Swire Pacific : Cathay Pacific Airways Limited Announces 2019 Interim Results

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CATHAY PACIFIC AIRWAYS LIMITED

(Incorporated in Hong Kong with limited liability)

(Stock Code: 293)

Announcement

2019 Interim Results

Financial and Operational Highlights

Group Financial Statistics

			2019	2018
			Six months ended 30th June	Change
Results
Revenue	HK$ million	53,547	53,078	+0.9%
Profit/(loss) attributable to the shareholders
of Cathay Pacific	HK$ million	1,347	(263)	+1,610
Earnings/(loss) per share	HK cents	34.2	(6.7)	+40.9
Dividend per share	HK$	0.18	0.10	+0.08
Profit/(loss) margin	%		2.5	(0.5)	+3.0%pt
			30th June	31st December
Financial position*
Funds attributable to the shareholders
of Cathay Pacific*	HK$ million	62,566	63,936	-2.1%
Net borrowings*	HK$ million	78,213	58,581	+33.5%
Shareholders' funds per share*	HK$	15.9	16.3	-2.5%
Net debt/equity ratio*	Times	1.25	0.92	+0.33 times
Operating Statistics - Cathay Pacific and Cathay Dragon
			2019	2018
			Six months ended 30th June	Change
Available tonne kilometres ("ATK")	Million	16,318	15,747	+3.6%
Available seat kilometres ("ASK")	Million	80,814	75,770	+6.7%
Available cargo tonne kilometres ("AFTK")**	Million	8,635	8,542	+1.1%
Revenue tonne kilometres ("RTK")	Million	11,950	11,899	+0.4%
Passenger revenue per ASK	HK cents	46.3	46.8	-1.1%
Revenue passenger kilometres ("RPK")	Million	68,078	63,810	+6.7%
Revenue passengers carried	'000	18,261	17,485	+4.4%
Passenger load factor	%		84.2	84.2	-
Passenger yield	HK cents	54.9	55.4	-0.9%
Cargo revenue per AFTK**	HK$	1.19	1.32	-9.8%
Cargo revenue tonne kilometres ("RFTK")**	Million	5,477	5,831	-6.1%
Cargo carried**	'000 tonnes	979	1,038	-5.7%
Cargo load factor**	%		63.4	68.3	-4.9%pt
Cargo yield**	HK$	1.88	1.93	-2.6%
Cost per ATK (with fuel)	HK$	3.12	3.29	-5.2%
Fuel consumption per million RTK	Barrels	1,870	1,840	+1.6%
Fuel consumption per million ATK	Barrels	1,369	1,390	-1.5%
Cost per ATK (without fuel)	HK$	2.23	2.29	-2.6%
Underlying*** cost per ATK (without fuel)	HK$	2.27	2.29	-0.9%
ATK per HK$'000 staff cost	Unit	1,805	1,783	+1.2%
ATK per staff	'000	604	603	+0.2%
Aircraft utilisation	Hours per day	12.0	12.2	-1.6%
On-time performance	%		74.2	74.1	+0.1%pt

• Shareholders' funds, net borrowings and net debt/equity ratio at 30th June 2019 are arrived at after taking account of the effect of HKFRS 16. Further details can be found in note 2 to the financial statements.
• Including mail. Mail is no longer referred to separately but mail services continue to be accounted for under cargo services.
• Underlying costs exclude exceptional items and are adjusted for the effect of foreign currency movements and the adoption of HKFRS 16.

2 Interim Results 2019

Chairman's Statement

We are in the final year of our three-year transformation programme, which is designed to make our businesses leaner, more agile and able to compete more effectively. Work on the programme continues and, as evidenced by our return to profitability in 2018, we are moving in the right direction. Our positive performance continued in the first half of 2019, but the operating environment for our airlines worsened as geopolitical and trade tensions intensified.

The Cathay Pacific Group reported an attributable profit of HK$1,347 million for the first six months of 2019. This compares to an attributable loss of HK$263 million in the first half of 2018. The earnings per share in the first half of 2019 were HK34.2 cents, compared to a loss per share of HK6.7 cents in the first half of 2018. Cathay Pacific and Cathay Dragon reported an attributable profit of HK$615 million in the first half of 2019, compared to an attributable loss of HK$904 million in the first half of 2018. Passenger revenue was satisfactory, but overall yield declined. Our cargo business was weaker, due in part to US-China trade tensions, with a decline in both volume and yield. We benefited from lower fuel prices but were adversely impacted by a stronger US dollar.

Business performance

The Group's passenger revenue increased by 5.6% to HK$37,449 million in the first half of 2019. Capacity increased by 6.7%. The growth in revenue reflected the full impact of new routes introduced in 2018, the introduction of two new routes in 2019, increased frequencies on existing routes and the use of larger aircraft on popular routes. Load factor remained unchanged at 84.2%. Passengers carried increased by 4.4% to 18.3 million. Yield decreased by 0.9% to HK54.9 cents due to intense competition in premium classes and long haul economy class, and adverse foreign currency movements.

Cathay Pacific introduced a year-round service to Seattle in March and a summer seasonal service to Komatsu in April. These services have been well received and have helped to boost Hong Kong International Airport's status as Asia's largest international aviation hub.

Cargo revenue declined, reflecting weaker global trade brought about in part by US-China trade tensions. Volume and yield declined. The Group's cargo revenue in the first half of 2019 was HK$11,498 million, a decrease of 11.4% compared to the same period in 2018. Flown cargo capacity of Cathay Pacific and Cathay Dragon increased by 1.1%, principally due to additional belly cargo space in newly acquired passenger aircraft. Facing weak demand, we rationalised freighter capacity and emphasised shipments of specialist cargo. Load factor decreased by 4.9 percentage points, to 63.4%. Tonnage carried decreased by 5.7% to 979 thousand tonnes. Yield decreased by 2.6% to HK$1.88.

Total fuel costs for Cathay Pacific and Cathay Dragon (before the effect of fuel hedging) decreased by HK$674 million (or 4.5%) compared with the first half of 2018, reflecting a 6.5% decrease in average into-plane fuel prices and a 2.0% increase in consumption. Fuel is the Group's most significant cost, accounting for 28.2% of total operating costs in the first half of 2019 (compared to 30.1% in the same period in 2018). Fuel hedging losses were reduced. After taking fuel hedging into account, fuel costs decreased by HK$1,213 million (or 7.7%) compared with the first half of 2018. Fuel consumption per available tonne kilometre fell by 1.5%, reflecting the continued introduction of more fuel efficient aircraft.

There was a 2.6% decrease in non-fuel costs per available tonne kilometre, to HK$2.23. Disregarding the effect of foreign currency movements, exceptional items and the impact of adopting a new accounting standard, the decrease was 0.9%. This reflected our focus on productivity and efficiency.

The contribution from our subsidiaries weakened. The contribution from associated companies improved.

Interim Results 2019 3

In the first half of 2019 we took delivery of four new Airbus A350-1000 aircraft. At 30th June 2019, we had 67 new aircraft on order for delivery over the next five years. These new aircraft will further improve our fuel and operating efficiency. We continue to fit the latest economy seats in our Boeing 777 aircraft. These seats come with new, hi-definition screens for viewing our recently expanded inflight entertainment. Wi-Fi is being installed on all our Boeing 777 and Airbus A330 aircraft; it is already available on all A350 aircraft.

We continue to introduce our new, restaurant-style dining service in business class on long haul routes. In July we reopened our renovated lounge at Shanghai Pudong airport. We have improved our rebooking process during flight disruptions. We are further developing our service and customer care teams and improving service delivery training. A new crew pairing system will further increase efficiency. Cathay Pacific and Cathay Dragon crews now sign on for their flights under the same roof at Cathay Pacific City, which saves cost. We have completed the restructuring of our outport and integrated operations centre teams.

Prospects

Our airlines normally achieve better results in the second half of the year than in the first half and, despite headwinds and other uncertainty, we expect this to be the case in 2019. Geopolitical and trade tensions are expected to continue to affect the global economy and, in turn, demand for air travel and air freight. The protests in Hong Kong reduced inbound passenger traffic in July and are adversely impacting forward bookings. We expect the US dollar to remain strong. Fuel costs have recently weakened but we continue to expect fuel price volatility. Our transformation programme continues and we believe that we are on track to achieve our objective of sustainable long-term performance. The recent refreshment of our brand reflects our determination to challenge what is considered standard, to 'Move Beyond' and be the very best we can be for our customers and for our shareholders. I remain confident in our future.

Cathay Pacific has been Hong Kong's home airline for over seven decades and we remain resolutely committed to this wonderful city. Our story has always been one of innovation and ambition. We will continue to make significant investments in strengthening Hong Kong's standing as Asia's largest international aviation hub.

Our recent announcement of the completion of our acquisition of Hong Kong Express is the commencement of a new chapter. We intend to preserve what is unique and special about Hong Kong Express and to keep it as a low cost carrier, while at the same time broadening its network and maximising synergies with the rest of the Cathay Pacific group.

John Slosar

Chairman

Hong Kong, 7th August 2019

4 Interim Results 2019

Review of Operations

Capacity, Load Factor and Yield - Cathay Pacific and Cathay Dragon

			Capacity
		ASK/AFTK (million)*			Load factor (%)		Yield
	2019	2018	Change	2019	2018	Change		Change
Passenger services
Americas	21,493	19,492	+10.3%	85.8	88.2	-2.4%pt	-1.1%
Europe	16,767	15,143	+10.7%	86.3	86.2	+0.1%pt	-1.8%
North Asia	16,108	15,588	+3.3%	80.4	80.4	-	+0.2%
Southeast Asia	10,709	10,362	+3.3%	83.3	83.2	+0.1%pt	+0.1%
Southwest Pacific	9,387	9,301	+0.9%	85.4	81.6	+3.8%pt	-2.3%
South Asia, Middle East and Africa	6,350	5,884	+7.9%	83.4	81.7	+1.7%pt	+2.2%
Overall	80,814	75,770	+6.7%	84.2	84.2	-	-0.9%
Cargo services	8,635	8,542	+1.1%	63.4	68.3	-4.9%pt	-2.6%

• Capacity is measured in available seat kilometres ("ASK") for passenger services and available cargo tonne kilometres
  ("AFTK") for cargo services.

Passenger Services

Home market - Hong Kong and Pearl River Delta

• Premium class demand was strong at the beginning of the year, particularly on long haul routes, but softened into the second quarter.
• Demand during Chinese New Year and the Easter holiday period was strong, particularly on short haul routes from Hong Kong.
• Our weekly "fanfares" promotions in Hong Kong demonstrate our commitment to offering good-value fares in our home market. There was a "super fanfare" promotion in April.

Americas

• Cathay Pacific introduced a four-times-weekly service to Seattle in March, using Airbus A350-900 aircraft. The service became daily in July.
• Demand on our routes to the Americas fell short of increases in capacity.

Europe

• Traffic volumes on our routes to Europe grew in line with capacity increases.
• From March, Cathay Pacific increased the frequency of its services to Frankfurt from daily to 10 times weekly.
• Cathay Pacific is increasing the frequency of its services to Madrid from five flights per week to daily between June and October 2019.
• Cathay Pacific is increasing the frequency of its services to Paris from 12 flights per week to twice daily between July and October 2019.
• Cathay Pacific expanded its codeshare agreement with the Lufthansa group so as to include three more routes to Europe. Cathay Pacific now places its code on Lufthansa's daily flights between Hong Kong and Frankfurt and Munich, and on Swiss International Air Lines' daily flights between Hong Kong and Zurich.

North Asia

• Demand for business and leisure travel to and from North Asia was firm. There was strong demand on the Taiwan routes from Hong Kong and Mainland China.
• Cathay Pacific introduced a two-times-weekly seasonal service to Komatsu in April. The service, which is operated by Airbus A330-300 aircraft, will continue until October.

Interim Results 2019 5