Cathay Pacific 1998 Annual Report Download

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ANNUAL REPORT 1998

Table of contents

  • Page 1
    ANNUAL REPORT 1998

  • Page 2
    ...Hangzhou Kunming Nanjing Ningbo Qingdao Shanghai Tianjin Wuhan Xiamen Xian Hiroshima Kaohsiung Sendai Osaka Fukuoka Nagoya Osaka Seoul Taipei Tokyo Chicago (freighter) Los Angeles New York San Francisco Toronto Vancouver HONG KONG Bahrain Mumbai (Bombay) Colombo Dubai Bangkok Cebu Denpasar Hanoi...

  • Page 3
    ...equity interests in a number of subsidiary and associated companies which provide aviation related services in Hong Kong and overseas. Cathay Pacific Airways is a member of the Swire Group and is listed on The Stock Exchange of Hong Kong Limited. CATHAY PACIFIC AIRWAYS LIMITED ANNUAL REPORT 1998 1

  • Page 4
    Hong Kong:

  • Page 5
    The world's aviation Super Hub PHOTOGRAPH BY SAMUEL LO

  • Page 6
    The opening of the new Hong Kong International Airport launched a new era for Hong Kong aviation and strengthened its position as Asia's premier aviation hub. Cathay Pacific's new Super Hub offers a superior passenger experience that includes preferred check-in facilities and boarding gates, as well...

  • Page 7
    Confidence in our Industry Passenger load factor and yield % 80 HK cents 70 Cost per ATK HK$/ATK 3.0 2.8 60 60 2.6 40 50 2.4 20 40 2.2 0 30 2.0 94 95 96 97 Yield 98 94 95 96 97 98 Passenger load factor CATHAY PACIFIC AIRWAYS LIMITED ANNUAL REPORT 1998 5

  • Page 8
    .... Our new headquarters, Cathay Pacific City, is now home to over 3,000 staff and the Cathay Pacific Catering Services new flight kitchen is one of the largest flight kitchens in the world. Our other major investment at the airport, the hangar complex of Hong Kong Aircraft Engineering Company Limited...

  • Page 9
    ... airport. Consistent with our alliance plans we also unveiled a new frequent flyer programme. The new programme, known as Asia Miles, replaced our previous programme Passages, which was amicably ended by the three partner airlines involved. Asia Miles is linked with our one world partners and allows...

  • Page 10
    ...range of charitable activities. The Customers and the Product Advances in Cathay Pacific's award-winning services include the entry into a new global alliance one world , our new frequent flyer programme Asia Miles, and the introduction of electronic ticketing. • Cathay Pacific joined with four...

  • Page 11
    ... dedicated check-in facilities and preferred departure gates. The first commercial flight to land at the new airport was Cathay Pacific's ground-breaking non-stop flight from New York, known as Polar One, which flew directly over the North Pole. Check-in for Cathay Pacific passengers is...

  • Page 12
    .... Both services were launched successfully with encouraging market response. Cathay Pacific entered into a codeshare agreement with Swissair on the Hong Kong-Zurich route in order to maintain frequency of services to passengers on the route. 10 CATHAY PACIFIC AIRWAYS LIMITED ANNUAL REPORT 1998

  • Page 13
    ... to donate small change in the foreign currency they bring back from their travels. Cathay Pacific continued its contribution in the fight against drug abuse through the Life Education Activity Programme ("LEAP"), targeted at children and adolescents. The airline donated HK$2.2 million to LEAP...

  • Page 14
    ... Passenger Services In January 1998, as part of Cathay Pacific's restructuring exercise, the individual route groups were combined into one Network Management team, in order to optimise the increasing amount of "sixth-freedom" business (i.e. passengers transiting through Hong Kong) which the airline...

  • Page 15
    Pride in our Service Load factor by region % 90 80 70 60 50 40 Europe Pacific and South Africa North Asia South East Asia and Middle East '94 '95 '96 '97 '98 CATHAY PACIFIC AIRWAYS LIMITED ANNUAL REPORT 1998 13

  • Page 16
    .... However falling yields across the Pacific adversely affected results and consequently the service to Los Angeles has been reduced to ten times a week. The Vancouver and New York services benefited from strikes suffered by competitors, whilst the Toronto flights caused concern due to falling yields...

  • Page 17
    ... factors on passenger aircraft averaged 54.8%. Market conditions are not expected to improve during 1999. Problems associated with Hong Kong Air Cargo Terminals Limited following the opening of the new airport had a significant negative impact on Cathay Pacific Cargo revenue. However the enhanced...

  • Page 18
    ... customers include Cathay Pacific, Air Hong Kong, All Nippon Air, Dragonair, Japan Airlines, Korean Airlines, Singapore Airlines and Thai Airways. Over 3,000 flights are handled monthly. The company commenced operations in July 1998 following the opening of the new Hong Kong International Airport...

  • Page 19
    ... year but the management remains optimistic about the future of the airline. Hong Kong Aircraft Engineering Company Limited ("HAECO") HAECO, in which Cathay Pacific holds a 25% interest, provides aircraft maintenance and overhaul services at the new Hong Kong International Airport. Profit after tax...

  • Page 20
    .... Turnover Group 1998 1997 HK$M HK$M Cathay Pacific 1998 1997 HK$M HK$M Passenger services Cargo services Catering and other services Turnover 18,532 7,040 1,123 26,695 21,851 7,782 1,014 30,647 18,532 5,738 - 24,270 21,851 6,584 - 28,435 18 CATHAY PACIFIC AIRWAYS LIMITED ANNUAL REPORT 1998

  • Page 21
    ...services Cargo services Revenue passengers carried Passenger load factor • • The regional economic recession has caused passenger turnover to continue to decline in 1998, with a drop of 15.2%. The number of passengers carried increased by 2.8% to 10.3 million. CATHAY PACIFIC AIRWAYS LIMITED...

  • Page 22
    ... One Hong Kong cent change in passenger yield per revenue passenger kilometre at 1998 passenger load factor One Hong Kong cent change in cargo and mail yield per cargo and mail tonne kilometre at 1998 cargo and mail load factor 273 88 407 33 20 CATHAY PACIFIC AIRWAYS LIMITED ANNUAL REPORT 1998

  • Page 23
    Fin an cial Review Operating costs 1998 HK$M Group 1997 HK$M Change Cathay Pacific 1998 1997 HK$M HK$M Change Staff Route Fuel Aircraft maintenance Aircraft depreciation and operating leases Other depreciation and operating leases Exchange losses Commissions Others Total operating costs 7,569 ...

  • Page 24
    ... HK$10,042 million, comprising HK$7,452 million for aircraft purchases including advance payments, HK$1,902 million for expenditure at the Hong Kong International Airport, and HK$688 million for properties and other equipment. 10,000 0.3 5,000 0.2 0 0.1 94 95 96 97 98 Shareholders' funds...

  • Page 25
    ... commitments are effectively matched by the change in value of the foreign currency earnings used to make those repayments. • Derivative financial instruments are used to manage the interest rate profile of the foreign currency commitments. CATHAY PACIFIC AIRWAYS LIMITED ANNUAL REPORT 1998 23

  • Page 26
    .... 1998 HK$M 1997 HK$M Total revenue Less: Purchases of goods and services Other costs Value added by the Group Add: Surplus/(deficit) on sale of aircraft and spares Net investment income Surplus on sales of associated companies Share of profits of associated companies Total value added available...

  • Page 27
    ... been Director Corporate Development since December 1996 and was previously Director Service Delivery. He is also a Director of Hong Kong Aircraft Engineering Company Limited and Hong Kong Dragon Airlines Limited. He joined the Swire Group in 1977 and has worked in Australia, the Philippines, Canada...

  • Page 28
    ...plc. Yao Kang, OBE, aged 73, was a Director of the Company from July 1984 to June 1997. He is a Director of John Swire & Sons (H.K.) Limited, Sing Tao Holdings Limited and Hsin Chong Construction Group Limited. He joined the Swire Group in 1948. 26 CATHAY PACIFIC AIRWAYS LIMITED ANNUAL REPORT 1998

  • Page 29
    ... the form of discounts on airline travel. In addition, the Swire Educational Trust, of which the Company is a founding contributor, funded scholarships of HK$7.7 million. Fixed assets Significant movements of fixed assets include aircraft acquisitions, properties in the new airport and a provision...

  • Page 30
    ...under review, the Company made the following purchases of its shares on the Hong Kong Stock Exchange. These purchases were made as a result of a fall in the price of the shares. All the shares purchased were cancelled. Month Number Purchased Highest Price Paid HK$ Lowest Price Paid HK$ Total Paid HK...

  • Page 31
    ... first and foremost a business problem, the Cathay Pacific Group is addressing the millennium date change issue as a matter of priority. Sponsored by the Chairman of Swire Pacific and Cathay Pacific, and reporting to a central steering committee, the Swire Group Y2K Programme Office is working with...

  • Page 32
    ...As part of regular and budgeted enhancements to its business systems, the Company has worked closely with vendors on systematic upgrade programmes to deal with the Y2K problem. Cathay Pacific's transfer in July to the new Hong Kong International Airport, has also seen the planned upgrade of a number...

  • Page 33
    ..., have signed their report in their new name. A resolution for the reappointment of KPMG as Auditors of the Company is to be proposed at the forthcoming annual general meeting. By order of the Board Peter Sutch Chairman Hong Kong, 10th March 1999 CATHAY PACIFIC AIRWAYS LIMITED ANNUAL REPORT 1998...

  • Page 34
    ... Group's affairs as at 31st December 1998 and of the Group's loss and cash flows for the year then ended and have been properly prepared in accordance with the Companies Ordinance. KPMG Certified Public Accountants Hong Kong, 10th March 1999 32 CATHAY PACIFIC AIRWAYS LIMITED ANNUAL REPORT 1998

  • Page 35
    ... and the balance sheets of subsidiary and associated companies, at the rates ruling at the balance sheet date; and (b) for foreign currency transactions entered into during the year, at the market rates ruling at the relevant transaction dates. CATHAY PACIFIC AIRWAYS LIMITED ANNUAL REPORT 1998 33

  • Page 36
    ... as part of aircraft cost and are depreciated over periods of up to ten years. The Group's aircraft depreciation policy is reviewed regularly, taking into consideration factors such as changes in fleet composition, current and forecast market prices, and technical factors which affect the life...

  • Page 37
    ... currencies and interest bases. As a result, long-term borrowings reflect the ultimate repayable currencies and interest bases. Amounts receivable or payable under interest rate derivative transactions are accrued as an adjustment to interest expense. CATHAY PACIFIC AIRWAYS LIMITED ANNUAL REPORT...

  • Page 38
    ..., a frequent flyer programme administered by Asian Frequent Flyer Pte Limited ("AFFP") in which the Company holds 33% of the equity share capital. This programme has stopped mileage accrual in February 1999. Under this frequent flyer programme, as points are earned by passengers, payments are made...

  • Page 39
    ...13 (65) (4) (69) (44) (113) (2.1¢) 3,929 308 (44) (43) 221 39 260 (38) 222 (5) 217 (126) 91 6.3¢ 12 5 6 7 8 9 The US$ figures are for information only and are translated at HK$7.8. The notes on pages 41 to 61 form part of these accounts. CATHAY PACIFIC AIRWAYS LIMITED ANNUAL REPORT 1998 37

  • Page 40
    ...367 87 3,196 3,283 13 505 2,248 2,766 6,049 The US$ figures are for information only and are translated at HK$7.8. Peter Sutch Henry Fan Director Hong Kong, 10th March 1999 Director The notes on pages 41 to 61 form part of these accounts. 38 CATHAY PACIFIC AIRWAYS LIMITED ANNUAL REPORT 1998

  • Page 41
    ... 7,250 87 2,854 2,941 562 3,241 3,803 6,744 The US$ figures are for information only and are translated at HK$7.8. Peter Sutch Henry Fan Director Hong Kong, 10th March 1999 Director The notes on pages 41 to 61 form part of these accounts. CATHAY PACIFIC AIRWAYS LIMITED ANNUAL REPORT 1998 39

  • Page 42
    ...) 4,381 374 (307) (217) 96 - (2) (56) (292) 562 2 272 10 (101) (372) 94 - (56) (425) (232) 798 (4) 562 24 24 The US$ figures are for information only and are translated at HK$7.8. The notes on pages 41 to 61 form part of these accounts. 40 CATHAY PACIFIC AIRWAYS LIMITED ANNUAL REPORT 1998

  • Page 43
    ... The net profit arising from the sale of investments mainly relates to the sale of a 4.5% shareholding in a company operating a computerised reservation system business in Asia. The Group still maintains an 8.4% shareholding in this business. CATHAY PACIFIC AIRWAYS LIMITED ANNUAL REPORT 1998 41

  • Page 44
    ...) (501) 881 Income from funds with investment managers (570) 311 36 1 37 (309) (153) (462) 907 (572) 335 2,058 (942) 1,116 519 (303) 216 Finance income and expenses relating to defeasance arrangements have been netted off in the above figures. 42 CATHAY PACIFIC AIRWAYS LIMITED ANNUAL REPORT 1998

  • Page 45
    ...)/earnings per share Loss per share is calculated by dividing loss attributable to shareholders of HK$542 million (1997: profit HK$1,694 million) by the daily weighted average of 3,384,278,752 (1997: 3,423,428,308) shares in issue throughout the year. CATHAY PACIFIC AIRWAYS LIMITED ANNUAL REPORT...

  • Page 46
    ...Aircraft and related equipment Owned Leased HK$M HK$M Other equipment Owned Leased HK$M HK$M Properties under Properties construction HK$M HK$M Total HK$M GROUP Cost...year At beginning of the year COMPANY Cost At beginning of the year ... - 65,658 44 CATHAY PACIFIC AIRWAYS LIMITED ANNUAL REPORT 1998

  • Page 47
    ...: Group 1998 HK$M 1997 HK$M Headquarters and hotel Training facilities Stores building Catering facilities Total 905 562 205 - 1,672 2,257 296 77 1,233 3,863 Included in the cost of the properties under construction is land held under medium-term lease in Hong Kong with a net book value of HK...

  • Page 48
    ...Company 1998 1997 HK$M HK$M Staff housing loans and other receivables Investments at cost - listed in Hong Kong (Market value: $38 million, 1997: $106 million) - unlisted 887 1,011 746 783 105 285 1,277 105 329 1,445 - 285 1,031 - 329 1,112 46 CATHAY PACIFIC AIRWAYS LIMITED ANNUAL REPORT...

  • Page 49
    ... Group 1998 HK$M 1997 HK$M 1998 HK$M Company 1997 HK$M Current assets: Stocks Debtors Due from associated companies Due from other related companies Short-term deposits and bank balances Funds with investment managers - debt securities listed outside Hong Kong - cash and deposits Other liquid...

  • Page 50
    ... lease arrangements equates to payments which are expected to be made during the years 2000 to 2011 as follows: 1998 HK$M 1997 HK$M Within two to five years Within five to ten years Over ten years 666 4,395 770 5,831 463 3,939 775 5,177 48 CATHAY PACIFIC AIRWAYS LIMITED ANNUAL REPORT 1998

  • Page 51
    ...520 3,214 93.9¢ 49.5¢ (b) Other items Other items principally consist of the unamortised discount arising on the purchase of zero coupon bonds and securities for the purpose of meeting certain of the Group's future finance lease obligations. CATHAY PACIFIC AIRWAYS LIMITED ANNUAL REPORT 1998 49

  • Page 52
    ... At beginning of the year Loss for the year Purchase of Company's shares: - premium paid on purchase - transfer between reserves At end of the year (18) (1) 14,076 - - 7,158 - 1 11 18) - 21,245 15,097 (1,002) 7,158 - 10 - - - - - 22,265 (1,002) 50 CATHAY PACIFIC AIRWAYS LIMITED ANNUAL REPORT 1998

  • Page 53
    ...he e t s 19. Long-term loans, bonds and other liabilities Group 1998 HK$M 1997 HK$M 1998 HK$M Company 1997 HK$M Bank loans - secured - unsecured Other loans - secured - unsecured ... 126 221 833 386 5,522 1,039 4,692 1,320 4,303 899 2,682 983 CATHAY PACIFIC AIRWAYS LIMITED ANNUAL REPORT 1998 51

  • Page 54
    ... obligations under finance leases exceeded the Group's by HK$1,569 million (1997: HK$1,711 million) as a result of net amounts owing to subsidiary companies on certain aircraft financing arrangements, which have been eliminated on consolidation. 52 CATHAY PACIFIC AIRWAYS LIMITED ANNUAL REPORT 1998

  • Page 55
    ...Minority interests HK$M Total HK$M At beginning of the year Finance raised on leased assets Loan and finance lease repayments New financing Purchases of bonds and security deposits placed Transfer of deposits placed to managed fund Dividends paid to minority interests Minority interests' share of...

  • Page 56
    ... Funds with investment managers Other liquid investments Short-term deposits maturing beyond three months when placed Net liquid funds at end of the year 2,119 7,316 2,719 86 12,240 4,381 8,100 1,845 1 14,327 2,205 (86) 2,119 4,473 (92) 4,381 54 CATHAY PACIFIC AIRWAYS LIMITED ANNUAL REPORT...

  • Page 57
    ... following: 1998 HK$M 1997 HK$M Fees Remuneration: Salaries, allowances and benefits in kind Contributions to retirement schemes - 36 2 38 - 38 3 41 Housing costs accounted for 28% (1997: 27%) of emoluments. 26. Employee information The five highest paid individuals of the Company included four...

  • Page 58
    ...meet the full cost of all benefits due by SGRBS to their employee members, who are not required to contribute to the scheme. Staff employed by the Company in Hong Kong on expatriate terms before 1st April 1993 were eligible to join another scheme, the Cathay Pacific Airways Limited Retirement Scheme...

  • Page 59
    ... be paid annually. No such service fee was paid for the year ended 31st December 1998 (1997: HK$43 million) and expenses of HK$185 million (1997: HK$191 million) were reimbursed at cost. ii) During the year, a loan of HK$120 million was made to Hong Kong Aircraft Engineering Company Limited which is...

  • Page 60
    ... not contracted for - aircraft and related equipment - investments at Hong Kong International Airport - others - 9 - 9 Grand Total 4,228 - 587 244 831 15,116 - - - - 3,476 - - 216 216 12,344 12,042 2,218 25 14,285 3,476 - - 3,476 12,042 71 15 12,128 58 CATHAY PACIFIC AIRWAYS LIMITED ANNUAL REPORT...

  • Page 61
    ...of guarantees given by the Company relating to long-term loan facilities of up to HK$700 million (1997: HK$800 million). 32. Comparative amounts Certain comparative amounts have been reclassified to conform with the current year's presentation. CATHAY PACIFIC AIRWAYS LIMITED ANNUAL REPORT 1998 59

  • Page 62
    ... Pacific Catering (Holdings) Pty Limited Cathay Pacific Catering Services (H.K.) Limited Cathay Holidays Limited Cathay Pacific Leasing Limited Cathay Pacific Loyalty Programmes Limited CLS Catering Services Limited Guangzhou Guo Tai Information Processing Company Limited Hong Kong Airport Services...

  • Page 63
    ... Engineers Limited Cathay Kansai Terminal Services Company Limited Cebu Pacific Catering Services Inc Hong Kong Aircraft Engineering Company Limited Hong Kong Airport Restaurant Caterers Company Limited Hong Kong Dragon Airlines Limited Securair Limited VN/CX Catering Services Limited * Shareholding...

  • Page 64
    ... Summary Passenger services HK$M 18,532 Cargo services HK$M 7,040 Traffic turnover HK$M 25,572 Catering and other services HK$M 1,123 Total turnover HK$M 26,695 Operating profit Exceptional items Net finance charges Net operating (loss)/profit Share of profits of associated companies (Loss)/profit...

  • Page 65
    ... 1 year Between 2-5 years Between 1-2 years Over 5 years Currency analysis of long-term gross borrowings HK$ million 12,000 10,000 8,000 6,000 4,000 2,000 0 89 JPY USD 90 EUR GBP 91 HKD 92 AUD CAD 93 CHF 94 Others 95 96 97 98 CATHAY PACIFIC AIRWAYS LIMITED ANNUAL REPORT 1998 63

  • Page 66
    ... Excess baggage carried Mail carried Tonnes Length of scheduled route '000 Kilometres network Destinations at year end Number Number Staff number at year end 000's ATK per staff (average) ATK per HK$'000 staff cost Unit On-time performance (Note) Departure (within 15 minutes) Operating fleet Daily...

  • Page 67
    ...97 98 Number of staff ATK per HK$'000 staff cost 18,000 1,600 15,000 1,200 12,000 9,000 800 6,000 400 3,000 0 89 90 91 92 93 94 Cabin Ports 95 96 97 98 0 89 90 91 92 93 94 95 96 97 98 Hong Kong ground staff Cockpit CATHAY PACIFIC AIRWAYS LIMITED ANNUAL REPORT 1998...

  • Page 68
    ...Passenger/Cargo and mail yield = Passenger revenue/Cargo and mail revenue Revenue passenger kilometres/Cargo and mail tonne kilometres Cost per ATK = Operating costs and net finance charges of Cathay Pacific Airways ATK of Cathay Pacific Airways 66 CATHAY PACIFIC AIRWAYS LIMITED ANNUAL REPORT...

  • Page 69
    ... Shareholder Information For further information about the Cathay Pacific Airways Group, please contact: Corporate Communication Department Cathay Pacific Airways Limited 8th Floor, North Tower Cathay Pacific City Hong Kong International Airport Hong Kong Tel: 2747 5210 Fax: 2810 6563 Cathay Pacific...

  • Page 70
    DESIGN: FORMAT LIMITED COVER PHOTOGRAPH BY SAMUEL LO PRINTED IN HONG KONG THIS REPORT IS PRINTED ON RECYCLED PAPER