The Hong Kong-based carrier reported a loss of £60.5 million for 2016, compared with a £631.5 million profit the year before. Revenue was down 9.4% to £9.76 billion.
The airline said increasing competition from other airlines was the most important factor for the downturn in its fortunes. In a statement, it explained: “Other airlines significantly increased capacity. There were more direct flights between mainland China and international destinations. Competition from low cost carriers increased.” It added that overcapacity in the market was “a particular competitive problem for our cargo business”.
Cathay said three economic factors had also played a part; the reduced rate of economic growth in mainland China, a reduction in the number of visitors to Hong Kong and the strength of the Hong Kong dollar. The latter made Hong Kong an expensive destination and caused revenues earned in other currencies to be reduced on conversion into Hong Kong dollars.
A potential benefit should have come from low fuel prices, but this was reduced by fuel hedging losses put in place when the fuel price was much higher than today. Other factors included the start-up costs of new routes, including Cathay’s Gatwick flight, which began in September. While capacity increased by 2.4%, load factors decreased by 1.2 percentage points to 84.5%, with yield falling 9.2%, “reflecting overcapacity in the market, a decline in premium class and weak foreign currencies”.
Cathay Pacific chairman John Slosar said he expected the operating environment in 2017 to remain “challenging”, with strong competition from other airlines and the adverse effect of the strength of the Hong Kong dollar putting pressure on yields.
He added: “We expect to continue to benefit in 2017 from the fact that fuel prices are much lower than their previous high levels, but to a lesser extent (because of some increase in oil prices in recent months) than in 2016. We also expect to incur further fuel hedging losses in 2017, but these should be less than in 2016.
“Despite the challenges with which we are faced, we still expect our business to grow in the long-term. Air traffic to, from and within the Asia-Pacific region is expected to grow strongly. We intend to benefit from this growth by increasing our passenger capacity by 4-5% per annum.”
