Cathay Pacific 2014 profit: remaining slightly ahead. Seismic change needed but seemingly unlikely

While Cathay Pacific hopes to remain in passenger views one of the world's best airlines, financially it appears to be settling in for a period of mere average performance. Its long-term cost growth remains ahead of passenger yield improvements while cargo yields are low. The situation could be worse - compared say with Singapore Airlines - but the outlook shows more challenges than opportunities. Yield declines are all but certain as transit traffic and near system-wide competition increases, especially in North America (where yields were down 4%). Europe was the only market for yield growth, but this may change with 2015's new routes and competitive growth. Staff productivity is at record lows and ongoing wage negotiations may limit damage rather than give a leap ahead in efficiency.

2014's group profit increased 20% to HKD3.2 billion (USD412 million) while the airline profit before tax figure increased only 1.4% to HKD2.4 billion (USD311 million). The group operating margin was 4.2%. Cathay reported a HKD911 million (USD117 million) hedging loss in 2014 with HKD12.5 billion (USD1.6 billion) in unrealised losses through 2018. Older aircraft retirements are in the final stage, limiting further cost savings, while receiving A350s and 777Xs ahead of competitors will provide a few years of cushion. Cathay is approaching fragility in a harsh industry where changes can be sudden and deep.