Cathay sees end to fuel burns amid service fear

Top News | Carrie Chen 18 May 2017

Cathay Pacific Airlines (0293) told shareholders yesterday it expects losses from fuel hedging to end in 18 months and that "significant progress" has been achieved in its restructuring.

"The two biggest years of hedging losses were last year and the previous year. From now on, the hedging drops off and in about 18 months it's pretty much gone. That's a long painful time, no doubt about it," said chairman John Slosar.

Investors appeared to welcome the news as Cathay's share price closed 4.91 percent higher at HK$11.10.

Last year, Cathay suffered a HK$575 million loss, which it blamed on a huge hit from hedging losses and revenue fall. Its hedging losses last year amounted to HK$8.5 billion, up from HK$8.47 billion a year earlier. Total fuel costs were HK$27.95 billion, 15 percent lower.

To raise capacity and increase efficiency, Cathay has embarked on a three-year restructuring plan, aimed at cutting HK$4 billion in costs.

Some shareholders voiced concern over whether the cost cuts will lower service quality.

Its economy class service has been described as "absolutely terrible" by one.

Slosar allayed those concerns, saying cost cuts won't mean cutting services as Cathay takes an opposite mindset.

"We have no intention of cutting our service levels. Keeping services cost money, but having a big office with all the functions also cost a lot of money. All our cost savings try to target elevating efficiency, but not take costs out of services to customers," he said.

"The Cathay brand that people love and expect means service," he added.

Cathay was reported this week to be undertaking, as early as tomorrow, a mass layoff of back-office staff, including those who hold managerial posts.

Slosar declined to comment on the report, but said Cathay will inform its staff if any progress has been made in its restructuring.

Some shareholders asked if there is any conflict of interest between Cathay and Air China (0753), which holds 29.99 percent of Cathay.

Slosar said the two airlines complement and do not compete with each other, especially with Air China's headquarters located in Beijing and Chengdu, and with the two carriers focused on different markets.

He added that Cathay may seek opportunities to cooperate with Air China in the near future to expand its business in the mainland further.

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