By Lisa Barrington
(Reuters) - Hong Kong's Cathay Pacific Airways (OTC:CPCAY) declared an interim dividend on Wednesday, citing strong performance, even as first-half profit dropped 15% from a year ago which the airline attributed mainly to lower air fares.
The airline also announced an investment program that includes new aircraft, saying it was entering a new phase while it continues to rebuild from the pandemic which grounded most of its fleet and led to large staff layoffs.
"Our strong performance for the first six months of the year was primarily driven by the ongoing robust demand for travel, and the solid performance of our cargo business," Chair Patrick Healy said in a statement.
The drop in profit year-on-year to HK$3.85 billion ($493.76 million) for the six months ending June was "principally attributable to the normalisation of ticket prices", he said.
A global imbalance between the supply of flights and travel demand last year after pandemic travel restrictions were lifted drove up ticket prices and passenger yields - a measure of flight profitability.
But as global capacity has been largely restored airlines this year have reported normalising yields and softening fares.
Short-haul fares out of Hong Kong have come down to normal levels from last year's highs, Chief Customer and Commercial Officer Lavinia Lau told journalists.
Many long-haul routes are also coming down, some by over 20%, with the exception of the United States and Canada where demand is high from mainland China and Hong Kong, Lau said.
Direct flights from between the Chinese mainland and the U.S. remain a fraction of pre-pandemic levels, pushing up demand for transit routes through hubs like Hong Kong and Seoul.
Cathay's group load factor, or share of seats sold on flights, fell to 82.4% from 87.2% in the first half of 2023.
The passenger yield decreased by 11% to HK68.9 cents, the company said.
Cathay's low-cost subsidiary HK Express reported a first-half loss of HK$73 million. CEO Ronald Lam said it was under keen ticket price pressure from local and foreign carriers.
RECOVERY
Cathay, which made heavy losses and layoffs during the COVID-19 pandemic, reported its first annual profit in four years in March, and paid its first dividend since 2019.
At the end of July, it repaid the last part of HK$19.5 billion in preference shares issued to the Hong Kong government as part of a HK$39 billion pandemic-related rescue package in 2020.
Hong Kong's flagship carrier has restored capacity more slowly than its closest rival, Singapore Airlines (OTC:SINGY), because it faced tighter quarantine rules for longer, and needed to hire more staff to bring back services.
In March, it pushed back a target to restore 100% of pre-pandemic flights by three months to the first quarter of 2025, which Healy said the airline was on track to meet.
Cathay said it will buy 30 Airbus A330-900 wide-body aircraft, with options to buy another 30.
The purchases will make up the biggest chunk of a HK$100 billion ($12.83 billion) investment over seven years in its fleet, cabin products, lounges, and digital and sustainability projects.
The investment will support Hong Kong's intention to expand as an aviation hub, Lam said, with a new third runway becoming fully operational by the end of this year.
The airline said it has 3,100 of the 3,400 pilots it needs and is training and recruiting the remainder.
Healy said the group's headcount will increase by 5,000 to a total of 29,000 people by the end of the year, and destinations will rise to 100 within 2025 from a current 80.
($1 = 7.7973 Hong Kong dollars)