Cathay Pacific H1 net profit down 59%

HONG KONG (Reuters) - Cathay Pacific Airways Ltd , Asia’s No.4 air carrier by market value, posted a better-than-expected 59 percent fall in first-half net profit on soaring fuel costs and placed an order for 12 Boeing aircraft with a list price of $3.28 billion.

Cathay, the dominant airline in Hong Kong, said that after an exceptionally strong 2010, this year was proving to be more challenging.

“High fuel prices are increasing costs and recovering them through higher tariffs may affect demand,” Chairman Christopher Pratt said in a statement.

Fuel costs, a key cost driver, rose 49.5 percent in the first six months against the same period last year and significantly affected profitability during the reported period, the airline said.

Shares of Cathay have lost about a quarter of their value this year on rising oil prices and recent market volatility, triggered by Standard & Poor’s credit rating downgrade of the United States.

“No matter the headline or bottom line, they performed well and beat regional rivals such as Singapore Airlines,” said Nomura analyst Jim Wong. “Net profit dropped quite a lot but 2010 was an exceptionally good year.”

Regional rival Singapore Airlines Ltd in July reported an 82 percent drop in net profit to S$44.7 million ($36.7 million) for the quarter ended June 30.

Cathay also announced on Wednesday that it had placed orders for four Boeing Co 777-300ER aircraft and eight Boeing 777-200F freighters with a total list price of $3.28 billion to replenish and expand its fleet.

Boeing had granted Cathay significant price concessions for the aircraft, which are expected to be delivered between 2013 and 2016, the company said.

Cathay reported a net profit of HK$2.81 billion ($359.9 million) for the six months ended June, down from a record of HK$6.84 billion a year earlier when it booked profit of HK$2.17 billion from the sale of investments.

But the first-half earnings beat an average forecast of HK$1.5 billion from four analysts polled by Reuters.

Revenue rose 13.2 percent to HK$46.79 billion, while profit margin fell 10.5 percentage points to 6.0 percent.

The passenger business performed well in the first half with strong demand for premium class travel despite uncertainty in some of the world’s major economies, Pratt said.

Its cargo business performed reasonably well in the first quarter but was appreciably weaker in the second quarter.

Oil hedging activities resulted in a realised profit of HK$962 million with additional unrealised gains of HK$1.2 billion being recognised in reserves, the company said.

In June, the International Air Transport Association (IATA) cut the 2011 profit forecast for global airlines by more than half to $4 billion as high oil prices, the earthquake in Japan, and political unrest in North Africa and the Middle East weighed on industry recovery.

As the world’s largest air cargo carrier, Cathay added about 15 percent to cargo capacity in the first half but moved 4 percent less cargo during the period on weak European demand and disruptions in Japan.

Cathay and unit Dragonair carried 13.2 million passengers in the January to June period, up 1.7 percent. But passenger and cargo load factors fell 4.7 and 9.6 percentage points to 79.3 and 68.4 percent, respectively.

Cathay and its units owned, financed and operated 170 aircraft at the end of June. ($1 = 1.218 Singapore dollars) ($1 = 7.808 Hong Kong dollars)