Hong Kong: Cathay Pacific Airways, Hong Kong's biggest carrier, posted a second-half profit after paring capacity and selling a stake in a maintenance venture.

The HK$3.9 billion (Dh1.84 billion) profit compared with a loss of HK$7.9 billion a year earlier, based on annual results announced yesterday.

Sales fell 18 per cent to HK$36 billion.

Cathay made a HK$1.25 billion gain last year from the sale of shares in Hong Kong Aircraft Engineering Co as it boosted cash holdings and trimmed services to withstand a slowdown in global air travel. Demand is now picking up because of an economic rebound and first-quarter forward bookings are "very solid", Chief Executive Tony Tyler said last month.

"Profit may rebound this year on a recovery in premium traffic and cargo — not just one-time gains," said Kelvin Lau, an analyst at Daiwa Institute of Research. "Cathay is also benefiting from the effects of cost-cutting measures from last year and industrywide capacity cuts."

Full-year net income of HK$4.7 billion, compared with a loss of HK$8.7 billion a year earlier, the carrier said yesterday. Profit was higher than the HK$2.25 billion median of 10 analyst estimates compiled by Bloomberg. Sales dropped 23 per cent to HK$67 billion.

The airline made a 2009 operating profit of HK$285 million, excluding fuel-hedging gains, non-recurring items and tax. It made a HK$1.44 billion loss a year earlier on the same basis.

Traffic falls

Cathay's passenger yield, a measure of average sales, dropped 20 per cent last year as business and leisure travellers pared flying because of the global recession. Passenger numbers, including at the Hong Kong Dragon Airlines unit, fell 1.6 per cent to 24.6 million. Cargo volumes declined 7.1 per cent.

The company will pay an annual dividend of 10 Hong Kong cents a share. It did not make a payout a year earlier.

Cathay, controlled by Swire Pacific, rose 1.9 per cent to HK$14.80 at the lunchtime trading break before the announcement. The carrier has more than doubled in the past year, compared with an 82 per cent gain for Singapore Airlines.

Cathay offered staff unpaid leave and cut capacity last year as travel slowed. In January, it returned a Boeing 747-400 freighter to service and delayed parking another 747-400 passenger plane as demand recovered.

"Cathay's yield will be improving this year," said Allen Wong, an analyst at Quam in Hong Kong. "But fuel costs are a concern as oil prices are definitely getting higher this year."

Fuel costs

The Hong Kong carrier's gross fuel cost fell 49 per cent last year to HK$20.1 billion. It bought fuel at an average price of $73 per barrel. Realised and paper fuel-hedging gains of HK$2.76 billion compared with losses of HK$7.97 billion in 2008.

Fuel prices "started to rise again in the middle of 2009, reaching uncomfortably high levels", Chairman Christopher Pratt said in the statement.

"We expect the results of fuel hedging to be less volatile in future."

The carrier said it will lose $850 million on fuel-hedging contracts this year and next if oil prices are at $40 a barrel.

If the price is about $80 a barrel, the airline won't have any cash costs and will be able to write back provisions made for possible losses.

Crude oil for April delivery traded at $81.61 a barrel at 12.50pm. Prices have jumped about 78 per cent in the past year.

Cathay had a fleet of 163 planes as of December 31, with another 36 on order. That includes aircraft operated by Dragonair and Air Hong Kong, a cargo venture with DHL. Seven new passenger planes are due to arrive this year.

Investors take breather

Hong Kong shares trimmed gains to end flat yesterday after three straight sessions of gains as investors took a breather after recent strength. Forecast-beating results from CITIC Pacific and Cathay Pacific Airways gave support.

Hong Kong's dominant air carrier, Cathay Pacific, rose 4.68 per cent to HK$15.20, its highest close since July 2008, after reporting its best half-year earnings in two years.

CITIC Pacific rose 7.47 per cent, its biggest single day of gain in percentage terms in four months, to a seven-month closing high at HK$18.98. The steel-to-property conglomerate said it returned to the black with a profit of HK$5.95 billion for 2009, beating a forecast of HK$5.08 billion.

The benchmark Hang Seng Index ended up 0.74 points at 21,208.29. The China Enterprises Index of top locally listed mainland Chinese stocks ended up 0.06 per cent at 12,217.33.