Cathay Pacific Airways made nearly 10 billion in profit, but there are still tough battles to fight

Author | Zhou Zhiyu

Editor | Zhang Xiaoling

Cathay Pacific is emerging from its "darkest hour."

The 2024 financial report shows that Cathay Pacific's annual revenue reached HKD 104.371 billion, a year-on-year increase of 10.5%; the net profit attributable to shareholders was HKD 9.607 billion, a year-on-year increase of 6%, exceeding market expectations.

This marks the second consecutive year of profitability after emerging from a three-year low. At a communication meeting on March 13, Cathay Pacific's CEO, Ronald Lam, expressed deep feelings when discussing the past two years. He told Wall Street News that the past two years have been a very memorable phase for him and his team. Cathay Pacific has completed its "reconstruction" and has experienced multiple challenges, laying a solid foundation for its future.

Of course, the uncertainty of tariff policies impacting cross-border e-commerce demand, as well as the trend of "normalizing" ticket prices, also places higher demands on Cathay Pacific's operational capabilities moving forward. Institutions, including Citibank, have pointed out that this may put pressure on Cathay Pacific's profitability.

After seizing the industry benefits from the rebound in demand over the past two years, Cathay Pacific has initiated a "big gamble" with a HKD 100 billion investment plan.

According to Cathay Pacific's plan, by the end of this year, the network of Cathay Pacific and Hong Kong Express will cover more than 100 passenger destinations. Additionally, its mainland employees are expected to increase from about 3,000 at the end of 2024 to around 4,000. This is a portrayal of Cathay Pacific's continued efforts to consolidate Hong Kong's position as an aviation hub.

Whether it can convert fleet expansion into profit growth will depend on cost control capabilities, the effectiveness of regional market penetration, and responses to geopolitical risks.

For Cathay Pacific, the real tough battle has just begun.

Recovery

Cathay Pacific's financial report further confirms the wave of recovery in the global aviation industry.

The profit attributable to shareholders reached HKD 9.888 billion, a year-on-year increase of 1%, setting a new profit record for Cathay Pacific since 2011.

Ronald Lam stated that this financial report is significant for the management team. Over the past two years, Cathay Pacific has achieved robust financial results, which is a great encouragement for the team.

He further pointed out that the achievement is driven by four factors: very strong cargo demand; a significant increase in overall passenger volume; a decrease in fuel prices; and overall cost efficiency improvements compared to 2023.

Specifically, in terms of passenger volume, Cathay Pacific transported 22.827 million passengers in 2024, a year-on-year increase of 26.9%, with a load factor of 83.2%. The airline added 15 new passenger destinations, and flight frequency has returned to pre-pandemic levels.

It is worth mentioning that the growth in passenger volume is also attributed to the deepening of the "dual-brand strategy." Ronald Lam stated that Cathay Pacific focuses on the high-end market, while Hong Kong Express (Cathay's low-cost airline) targets the low-cost sector, with both developing synergistically to drive rapid expansion of the passenger network. In 2024, the two airlines collectively added 15 new passenger destinations, with Cathay Pacific being rated by Skytrax as the "World's Best Economy Class," while Hong Kong Express ranked among Airline Ratings' "Top Five Low-Cost Airlines in the World." Hong Kong Express CEO Mao Jieqiong admitted that 2024 is a year of "both breakthroughs and challenges."

Last year, Hong Kong Express turned from profit to loss, with a total loss of HKD 400 million and a 22.8% drop in passenger yield. This was partly due to the issues with the Pratt & Whitney engines that led to the grounding of five A320neo aircraft (there are 10 A320neo passenger planes in Hong Kong Express's fleet). Additionally, the rapid normalization of ticket prices on short-haul routes increased yield pressure.

However, Mao Jieqiong stated that despite facing grounding and yield pressure, Hong Kong Express demonstrated the resilience of its low-cost model by improving aircraft utilization (up 10% year-on-year) and optimizing unit costs (down over 10% year-on-year).

Regarding the intensified competition on regional routes, Mao Jieqiong pointed out that Hong Kong Express will leverage "exclusive operating points" to enhance its appeal to customers. Among the five new routes launched this year, four are exclusive operations, including Ishigaki, Komatsu, and Miyako Islands in Japan, as well as Nha Trang in Vietnam.

Lin Shaobo noted that the Pratt & Whitney engine issues and the decline in yield in the short-haul market are short-term impacts; the continuous improvement in aircraft utilization and other data indicates that this business segment still has the capacity to be profitable in the long run.

Cargo also achieved counter-cyclical growth. The total cargo volume for the year was 1.532 million tons, a year-on-year increase of 10.9%, with revenue of HKD 24 billion. E-commerce demand and traditional air cargo (especially electronic products) were the main drivers, and the overall cargo growth in the Guangdong-Hong Kong-Macao Greater Bay Area cities also exceeded the same period last year.

Regarding the impact of tariff policies on e-commerce cargo, Lin Shaobo believes there will indeed be potential shocks; however, overall cargo demand remains strong. Cathay Cargo will also adapt its capacity according to demand and diversify the company's business to reduce reliance on e-commerce.

High Stakes

At the earnings meeting, Lin Shaobo expressed his satisfaction, stating, "I am honored to lead the team to complete the historical task of rebuilding Cathay in my second year as CEO."

At the beginning of his tenure, he was tasked with guiding Cathay Pacific out of the impact of the pandemic and a series of events such as the "blanket incident."

Lin Shaobo also admitted that, from personal experience, the initial pressure of rebuilding was significant, facing many challenges while trying to catch up with lagging performance. Additionally, the "blanket incident" also impacted the rebuilding efforts of Cathay Pacific. However, Lin Shaobo believes that the emergence of these issues early in the rebuilding process is actually a good thing, as it allows Cathay Pacific to make timely adjustments.

Lin Shaobo stated that one key point in being able to rebuild a new Cathay over the past two years is that Cathay has a very clear positioning. "Rooted in Hong Kong, backed by the motherland, and connected to the world" is not just a slogan but a practical action.

At the earnings meeting, Cathay Pacific's management repeatedly mentioned the mainland. For example, in terms of catering, Cathay's Customer and Business President Liu Kaishi stated that Cathay Pacific's business class and first class have introduced recommendations for mainland red wines, and this year's meal offerings have further introduced more Chinese cuisine, with plans to promote Chinese cuisine and culture to international routes.

Regarding destinations, Mao Jieqiong also revealed that Hong Kong Express plans to expand from the current three destinations of Ningbo, Beijing Daxing, and Sanya to six this year. In terms of cabin crew, currently, 20% of Hong Kong Express's cabin crew come from the mainland, and among the 500 cabin crew recruitment plan this year, about 100 are planned to come from the mainland Lin Shaobo added that the proportion of mainland employees will continue to increase, and for Cathay Pacific, the mainland is not only a market for customers but also a talent market.

At the end of February this year, Cathay Group announced that Zheng Jiajun, Director of Swire Properties China in the Guangdong-Hong Kong-Macao Greater Bay Area, will take up the position of Director of Cathay Group in mainland China starting April 1. The appointment of a director-level management team is a concrete manifestation of Cathay Pacific's emphasis on the mainland market.

However, in the face of the gradual recovery of global shipping and the normalization of ticket prices, Cathay Pacific still needs to make more efforts to further enhance its competitiveness.

Last year, Cathay Pacific announced plans to invest over HKD 100 billion in the next seven years to expand its fleet, improve cabin products, and consolidate Hong Kong's position as an international aviation hub in conjunction with the completion of the three-runway system at Hong Kong International Airport.

Lin Shaobo stated that the opening of the three-runway system is a significant opportunity for Cathay Group. Cathay Pacific can further optimize its existing schedules to improve passenger transfer connections; additionally, it can increase more flight frequencies and add new destinations, which are necessary expansions to enhance overall competitiveness.

However, as mentioned in numerous research reports by institutions such as UBS, Cathay Pacific's normalization of passenger yield may slow down due to supply chain issues and delays in aircraft deliveries. Last year, Cathay Pacific announced an order for up to 150 new aircraft from Airbus, but the current delivery progress is not as expected.

Liu Kaishi also stated that they are in communication with Commercial Aircraft Corporation of China (COMAC) to see if the C919 will have a stretched version and whether the C929 can match future flight demand. In the short term, the Airbus delivery issues will not affect the company's operations.

Cathay Pacific's latest financial report confirms the "new normal" in the aviation industry: simultaneous scale growth and profit pressure, with increasing regional differentiation. After the industry has exhausted its phase-based dividends, it attempts to break through with ambitious investments of hundreds of billions. However, the outcome of this tough battle depends not only on the optimization of financial data but also on whether it can find a balance in cultural integration, innovation iteration, and globalization.

Cathay's recovery is "full of hope yet fraught with thorns." The upcoming battle will also determine whether it can transition from "recovery" to "leading."