26-Nov-2012 12:49 PM

Cathay Pacific notes significant increases in cost-base, fuel costs in 2012 exceeding budget by 6%

Cathay Pacific CEO John Slosar, in CX World Magazine Nov-2012, stated (Nov-2012) on the cost side, the biggest issue for the carrier is fuel, which is the carrier's single largest cost. He commented, "We planned for fuel to be expensive this year, but it has been even more expensive than we anticipated. The actual cost of fuel into plane...has exceeded budget by about 6%." He continued: "6% may not seem like much but, looking at all our flights together on an annual basis, if we had done nothing, this higher fuel price would have meant our total fuel bill this year would have exceeded the high budget we had planned by HK$2.5 billion! The increase in the price of fuel since 2010 has had a big impact on the operating cost of our routes." Using a specific example, Mr Slosar said: "On a 747-400 flight to London, fuel today represents 62.5% of the total cost of the flight. In 2010, when fuel was substantially lower, it represented only 47.9%. That is a big jump! Let me try to put that into perspective. Taken over a year, on that one flight pair alone, the fuel bill will have increased by HK$110 million – again, on just this one flight pair". He said the carrier has limited options to directly address the fuel situation. While the carrier hedges fuel, "hedging is not a miracle solution, particularly when fuel prices have been stubbornly high for so long". He also noted it is difficult to raise fares in the current weak economic environment. On fuel surcharges, he commented: "We are allowed to collect fuel surcharges, but these require regulatory approval and help us recover only about 50% of the extra fuel cost we pay. So this also helps, but cannot fill the gap." Mr Slosar said the carrier has been the most aggressive in taking steps to reduce fuel consumption with the retiring of Boeing 747s from its fleet and replacing them with 777-300ERs being key to this. He noted, "The 777s are overall more than 20% more fuel efficient than the 747-400s. As we move into 2013 and take delivery of more 777-300ERs, we’ll see an even bigger benefit but the full benefit will not be realized until 2014." Mr Slosar said fuel costs are not the only cost issue facing the carrier, adding, "There is significant cost pressure all around us. We are seeing increases in airport charges, overflight charges, catering charges, landing and parking charges, handling charges and passenger costs to name a few". [more - original PR]

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