March 13 (Bloomberg) -- Cathay Pacific Airways Ltd., Asia’s biggest international carrier, reported annual profit that beat analyst estimates after higher passenger numbers helped mask a drop in cargo traffic.
Net income in 2012 was HK$916 million ($118 million), compared with HK$5.5 billion a year earlier, the company said in a Hong Kong stock exchange filing today. The city-based carrier was expected to make a profit of HK$538.7 million based on the average of 19 analyst estimates compiled by Bloomberg.
Chief Executive Officer John Slosar’s introduction of promotional fares helped boost passenger numbers 5 percent last year while Wall Street’s job cuts weighed down on premium travel. Confronted by a higher fuel bill, Cathay is cutting costs and paring capacity this year as Middle East carriers such as Emirates increase competition by expanding into Asia-Pacific.
“Peak seasons of summer and Christmas holidays in the second half helped boost demand,” Geoffrey Cheng, an analyst at Bank of Communications Co., said before the announcement. “Cathay is likely to see a recovery this year, especially on the long-haul travel market, as the U.S. economy is improving.”
Cathay posted a surprise first-half loss of HK$935 million, weighed down by slower cargo demand and losses from affiliates. Singapore Airlines Ltd., the biggest carrier in Southeast Asia, last month reported profit that missed estimates for a fifth consecutive quarter as competition pushed down fares.
‘Very Challenging Year’
Slosar told staff in November the carrier was facing a “very challenging year” in 2012. Cathay has said it will cut passenger capacity 1.6 percent this year to cope with slowing international travel demand. In December, Slosar said the capacity reductions are intended to accelerate replacement of the oldest Boeing Co. 747 planes.
The airline is retiring about half its Boeing 747-400 fleet over the next 13 or 14 months and replacing the jumbos with 777- 300ERs, which though more efficient have fewer seats, Slosar said.
Global air passenger traffic grew 5.3 percent last year, boosted by the expansion of Middle Eastern carriers and demand from markets in Latin America and Africa, according to the International Air Transport Association. Passenger traffic may grow 4.5 percent this year with cargo markets projected to increase 1.4 percent, IATA said.
Cheaper fares helped the airline and unit Hong Kong Dragon Airlines Ltd. boost traveler numbers 5 percent to 28.96 million last year, the company said in a January statement. The airline filled 80.1 percent of seats, a drop of 0.3 percentage points.
Sales at the front of the cabin, the most profitable segment of the passenger business, fell short of its expectations in December, Cathay said earlier this year. Premium-ticket prices between Asia and the U.S. averaged $5,859 in December, the lowest level since 2009, according to data compiled by Bloomberg.
Wall Street’s cost cuts and dismissals have erased more than 300,000 financial-industry jobs in the past two years. That has affected business-class travel demand at Cathay and Singapore Air, analysts including Li Lei, a Beijing-based China Minzu Securities Co., have said earlier.
Cathay said earlier this month it canceled an order for eight Boeing 777-200 freighters and instead has agreed to buy three 747-8 freighters. It also has options to purchase five 777-200 freighters and will sell four 747-400 converted freighters to Boeing as part of its fleet restructuring.
The carrier cut freighter frequencies to Europe 63 percent to 11 flights per week earlier this year from about 30 flights a week in 2008, as a decline in the Asia-Europe market hurt the carrier the most, Nick Rhodes, the airline’s cargo director, said last month.
The airline, which moves cargoes with 22 dedicated aircraft and bellies of passenger planes, carried 1.56 million tons of cargo and mail last year, 5.3 percent less than a year earlier, the company said in January. Revenue, measured by weight multiplied by kilometers, also fell 7.3 percent to 8.94 million.
Globally, the air freight market shrank 1.5 percent in 2012, according IATA. Asian airlines, the biggest players in the air- cargo market, reported a 5.5 percent decline in demand, and 2.4 percent cut in capacity last year, the group said.
In comparison, Gulf carriers including Emirates and Etihad Airways saw demand growing 14.7 percent, and the biggest capacity expansion at 11.4 percent, it said.
In December, Cathay increased wages 2 percent for its union members while the labor group was demanding a five percent raise.
--Editors: Vipin V. Nair, Anand Krishnamoorthy.