Hong Kong based Cathay Pacific had been in the doldrums as it posted losses in each of the past two years, but it seems that a range of cost cutting measures, a well-executed turnaround strategy and rising airfares have helped the airline in posting a HK $2.35 billion profit. The airline had projected a profit of HK $ 2.3 billion last month and considering the fact that it was twice the estimate of analysts, the shares rocketed. This is in stark contrast to Cathay Pacific’s results last year when they posted a loss of HK $ 1.25 billion in 2017. The turnaround in fortunes is a direct consequence of the airline executing its turnaround strategy perfectly.
Despite the hugely promising result, the airline has warned that 2019 is still going to be challenging due to a range of issues starting from global political climate and trade wars. Much of that could have a big impact on lower demand from passengers and even lower demand for the cargo services provided by the airline. The revenues of HK $111 billion in 2018 were primarily due to the excellent performances delivered by both the cargo and the passenger businesses. Hence, it is not a surprise that the airline is now trying to temper expectations for 2019 and there is a very clear threat of major disruption in the airline industry due to the factors that had been pointed out by Cathay Pacific.
Following the shocking annual result, Cathay Pacific started its turnaround programme in 2017 and it is quite clear that it is a programme that has paid rich dividends. Some of the biggest cost cutting measures included pruning down the number of staff overseas locations and at the airline’s head office, while revenue boosting measures included increasing the number of economy class seats in its Boeing jets. However, it is important to point out that the improvement in the freight market has also been a big advantage for Cathay Pacific, which remains one of the world’s biggest players in the industry. That being said, the global climate might see a contraction in the industry and the signs are already there. For instance, Cathay Pacific recorded a 5.2% decline in its freight traffic in the month of January and perhaps much of it has to do with the ongoing trade war between the United States and China. Despite all that, analysts seem optimistic about the company’s prospects and have estimated that the airline will record HK $ 4.5 billion in profits next year.
