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Cathay Pacific reported its first annual profit in four years as the airline left behind the pandemic-linked restrictions that drove heavy losses and layoffs, pushing its shares to a four-year high.
Hong Kong’s flagship airline said on Wednesday it earned a net profit of HKD9.79 billion (USD 1.25 billion) in 2023, above the average HKD 8.67 billion estimated in an LSEG survey of nine analysts and the highest since the HKD 14 billion made in 2010.
Cathay said it would pay its first dividend since 2019, which brokerage Jefferies said was the “key surprise” in the results. The airline also plans to expand its workforce by around 20 per cent, or 5,000 people, this year.
A jump in demand after the lifting of COVID-related travel restrictions contributed to the strong financial performance, Cathay Group Chair Patrick Healy said in a statement. Hong Kong and mainland China lifted global travel curbs in early 2023.
Revenue jumped 85 per cent in 2023 to HKD 94.5 billion.
The airline said it aims to reach 80 per cent of its pre-pandemic passenger flights within the second quarter of this year, and 100 per cent by the first quarter of 2025 – three months later than a previously stated target.
Cathay’s shares ended up 5.8 per cent, its highest close in more than four years, outpacing a flat broader market.
Shares in Cathay’s largest shareholder, Swire Pacific , closed up more than 3 per cent.
The airline was offered a USD 5 billion pandemic-related rescue package led by the Hong Kong government in 2020. It intends to repay the remaining half of the government’s preference shares by the end of July.
Cathay had posted a loss of HKD 6.6 billion in 2022.
The airline said operating results this year would be on par with 2023, but Chief Financial Officer Remco Steenbergen said there was “no hard commitment” to meet a target for operating margins to hit 8 per cent for the year. They were 7.6 per cent in 2023. Steenbergen said the company would try to get “as close as possible” to the 8 per cent target, and would broadly keep the target even if Lufthansa doesn’t achieve it this year.
Challenges
The carrier has restored capacity more slowly than its closest rival, Singapore Airlines, because it faced tighter quarantine rules for longer, and needed to hire more staff to bring back services. A shortage of staff led the airline to cancel and reduce flights. Cathay executives told a press conference that the days of flight cancellations were over and it would have enough pilots to meet its targets.
While the results indicate how far Cathay has come in its recovery journey, Asia’s aviation industry faces uncertainties as travel conditions normalise and as China’s economy shows no signs of a sustained recovery.
A global imbalance between supply of flights and travel demand last year drove up ticket prices and airline yields.
“We expect this imbalance to diminish and yields to continue to normalise throughout 2024 as airlines around the world continue to add capacity,” Cathay CEO Ronald Lam said.
Singapore Airlines last month also warned that the high yields of the post-pandemic travel boom were being pressured by high fuel prices, inflation, supply chain shortages and increased competition.
Bloomberg News reported last week, citing people familiar with the matter, that Cathay’s second-largest shareholder Air China Ltd had recently consulted with advisers about raising its nearly 30 per cent stake.
Healy, also a director of Swire which holds 45 per cent of Cathay, said Cathay would not comment on speculation, adding Swire had no intention of trimming its stake.
“Swire’s commitment to Cathay remains absolute,” he said.
Cathay reiterated that it is still in the market to order new mid-size wide-body aircraft.
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