HONG KONG: Cathay Pacific Airways, the biggest carrier in Hong Kong, returned to profit in the first half, as fuel-hedging gains offset declines in passenger and cargo demand amid the economic recession.

The airline's net earnings for the six months ended June 30 leaped 207 percent to HK$812 million, compared with a loss of HK$760 million in a year earlier.

Cathay Pacific, the fourth-largest airline in Asia, ended its two straight losses in the first half of 2009, after booking an unrealized mark-to-market gain of HK$2.1 billion from the fuel hedging contracts.

The fall in fuel prices in the second half of 2008 led to a HK$7.6 billion fuel-hedging paper loss last year.

Without the fuel-hedging gains, the airline would have booked a net loss of HK$3.47 billion in the first half.

Chairman Christopher Pratt said yesterday that the global aviation industry, hit hard by soaring fuel prices in 2008, is now having to confront "one of the most severe demand downturns in living memory".

"There is still no sign of early recovery," Pratt said in a press conference in Hong Kong yesterday, "The best we can say at the moment is the worst may now be over."

Pratt added that the fall in demand may have bottomed out, but there is no indication of when a sustained pick-up will begin.

Despite the surge in first-half net earnings, the airline's revenue fell 27.1 percent to HK$30.92 million dragged by the falling passenger and cargo demand.

The number of passengers carried by Cathay Pacific and its subsidiary Dragonair dropped 4.2 percent to 11.9 million in the first half, pulled down by the diminishing demand from premium class passengers.

Passenger yield, measuring the airline's average sales, skidded 19.7 percent, while the cargo volume also dropped 15.3 percent to 700,693 tons.

Tony Tyler, chief executive of Cathay Pacific Airways, said the airline has already parked five freight aircraft and leased out one cargo carrier to its subsidiary Air Hong Kong.

"We will be parking five more passenger aircraft by the end of this year," Tyler told reporters yesterday.

Cathay Pacific, controlled by Swire Pacific, has no plans to recruit new employees, while a majority of company staff have agreed to take unpaid leave, Tyler said.

He also noted that the airline's cargo business has been showing some signs of recovery. The company is also waiting to see whether the demand will pick up further in the traditional cargo peak period, which starts from the middle of the second quarter to the middle of December.

Cathay Pacific has decided not to pay any dividends to its shareholders in the first half of this year.

DBS Vickers Securities director Peter Lai said the zero dividend payout may upset investors, adding that Cathay Pacific's earnings in the second half will depend very much on the global economic situation.

"The global economy is unlikely to show a prompt recovery; earnings in the hotel and aviation industries have been particularly hard- hit," Lai said.

He believes both the passenger and cargo demand of the airline will remain sluggish in the second half and that the airline's share price may have reached its high level.

"The shares may retrace to HK$11, because of the poor economic circumstances," Lai added.

Shares in Cathay Pacific yesterday finished down 3.64 percent, or HK$0.46, at HK$12.18, moving in line with the 1.45 percent drop in the benchmark Hang Seng Index.

(HK Edition 08/06/2009 page4)