services enjoyed a strong first half with turnover of HK$3,629 million, an 8.7% increase over the same period in 1998. Cargo revenue accounted for 28% of the Group's total turnover. The first six months saw a strong recovery in the Hong Kong export market and exports from North and South Asia also exceeded expectations.

"We are pleased that we have been able to return to profitability after facing extremely challenging conditions throughout 1998," said Cathay Pacific Chairman James Hughes-Hallett. "Credit is due to all our staff for their hard work in implementing the many measures we have had to take to improve our competitiveness."

During the first six months of 1999, the airline's cost per unit of capacity (measured as cost per Available Tonne Kilometre) was HK$2.34, down from HK$2.36 in the same period of 1998.

Cathay Pacific continued its fleet modernisation plan during the first half of the year, retiring five Boeing 747-300 aircraft and taking delivery of two new B777-300s. The airline now has one of the youngest fleets among major airlines.

The airline's new frequent flyer programme Asia Miles and new global alliance oneworld were both launched in February and have met with an enthusiastic response from frequent travellers. HSBC and Dragonair agreed to join Asia Miles, augmenting what is already Asia's most comprehensive frequent flyer programme. Oneworld broadened its global reach with announcements that two further airlines, Iberia and LanChile, would be joining the alliance. Iberia will officially join oneworld on 1 September along with Finnair, and LanChile will join next year.

Looking ahead, there are growing signs that key regional markets are returning to positive economic growth and this should help the company's performance over the remainder of this year.

Mr Hughes-Hallett said: "While the situation is improving, we must continue with our efforts to improve our competitive position and build on the progress we have made to date. We still remain very confident about our long-term future and the future of our home base Hong Kong."

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