News Mar 16, 2017 08:11 AM EDT

Cathay Pacific posts $74 million annual loss due to overcapacity, intense competition

By April Kirstin Chua

Cathay Pacific Airways reports its first full-year loss, on Wednesday, since the 2008 global financial crisis. The poor results were due to overcapacity, lack of seats and competition from mainland Chinese carriers.

Shares of Hong Kong's flag carrier dipped almost seven percent following the news. Cathay posted a net loss of HK$575 million for 2016, which was down from an HK$6 billion profit from the previous year. This is the third time the company posted a full-year loss since it was founded in 1946.

Cathay Pacific says the results were brought by falling demands for premium class seats on long-haul routes. It is also facing fierce rivalry from mainland Chinese and Middle Eastern airlines that are expanding in the region. Carriers such as Air China and China Eastern offers direct services from the mainland, which makes it convenient for passengers to travel in their country than fly to Hong Kong.

The airline has typically held up its premium services but business has faltered because of mainland carriers as well as budget airlines luring away passengers with cheap fares. Accordingly, intense competition contributes to sales dropping by 9.4 percent. Cathay Pacific acknowledges the competitive landscape and plans for a review of its business. The airline sets on cutting jobs and consider shifting some flights to its short-haul arm as part of its three-year program.

"Our organization will become leaner," Cathay Pacific said in a statement to the Hong Kong exchange on Wednesday. The group's revenue dropped more than nine percent to HK$92.75 billion while passenger yields, which refers to the average fare paid per mile per customer, tumbled 9.2 percent to $0.54. In addition, Cathay also failed to take advantage of the full benefit of low fuel costs brought on by weak crude oil prices. It plans to cut costs in the long term by buying new and more fuel-efficient aircraft.

Cathay chair John Slosar affirms the difficulties in 2016 due to many factors that adversely affected their performance. Although several steps are in progress, Slosar expects the operating environment in 2017 to remain challenging.


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