Aviation giant Cathay Pacific's half-year results were dragged deep into the red by surging oil prices.

The flight carrier suffered a loss of HK$663 million through June, plunging 127 percent. That's compared with a net gain of HK$2.58 billion in the first half of last year.

It was the first time the carrier posted a loss since the SARS outbreak in 2003.

Cathay Pacific looks to make changes to routes, ticket prices and fuel surcharges to offset massive losses booked from skyrocketing fuel prices. AFP

Soaring fuel prices were the main culprit blamed for the setback, as fuel accounted for 45.3 percent of the airlines' operating costs, up from just 33.6 percent last year.

During the period, the average fuel price soared by 60 percent, to $132 per barrel. The rise resulted in the carrier's fuel expenses soaring from HK$10.55 billion to HK$19.31 billion.

Although the carrier's revenue rose by 22.6 percent to HK$42.45 billion as a result of strong demand for cargo and passenger flights, Cathay Pacific Chairman Christopher Pratt noted that the increase couldn't offset the upswing in oil prices.

"Global aviation is making a painful adjustment to the new reality of $100-plus oil," he said.

The passenger throughput of Cathay Pacific and its affiliate Dragonair was 12.5 million in the first half, up 13.7 percent, year-on-year.

In the face of the tough environment, he believes the aviation industry will undergo a significant consolidation, pushing many small airlines to the brink of bankruptcy.

To counter the fuel hike, he said, Cathay Pacific will raise its fares and fuel surcharge in the short run, as well as change flying routes to streamline operating cost.

He said some North American routes will be changed in the second half, and more routes to Australia and the Middle East will be added.

"Cathay Pacific is reducing costs where it can, but there's a limit to how much cost can be saved before quality and brand are compromised and the service proposition to the customer is changed beyond recognition," Pratt said.

Regarding increases in flight fares, he said they are inevitable.

But he stressed that Cathay Pacific won't cut its special packages because it has to strike a price balance and maintain its competitive edge.

He also said the company will not lay off any employees to offset the rising costs.

Pratt shrugged off a suggestion that the company's losses are mainly due to its aggressive expansion strategy. He said he is happy to see the carrier expand on the mainland after acquiring Dragonair.

Regarding an ongoing antitrust litigation, Pratt said the case is still proceeding and declined to comment further on the issue.

Cathay Pacific, along with three other carriers, were accused of violating antitrust laws. Cathay Pacific was fined $60 million by the US Department of Justice.

(HK Edition 08/07/2008 page2)