Cathay Pacific slides into loss on fuel prices

Hong Kong airline Cathay Pacific said Wednesday it had tumbled to a loss of 663 million Hong Kong dollars (85 million US) in the first half of 2008 due to soaring fuel prices.

The loss came after a profit of 2.58 billion dollars over the same period last year, Cathay said in a statement.

The airline blamed the result on high jet fuel costs, which overshadowed a 22.6 percent rise in turnover to 42.45 billion dollars following a significant increase in both passenger and cargo revenues.

"The dramatic change to our fortune is down to one factor -- the relentless rise in the prices of fuel," Cathay chairman Christopher Pratt told reporters.

The average fuel price reached 132 US dollars per barrel in the first half of the year, a 60 percent rise against the same period last year, according to the statement.

"Suffice to say, at this price, our business model is severely challenged," Pratt said.

Fuel accounted for 45.3 percent of total operating costs for the first half against 33.6 percent over the same period last year, and Pratt said fuel surcharges approved by Hong Kong regulators fell far short of the higher bill.

Passenger and cargo fares would have to increase to reflect the airline's new operational costs, but it was difficult to forecast whether that would hit still robust demand, Pratt added.

"Cathay Pacific is reducing other costs where it can but there is a limit to how much cost can be saved before quality and brand are compromised," he said.

The airline would adjust flights to North America as long-haul routes required a large amount of fuel, but deploy more aircraft for trips to regions such as Australia and the Middle East where demand was growing, Pratt added.

The airline said it had also made a provision in its interim results for a 60-million-US-dollar fine it has agreed to pay following a sweeping probe by American regulators into air cargo price fixing by a number of carriers.

Cathay and its subsidiary Dragonair flew 12.5 million passengers in the first six months of 2008, up nearly 14 percent on 2007, and passenger revenue rose almost 22 percent to 25.5 billion dollars, the statement said.

The results follow warnings by analysts that high oil prices have sparked the biggest crisis in the Asian airline industry for years, with weaker carriers at risk of going under.

Upstart Hong Kong-based budget carrier Oasis has already folded this year, while other regional airlines have cut flights or closed routes in a desperate scramble to pare back costs.

All Nippon Airways, Japan's second largest carrier, became the latest to cut back after saying Wednesday it was scrapping routes and flights due to high fuel costs, while bigger rival Japan Airlines is considering downsizing too.

Earlier this week the air travel industry body IATA said the number of people travelling by air grew at the lowest rate for five years in June as the global economic slowdown sapped demand.

A typhoon shut Hong Kong's bourse Wednesday, but investors were anxiously waiting to see how Cathay's shares perform when trading resumes.