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March 16, 2017

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HK airline posts 1st annual loss since 2008

HONG Kong’s troubled flagship airline Cathay Pacific yesterday posted its first annual loss since the height of the financial crisis as it was hit by “intense competition” and a drop in demand from business travelers.

The firm is struggling despite an expansion of international air travel in the region as lower-cost carriers, particularly from China’s mainland, eat into its market share.

Companies like China Eastern and China Southern are offering direct services to Europe and the United States from the mainland, while budget carriers like Spring Airlines offer regional routes, undermining Cathay’s once critical Hong Kong hub.

The airline is also losing premium travelers as it comes under pressure from Middle East rivals which are expanding into Asia and offering more luxury touches.

That has led to promotional prices for Cathay’s top tickets as they are sold to leisure travelers.

Analysts said other esta­blished Asian operators were similarly suffering from increased competition, but believed Cathay’s major fuel-hedging losses put it in an even weaker position.

Its US$74 million net loss in 2016 reversed a US$773 million profit in the previous year and comes as the firm prepares a wholesale review of its operations, with Chairman John Slosar warning 2017 would be similarly “challenging.”

The results, the worst since 2008, were also well off expectations, with an average profit of US$57.9 million forecast by analysts in a Bloomberg News survey.

The company’s shares fell as much as 5 percent in early afternoon trade before finishing 1.4 percent down.

Cathay announced a major restructuring program in January that will see jobs axed, but it has not said how many.

“Our organization will become leaner,” Slosar said in a statement to the Hong Kong exchange yesterday.

“Our aim is to reduce our unit costs excluding fuel over the next three years.”

Slosar and Cathay CEO Ivan Chu would give no further details on possible job losses when asked by reporters at a press conference later yesterday.

Slosar said efficiency measures did not mean lower quality of service.

“We have built a great brand and product — we’re not going to sacrifice that,” he said.

Passenger revenue fell 8.4 percent annually to US$8.6 billion, hit by market overcapacity and weak foreign currencies.


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