Cathay Pacific annual results: after a lost year, Cathay sees itself back on track - but to where?

Cathay Pacific's 2013 annual results show the carrier has emerged from its lost year, a period from mid-2012 to mid-2013 when it took sudden action to combat high fuel prices and aircraft maintenance by replacing 747-400s with 777-300ERs, making loss-making long-haul routes profitable almost overnight. During this time there was also large growth in short-haul sectors, which took time to mature. This was fuelled partially by strong regional demand as well as the strategic imperative to increase flights so as to maximise slots at its Hong Kong hub, thereby preventing competitors from using the precious few peak slots left. Any substantial peak hour slot increase is not likely to occur until a third runway is built, sometime after 2020.

The full year profit of HKD2.62 billion (USD338 million) shows a marked improvement over the HKD24 million (USD3 million) profit in 1H2013, when network adjustments were still under way. 2013's profit has been lauded, albeit an improvement from a low base: 2012's profit was only HKD862 million (USD111 million), representing a 0.9% margin. Cathay's 2013 margin of 2.6% is the third-lowest margin in recent times, even lower than 2003 during SARS, when the airline almost grounded its fleet.

This is not an encouraging growth platform, and the mood is considerably dampened by an increasingly competitive environment. Other airlines with stronger hubs are growing traffic, short-haul and long-haul, and this will only increase, further impacting Cathay - irrespective of a possible Jetstar Hong Kong launch. A new cargo terminal has arrived as Cathay concedes cargo is undergoing a structural, not cyclical, change. A CEO change from John Slosar to Ivan Chu occurs as Cathay seems to prefer to reminisce about the past rather than offer brave new strategies. Certainly other full service airlines are experiencing rocky times, but that is small comfort.