Cathay Pacific posts best first-half profit since 2010 despite fuel cost surge

Cathay Pacific Airways (0293) reported its best first-half profit since 2010, staying "cautiously optimistic" on the outlook for the rest of the year despite warning that higher jet fuel prices due to the Middle East conflict were likely to persist.

The Hong Kong flagship carrier said on Wednesday its net profit rose 71 percent to HK$6.24 billion (US$795.59 million) for the six months ended June 30 on the back of strong passenger and cargo demand.

The profit was the second-highest in its history for the period despite a 59 percent year-on-year increase in fuel costs and was near the midpoint of a forecast provided last month.

"Looking ahead, summer travel demand going into the third quarter is looking strong," Cathay Chairman Guy Bradley said in a statement. "We remain cautiously optimistic for the rest of the year, subject to developments in the Middle East situation and other macroeconomic factors."

The airline remained on track to grow its passenger capacity by about 10 percent this year, he added.

Cathay's revenue climbed 25.3 percent to a record HK$68 billion in the first half, while its profit margin grew to 9.2 percent from 6.7 percent. The net profit included a one-time gain of about HK$1 billion from the partial dilution of its stake in Air China.

Cathay shares rose 3.3 percent to the highest level since August 2015 after the release of the results and are up 19.1 percent so far this year.

SECOND-HALF CHALLENGES

Cathay heads into the second half with some of the factors that lifted first-half earnings beginning to fade.

The Hong Kong carrier had benefited as passengers rerouted away from Gulf hubs following disruptions in the Middle East, but Gulf airlines are restoring flights and competing more aggressively for Asia-Europe traffic, while elevated fuel prices are expected to keep pressure on costs.

Jet fuel prices are forecast to average US$152 per barrel this year, nearly 70 percent above 2025 levels, according to the International Air Transport Association.

Cathay said its jet fuel costs had almost doubled in the second quarter relative to the first quarter, though the increase was partially offset by fuel surcharges and a HK$878 million first-half gain from its fuel hedging programme.

"Our best guess is jet fuel will stay at a pretty high level or at the current level, unless there are any new developments in the Middle East," Cathay Chief Customer and Commercial Officer Lavinia Lau said at an analyst briefing.

Cathay is just over 30 percent hedged against the Brent oil price for the next 12 months, Chief Financial Officer Rebecca Sharpe said.

The combination of hedging and fuel surcharges offset about 50 percent of the increase in fuel costs in the second quarter, she added.

In addition to strong passenger revenue, Cathay's cargo operations, a traditional earnings pillar, remained robust in the first half.

Freight revenue rose 24 percent, boosted by strong shipments of high-value technology products to support the AI boom, which Lau said was expected to last at least through the end of 2026.

Budget arm HK Express narrowed its losses substantially in the first half as the performance of routes launched last year improved, though Sharpe said it was more vulnerable to high fuel prices than the main brand.

Cathay boosted its dividend to US$0.26 per share for the first half, a 30 percent increase from the prior year.

Reuters

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