Cathay Pacific plans fare hike after posting first-half losses

Sunday, August 10, 2008, 8:25 by Aviation Correspondent

Cathay Pacific, the largest airline and flag carrier of Hong Kong, is set to join a long list of airlines worldwide that have hiked fares in the face of dramatic rise in the prices of aviation fuel. The operations of Cathay Pacific Airways Limited, based at Hong Kong International Airport, include scheduled passenger and cargo services to over 120 destinations worldwide.

In a statement announcing the proposed increase in air fares, Cathay Pacific Airways blamed the government’s restrictions on maximum fuel surcharges for its losses amounting to HK $633 million (($85 million) in the first half of 2008.

The company alleged that its surcharges came significantly behind those charged by major international competitors.

The government’s restrictions on maximum fuel surcharges, implemented by Hong Kong’s Civil Aviation Department, “will do little to protect the flying public from higher costs, as carriers will simply raise fees elsewhere,” the statement added.

Christopher Pratt, chairman of Cathay Pacific Airways Limited, told reporters at a recent press conference: “Cathay Pacific’s business model has been severely challenged by the rising cost of fuel, which topped $140 in July 2008. The dramatic change to our fortune is down to one factor – the relentless rise in the prices of fuel.”

“Cathay Pacific,” the company’s chairman went on, “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. Global aviation is making a painful adjustment to the new reality of $100-plus oil. 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. It is thus inevitable that fares for passengers and shippers will have to rise to reflect the new cost of operation.”

Christopher Pratt’s remarks follows warning made by Willie Walsh, chief executive of British Airways, just a week ago that British Airways is planning to raise fares to overcome the situation created by excessive prices of oil.

Cathay Pacific Airways suffered loses amounting to HK $663 million ($85 million) in the first half of 2008 after having earned profits of HK $2.58 billion in the first six months of 2007.

The results for the first half of 2008 was the worst for Cathay Pacific since the first half of 2003, when the airline suffered a loss of HK $1.24 billion after reducing fares and giving away thousands of tickets to attract travellers back to Hong Kong following the outbreak of the Severe Acute Respiratory Syndrome (SARS).

The Cathay Pacific statement explained that the airline’s fuel bill jumped by 83% from HK $10.55 billion in the first half of 2007 to HK $19.31 billion in 2008. As a percentage of total operating costs, fuel soared to 45.3% for the first half of 2008 from 33.6% for the corresponding period in 2007.

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