Cathay Pacific Airways, Hong Kong’s largest airline, posted a better-than-expected 83% gain in second-half profit after flying more passengers to China and raising fares to cover fuel costs.

Sales rose 21% which suggests that much of the extra profit came from the fuel surcharge.

The carrier boosted sales in Hong Kong and China 32% last year after buying Hong Kong Dragon Airlines to add more flights in China

Pauline Dan, who helps manage $2.5 billion, including Cathay Pacific shares, at Manulife Asset Management, said, ‘The growth was strong last year because of surging travel demand and higher ticket prices. This year ‘will not be spectacular if oil prices continue to stay at high levels.’

For the full year, the airline paid an average of $91 a barrel for fuel, 6.5% more than a year earlier. The average price of jet fuel traded in Singapore rose 7.7% last year.

Cathay Pacific charged customer 20% more than a year earlier while, at the same time, saving from fuel hedging. Hedging allows airlines to lock in future fuel prices to protect against possible increases.

Cathay Pacific and Dragonair boosted passenger numbers 4.3% last year to 23.3 million. The airlines fly to about 20 mainland cities, including Beijing, Shanghai and Tianjin.
Source: Bloomberg

Cathay Pacific , Hong Kong’s largest airline, has made Boeing very happy by ordering seven 777-300ERs and 10 747-8 cargo planes, the airline said in a Hong Kong stock exchange statement . The carrier also took options for another 14 747-8 freighters and received ’significant price concessions.’ Put in an order like that and you would expect a discount.

Cathay Pacific plans to expand its fleet as China’s economic growth rate of at least 11% boosts travel and trade. The new freighters will replace older, less fuel-efficient planes, helping the airline cut its fuel bills at a time when prices are soaring.

Edward Wong, an analyst at Quam in Hong Kong said, ‘Cathay needs more airplanes to support its expansion in mainland China. China is expected to open its aviation market, and carriers need to get ready ahead of that.’

Cathay Pacific now has 30 commitments for the 777-300ER, including three already delivered, making it the largest customer for the plane in Asia.

Air travel in China grew 19.5% in the first half as economic growth made holidays and business trips affordable to more people. Cathay Pacific bought smaller rival Hong Kong Dragon Airlines last year to add flights to the mainland and if it sorts out its current dramas with the pilots it is in a good position to build in it largest market which currently accounts for 43% of sales.

Chief Executive Tony Tyler, seen here, said, ‘Sometime in the future we will be ordering more aircraft to supplement frequency and capacity on our regional network. I am confident that we will continue to grow our fleet.”

The Cathay Pacific Group, including Dragonair and Air Hong Kong Ltd., a cargo venture with DHL, operates a combined total of 175 planes, according to the statement. That will rise to 196 by 2012, including 147 painted in Cathay Pacific colors.

But Cathay Pacific does not always win. Its attempt to get a part of China Eastern Airlines did not happen as the previous story shows.

Hong Kong’s second-biggest airline, Dragonair (a wholly owned part of the Swire Group which owns Cathay Pacific) is being forced to cancel up to eight flights a day as pilots quit the airline in numbers which are larger than normal.

Six captains resigned within a week earlier this month, and 34 first officers or captains have handed in their notice in the last six months. These resignations are said to be linked to a dispute over rosters and pay.

Pilots says that a year after its $1.5-billion takeover by Cathay Pacific, cancellations by the airline, which flies to routes around China and the region, are running at a rate of two a day.

Pilots claim the resignations have been sparked by ‘bullying and intransigence.’ Anyone who has worked or negotiated with pilots will know that when it comes to ‘bullying and intransigence’ they hold the world crown. Not management, the pilots.

The pilots say management has repeatedly refused to implement rostering agreements to ease the strain on pilots handling a growing volume of flights.

Dragonair, which has around 400 mostly expatriate pilots and operates around 100 flights a day, said in a statement it was being impacted by a worldwide shortage of cockpit personnel.

A spokeswoman said the airline had already hired 57 new pilots this year and planned to hire 10 more before the end of the year and another 50 next year. She said, ‘There are currently more vacancies than there are pilots throughout the industry. Therefore, it is not surprising to see a degree of pilot turnover at Dragonair and many other airlines.’

Which is possibly true. But there is a major reshuffle happening in management at Dragonair.

Richard Hall, general manager of flying at Cathay Pacific Airways, has been appointed general manager of operations at Dragonair. He will replace Tim Watts, who will resume flying duties with Dragonair.

Dennis Leung, scheduling manager for integrated crew management at Cathay Pacific (he has been doing it for twenty years so he has the experience), has been appointed to a new post as manager of ICM at Dragonair, and will be responsible for crew planning, crew rostering and crew control.

Do you know the way to San Jose? Well, yes. Go to San Francisco airport and instead of turning right out of the airport turn left. It is further that to San Francisco city, but not that much further. And it truly does not much have going for it as a town except a neat name and a catchy tune.

But San Jose has an international airport and it is not going to get direct right to fly to China. Not happy.

By 2009, it’s likely that travelers will be able to reach some of China’s major cities — Beijing, Shanghai and Guangzhou — non-stop from any of several U.S. hubs, including San Francisco, New York, Atlanta, Philadelphia, Detroit and Newark.

San Jose, and a nearby and also overshadowed airport, Oakland, are not on the list.

Michael Roach airline consultant of San Francisco-based Roach and Sbarra said, ‘The problem that San Jose faces, that Oakland faces, is that when people think of the Bay Area, they think of San Francisco, the big enchilada. It’s difficult to get anyone to pay attention to the other two airports.’

So there are a fair number of flights from San Francisco to Beijing and Shanghai and United is expected to start daily non-stop service from San Francisco to Guangzhou in the spring.

Cathay Pacific Airways will add a second daily non-stop between San Francisco and Hong Kong starting Oct. 18, allowing fliers to connect through its subsidiary Dragonair which flies to 19 cities in China.

Michael Roach said, ‘The air travel market is expanding in the same way our commercial relationship with China is expanding. If the relationship continues to expand in the next ten years as it has in the last ten, we’ll see a lot more travel.

‘It’s reasonable to expect a hiccup at some point, but no one sees that happening at the moment.’

China’s National Tourism Administration projects that 129 million people will visit China this year, an increase of 5 million over 2006.

But they will not be flying direct from San Jose.

Tony Tyler, chief executive of Cathay Pacific who was in San Francisco on his way to take delivery of a Boeing 777-300, said, ‘The market is not totally untapped, but there’s still enormous growth potential. The number of passengers passing through China was up 17% last year, so the market is growing fast.

‘It’s a sad fact of life that the bigger airports tend to work better because they act as hubs as well as points of origin. San Francisco has a range of connections to cities all over the place and can draw traffic both ways.

‘If you’re going to operate a maximum of four flights a day into this area, it doesn’t really make a lot of sense to split your efforts.’

Currently, San Jose offers international service only to Mexico.

Source: San Jose Mercury News

For Cathay Pacific the seriously competitive market is cargo, not passengers. It reported a 55% increase in profit — net income $330 million compared to the $281 million median forecast in a Bloomberg News survey of four analysts — and overall sales climbed 28% to $4.4 billion.

Cathay Pacific and its Dragonair unit carried 11 million passengers in the first half, 1.3% more than a year earlier. The two airlines filled 78.1% of seats, compared with 77.7% a year earlier.

But Cathay Pacific said its cargo yield, or average rate per shipment, fell 8.3% in the first half. The drop came amid increasing competition from Deutsche Lufthansa, Singapore Airlines and other carriers that have set up ventures in China. Cargo revenue accounted for 21% of the airline’s revenue in the first half.

Everything else seemed pretty rosy. Cathay Pacific added 21 routes into China, the world’s second-largest aviation market, with the purchase of Hong Kong Dragon Airlines.

Back to freight. Cathay aims to add at least 11 more freighters by the end of 2009 and to form a Shanghai cargo venture with Air China by the end of the year.

The Shanghai-based venture would let Cathay Pacific fly cargo from China directly to the United States and Europe instead of via Hong Kong.

Cathay Pacific ranked behind only Korean Air Lines, Lufthansa and Singapore Air in terms of international cargo traffic in 2005, according to the International Air Transport Association.

Chief Executive Officer Tony Tyler said at a press conference, ‘To get the yield up in cargo is a difficult task. We are in a very competitive market. We are very confident in the long run about cargo as an element of our business.”
Sources: International Herald Tribune and Bloomberg