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UPDATE 2-Cathay Pacific swings to profit; recovery uncertain

Published 08/05/2009, 06:33 AM
Updated 08/05/2009, 06:36 AM
SIAL
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* Net profit HK$812 million, on HK$2.1 bln fuel-hedge gain

* Revenue down 27 pct; fuel prices a concern - chairman

* Has enough cash but can't rule out fund-raising in future

* Shares give up early gains to fall 3.6 pct (Updates with press conference, analyst comments)

By Nerilyn Tenorio and Joanne Chiu

HONG KONG, Aug 5 (Reuters) - Hong Kong's top carrier, Cathay Pacific Airways, warned of strong headwinds ahead, with concerns over high fuel prices dimming immediate prospects for a pick-up in demand.

The company reported on Wednesday it had swung back to profit in the first half and said it had enough cash to fund aircraft purchases, but announced no interim dividend payment and did not rule out the possibility of tapping the equity markets further down the track.

"The results were pretty much in line with our expectations, but if there is no improvement or sustained recovery in the second half, the company may need to consider raising funds in the market," said Jim Wong, regional head of transport research at Nomura Securities.

Cathay's shares briefly surged as much as 5.2 percent on the headline profit numbers but closed down 3.6 percent at HK$12.20 on worries about the need for more cash.

"We have no immediate plans to go to the equity market by way of a rights issue to raise funds for the business," Chairman Christopher Pratt told a news conference.

"We can't obviously rule it out in the longer term, but there are no current plans to do that. We have enough cash at the moment," he said.

Cathay Pacific continues to take delivery of new, more efficient aircraft, with two more Boeing 777-300 extended range aircraft entering the fleet in the first half and the last of six Boeing 747-400 extended range freighters arriving in April.

LOW-END OF FORECAST

The airline, Asia's No.4 carrier since being overtaken by Japan's All Nippon Airways, reported a net profit of HK$812 million ($104.8 million) for January-June, compared with a loss of HK$760 million a year earlier.

It booked fuel hedging gains of HK$2.1 billion, while turnover fell 27 percent to HK$30.9 billion.

The six-month result fell in the lower end of analysts' forecasts, which stretched from a low of HK$400 million to a high of HK$3 billion due to widely varied estimates for hedge gains.

Cathay's fuel hedging contracts in the first six months yielded mark-to-market gains of HK$2.1 billion, compared with a loss of HK$7.6 billion for full year 2008, the company said in the statement.

Rival Singapore Airlines, the world's second largest airline by market value, last week announced its first quarterly loss in six years, and warned that it could post an annual loss if adverse conditions continued..

Cathay Pacific is also assessing whether to adjust its structure if changes such as a further weakening in its premium travel business turn out to be cyclical or structural in nature.

"There are no sacred cows here. We'll have a good look at what we need to do to keep a sustainable and profitable business in the new revenue environment," said Pratt. (Additional reporting by Alison Leung; Editing by Chris Lewis and Lincoln Feast)

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