Chairman’s Statement
The Cathay Pacific Group experienced the most challenging 12 months of its more than 70-year history in 2020. COVID-19, and the resultant travel restrictions and quarantine requirements in place around the world, brought about an unprecedented disruption of the global air travel market and the repercussions have been huge.
The International Air Transport Association (IATA) estimates that global passenger traffic will not return to pre-COVID-19 levels until 2024.
The Cathay Pacific Group’s attributable loss was HK$21,648million in 2020 (2019: profit of HK$1,691 million).
The loss per ordinary share in 2020 was HK424.3cents (2019: earnings per ordinary share of HK39.1 cents).
The Group’s attributable loss was HK$11,783million in the second half of 2020 (2020 first half: loss of HK$9,865 million; 2019 second half: profit of HK$344 million).
Cathay Pacific and Cathay Dragon reported an attributable loss of HK$10,032million in the second half of 2020 (2020 first half: loss of HK$7,361 million; 2019 second half: loss of HK$434 million).
The loss for 2020 is net of the receipt of HK$2,689million of COVID-19-related government grants globally and includes impairment and related charges of HK$4,056million relating to 34 aircraft that are unlikely to re-enter meaningful economic service again before they retire or are returned to lessors and to certain airline service subsidiaries’ assets and HK$3,973 million of restructuring costs inclusive of a HK$1,590million write off of a deferred tax asset at Cathay Dragon.
In June 2020, we announced a HK$39.0 billion recapitalisation. We are very appreciative of the Hong Kong SAR Government’s and our shareholders’ support for the recapitalisation at a critical time. In October 2020 we announced an extremely difficult but necessary restructuring which sadly meant the loss of approximately 8,500 positions and the discontinuation of Cathay Dragon operations by the end of 2020. Additionally, we asked our Hong Kong-based pilots and cabin crew to transition onto new competitive conditions of service. We sincerely thank the 98.5% of pilots and 91.6% of cabin crew who accepted the new contracts.
The cost of the restructuring was about HK$2.4billion. It is saving about HK$500million per month. This reduced monthly cash burn from HK$1.5-2.0billion to HK$1.0-1.5billion.Business Performance of Cathay Pacific and Cathay Dragon
Since the onset of the pandemic, our passenger revenues in 2020 declined to only 2-3% of 2019 levels. With demand at an all-time low, we drastically reduced our passenger schedule to just a bare skeleton and our operating capacity remained below 10% for much of 2020.
We saw occasional pockets of demand, notably in the summer season with student travel from Hong Kong and the Chinese mainland to the UK and otherdestinations in Europe. Nonetheless, the 2020 summer season, which is usually our peak period of the year, was incredibly difficult. Passenger revenue in 2020 was HK$11,313million, a decrease of 84.3% compared to 2019. Revenue passenger kilometre (RPK)traffic decreased by 85.1%, while available seat kilometre (ASK) capacity decreased by 78.8%. Consequently the load factor decreased by 24.3percentage points to 58.0% and reached a low of 18.2% in October. Yield increased by 4.8% to HK56.3cents. 86.9% fewer passengers were carried in 2020 than in 2019.
4Annual Results 2020
Our cargo business was by far the better performer, though it too was affected by the substantial contraction in capacity usually provided by the bellies of our passenger aircraft. Yields increased and revenue improved due to the imbalance in the market between available capacity and demand.
We increased cargo capacity by chartering services from our all-cargo subsidiary, Air Hong Kong, operating cargo-only passenger flights and carrying select cargo in the passenger cabins of some of our aircraft, and removing some seats in the Economy Class cabins of four Boeing 777-300ERs to provide further cargo space. Cargo revenue in 2020 was HK$24,573million, an increase of 16.2% compared to 2019, reflecting theimbalance in the market between demand and available capacity. Revenue freight tonne kilometre (RFTK) traffic decreased by 26.5%, whilst available freight tonne kilometre (AFTK) capacity decreased by 35.5%. Load factor increased by 8.9percentage points, to 73.3%. Yield increased by 58.3% to HK$2.96.
To reduce cash expenditure, we reduced capacity, deferred capital expenditure, suspended non-critical expenditure, froze hiring, cut executive pay and asked employees to participate in two voluntary special leave schemes, which received about 80% and 90% uptake, respectively, for which we are very grateful. Total fuel costs (before the effect of fuel hedging) decreased by HK$20,881million (or 72.8%) compared with 2019. Hedging losses were incurred because of the steep decline in fuel usage and in fuel prices.
After taking hedging losses into account, fuel costs decreased by HK$18,068million or 62.8% compared to 2019. Non-fuel costs per available tonne kilometre increased. We transferred 82passenger aircraft (46% of the airlines’ passenger fleet) which had been parked at Hong Kong International Airport, to locations outside of Hong Kong, including Alice Springs in Australia and Ciudad Real in Spain. These locations provide better environmental conditions than those to which the aircraft were exposed in Hong Kong. We reached agreement with Airbus to defer delivery of our A350-900 and A350-1000 aircraft from 2020-21 to 2020-23, and to defer delivery of A321neo aircraft from 2020-23 to 2020-25.
Advanced negotiations are taking place with Boeing for the deferral of the delivery of our 777-9 aircraft. 10 aircraft were delivered in 2020 (including our first A321neo, in November). These aircraft will modernise our fleets and improve efficiency. Business Performance of Other Subsidiaries and Associates HK Express reported a loss of HK$1,723million for 2020.
The sudden contraction in passenger demand caused by the pandemic and travel restrictions imposed by governments around Asia led to the airline suspending all flight operations between 23rd March and 1st August. 10 aircraft have been transferred to Alice Springs for parking.Air Hong Kong’s financial results improved compared with those of 2019 due to the strong air cargo demand amid COVID-19.Our airline services subsidiaries generally performed worse than in 2019 due to the collapse in passenger and cargo traffic volumes. Consequently, impairments totaling HK$1,184million were recognised in respect of the assets of Vogue Laundry Service and Cathay Pacific Catering Services. Air China (accounted for three months in arrears), was adversely affected by COVID-19, with results lower than those of 2019.
