Cathay Pacific Airways cuts its losses in the first 6 months of 2022

Cathay Pacific Airways released this interim financial report:

Financial and Operational Highlights Group Financial Statistics

Chairman’s Statement

The Cathay Pacific Group had an extremely difficult start to 2022. For more than two years, COVID-19 has had an unprecedented impact on global aviation with the situation often fluctuating between periods of relative improvement and significant setbacks as new variants of the virus have emerged. The first half of 2022 bore similarities to the first half of 2021. The spread of a new COVID-19 variant, Omicron, led to increasingly stringent travel and operational restrictions, most notably in Hong Kong and the Chinese Mainland, which severely constrained our ability to operate flights and greatly affected the demand for travel.

Early in January, Hong Kong saw the introduction of a number of measures intended to combat the virus, including a ban on flights to Hong Kong from nine countries, among them key markets such as the UK and the US, and a ban on transit and transfer services via Hong Kong International Airport. Quarantine rules for Hong Kong-based aircrew as well as the route-specific flight-suspension mechanism were also further tightened.

These restrictions resulted in a particularly unfavourable first few months of 2022 and we significantly reduced our passenger and cargo flight capacities. As our home city endured an especially difficult phase of the pandemic, we supported the safe movement of people and essential goods between Hong Kong and the rest of the world and preserved the fundamental integrity of our passenger and cargo networks.

The challenges posed by COVID-19, and the restrictions in place to combat it, placed a considerable burden on many of our employees, most notably our aircrew, thousands of whom spent countless nights in quarantine hotels. I wish to extend our sincere appreciation to all our people for the selfless endeavour and extraordinary professionalism they displayed throughout this very difficult time.

The progressive adjustments to these restrictions from 1st May were positive developments. Adjustments to the testing and quarantine requirements for Hong Kong-based aircrew enabled us to progressively resume flights to more destinations in May and June. This included the resumption of daily London passenger flights, and a full freighter schedule.

The loss attributable to the Cathay Pacific Group, which includes Cathay Pacific, its subsidiaries and its associates, was HK$4,999 million in the first half of 2022 (2021 first half: loss of HK$7,565 million). Cathay Pacific’s loss after tax was HK$1,501 million in the first half of 2022 (2021 first half: loss of HK$5,031 million). The share of losses from subsidiaries was HK$1,015 million (2021 first half: loss of HK$1,224 million), and the share of losses from associates was HK$2,483 million (2021 first half: loss of HK$1,310 million).

Business performance of Cathay Pacific

Ongoing COVID-19-related travel restrictions and quarantine requirements severely constrained our passenger operations. Passenger flight capacity decreased by 26.6%. Notwithstanding this, passenger revenue increased by 177.6% to HK$2,068 million in the first half of 2022 compared with the first half of 2021. Revenue passenger kilometres (RPK) increased by 129.7%. We carried 335 thousand passengers in the first half of the year, an average of 1,853 passengers per day, which was 113.4% more than in the same period last year. The load factor was 59.2%, compared with 18.9% in the first half of 2021.

Our cargo performance was similarly affected by restrictions and quarantine requirements for Hong Kong-based aircrew. Available cargo tonne kilometres (AFTK) decreased by 31.0%. Total tonnage decreased by 4.2% to 526 thousand tonnes. Cargo revenue was HK$12,148 million, an increase of 9.3% compared to the first half of 2021. Load factor was high at 75.8% (2021 first half: 81.4%), and yield increased 69.7% to HK$5.72.

As has remained the case throughout the pandemic, we are focused on prudent cost management. Non-fuel costs decreased by 4.9% to HK$16,056 million compared with the first half of 2021. Total fuel costs for Cathay Pacific (before the effect of fuel hedging) in the first half of 2022 increased by HK$1,458 million (or 54.8%) compared with the first half of 2021.

Business performance of subsidiaries and associates

HK Express reported a loss of HK$824 million for the first half of 2022 (2021 first half: loss of HK$976 million). The quarantine requirements for Hong Kong-based aircrew and stringent travel restrictions adversely affected the airline’s results.

Air Hong Kong reported a profit of HK$383 million for the first half of 2022 (2021 first half: HK$374 million). Quarantine requirements for locally based aircrew affected its ability to mount further cargo flight capacity.

Our airline services subsidiaries’ financial performance was generally better than in the first half of 2021, but nevertheless continued to reflect the substantial reduction in passenger numbers and cargo volumes.

Air China (accounted for three months in arrears) was adversely affected by COVID-19. Its results were worse than those included in the first half of 2021.

Financial position

Our monthly operating cash performance was negatively impacted by the difficult start to the year. However, the Hong Kong SAR Government’s adjustments in travel restrictions and quarantine requirements, which came into effect on 1st May, resulted in a better-than-expected monthly cash performance, such that we were operating cash generative towards the end of the first half of the year. As the pandemic situation remains uncertain, we continue to maintain our focus on prudent cash management and are targeting to be operating cash generative going forward.

As of 30th June 2022, our available unrestricted liquidity stood at HK$26.7 billion. We are grateful to the Hong Kong SAR Government for agreeing to extend the drawdown period of the HK$7.8 billion bridge loan facility for a further 12 months to 8th June 2023. This gives us greater flexibility to manage our liquidity position.

Prospects

Looking ahead, the most recent adjustments to quarantine arrangements for arriving passengers are expected to improve travel sentiment. We are targeting to progressively increase passenger flight capacity up to a quarter and cargo flight capacity to 65% of the pre-pandemic level by the end of 2022. This gives us confidence that our airlines and subsidiaries will see a stronger second-half than first-half performance. However, the results from associates (the majority of which are reported three months in arrears) will remain very challenging.

As the home carrier of Hong Kong, we are entirely focused on resuming connectivity between Hong Kong and the world. While we are fully committed to supporting our home city, our ability to operate more flight capacity continues to be severely constrained by a bottleneck on crewing resources under the existing quarantine requirements. We will only be able to operate more flight capacity when the existing stringent travel restrictions and quarantine requirements applicable to Hong Kong-based aircrew are lifted.

The National 14th Five-Year Plan sets out the role that Hong Kong will play in the overall development of the country and reinforces the importance of strengthening Hong Kong as a leading international aviation hub. The recent commencement of flight operations on the Third Runway at Hong Kong International Airport gives us confidence, and we are determined to play our part in the revival of a thriving Hong Kong aviation hub, critical to Hong Kong’s continued economic success.

On the expectation that borders will reopen, our teams have been actively preparing to meet the rising global demand for travel. In this context, we are bringing aircraft parked overseas back to Hong Kong and have already commenced a comprehensive recruitment plan with the aim of hiring more than 4,000 front-line employees to meet the airline’s operational needs over the next 18-24 months.

Finally, I would like to thank all our employees for their dedication and professionalism as they work tirelessly to keep the airline operating under incredibly challenging conditions. They remain the backbone of our organisation, and the heart of the industry-leading service that Cathay Pacific is known for.

Patrick Healy

Chairman
Hong Kong, 10th August 2022

Cathay Pacific aircraft photo gallery: