Cathay Pacific cuts capacity to restore profitability

BEIJING Tue Aug 13, 2013 4:59pm EDT

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BEIJING Aug 14 (Reuters) - Cathay Pacific Airways Ltd , the world's largest international air cargo carrier, is scaling back seating capacity on some long-haul routes to offset declines in its air freight business and try to return to profitability.

Cathay, which competes in global markets with carriers such as Singapore Airlines Ltd and Korean Air Lines Co Ltd , retired three Boeing 747 jets in the first six months this year and replaced them with two smaller but more fuel efficient B777 planes, as the company squeezes more income from its North American passenger routes, its biggest market.

Hong Kong's flagship airline was the only one of Asia's top 10 carriers to cut available seat kilometres - a measure of passenger capacity - this year, down 4.8 percent in June from a year earlier, according to Thomson Reuters data. Garuda Indonesia Tbk led the gains with a jump of 16.5 percent year-on-year in April, the most recent month for which the data was available.

Cathay also has been fine-tuning its seating arrangements on U.S. flights to improve passenger yields, a gauge of profitability, according to Geoffrey Cheng, an analyst at securities brokerage BOCOM International.

"They pulled out the economy class and put back the premier economy. They have fewer seats, but revenue from each seat is higher," said Cheng.

Its first-half earnings report later on Wednesday is expected to show a swing to profitability from a HK$935 million ($120.56 million) net loss for the same period last year, according to analysts polled by Thomson Reuters. The loss was its worst performance since the outbreak of Severe Acute Respiratory Syndrome in 2003 curtailed air travel.

The company has been aggressively cutting capacity following an 83 percent drop in its net income last year.

In June, Cathay told analyst it had revised its 2013 forecast for available tonne kilometres - a measure of both passenger and cargo capacity - to a year-on-year decrease of 4.3 percent instead of an increase of 2.6 percent, largely because of reduced freighter capacity. However, it maintained its projection for a 1.5 percent contraction in available seat kilometres.

North America passenger traffic dropped 12.5 percent during the first half of the year, even as Cathay's passenger load factor increased by 1.2 percentage points over a year earlier. That is helping to offset a continuing drop in air freight volume. Cathay's cargo traffic declined 1.8 percent for the first six months of the year, following a 5.3 fall last year.

The airline, which is scaling back its cargo fleet, started to retire its older B747 freighters in 2012, according to Eric Lin, an analyst at UBS Investment Research in Hong Kong. In March, Cathay canceled orders for eight B777 freighters. Separately, the company will take delivery of six more B777 passenger jets later this year. ($1 = 7.7556 Hong Kong dollars) (Reporting by Fang Yan and Matthew Miller; Additional reporting by Patturaja Murugaboopathy in Bangalore; Editing by Emily Kaiser)

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