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Cathay Pacific Airways Limited Annual Report 2008 29
Financial Review
Settlement of the United States
Department of Justice cargo
investigations
Cathay Pacific is currently the subject of antitrust
investigations by competition authorities in various
jurisdictions. In June 2008, Cathay Pacific announced
that it had entered into a plea agreement with the
United States Department of Justice under which it
has pleaded guilty to a violation of the United States
Sherman Act. A provision of US$60 million (equivalent
to HK$468 million) for the fine was made in the
Group’s interim results and such fine was paid in
August. Cathay Pacific continues to cooperate with the
competition authorities by which it is being
investigated and, where applicable, to defend itself
vigorously. Additionally, Cathay Pacific received and
responded to a Statement of Objections issued by the
European Commission, and received and is evaluating
a Statement of Claim issued by the New Zealand
Commerce Commission. These investigations and civil
actions against Cathay Pacific, are ongoing and the
outcomes are subject to uncertainties. Cathay Pacific
is not in a position at the present time to assess the
full potential liabilities and is therefore not in a position
to make provisions additional to the fine already paid in
the United States. The matter is also disclosed as a
contingent liability in note 30(e) to the accounts.
Review of other subsidiaries and
associates
The results recorded by our other subsidiaries and
associates were disappointing. The share of profits
from associates decreased by HK$1,787 million to a
loss of HK$730 million mainly as a result of the loss
recorded by Air China.
A review of their performance and operations is
outlined below:
AHK Air Hong Kong Limited (“AHK”)
• The only all-cargo carrier in Hong Kong is 60%
owned by Cathay Pacific. It continues to operate
express cargo services for DHL Express as its core
business.
• AHK currently operates a fleet of eight Airbus A300-
600F freighters.
• AHK further expanded its overnight express cargo
network to Manila at the beginning of 2008,
increasing the number of cities served in Asia to 11.
Services to Nagoya, Seoul, Singapore and Taipei
have been enhanced during the year.
• With its network expansion, capacity increased by
10.3%. Load factor and yield increased by 1.5
percentage points and 17.7 % respectively.
• AHK recorded a higher profit in 2008 despite the
adverse impact of higher fuel prices in the first half.
Cathay Pacific Catering Services (H.K.) Limited
(“CPCS”)
• CPCS, a wholly owned subsidiary, is the principal
flight kitchen in Hong Kong.
• The company produced a record 21.9 million meals
in 2008 and this accounts for 62.1% of the airline
catering market in Hong Kong. Business volume
increased by 2.1% over 2007.
• Increased food costs, rent and fuel costs reduced
the profit margin from 2007.
• The performance of other inflight catering kitchens
in Asia and Canada were disappointing with lower
profits than in 2007.
• On 22nd July 2008, the Group sold half of its 60%
shareholding in its Canadian operations to LSG
Skychefs. The Group’s shareholding in this inflight
catering kitchen decreased from 60% to 30%.
• While the shareholding on the Vietnam kitchen
remains unchanged, the profit sharing was reduced
from 40% to 35% with effect from 12th July 2008
in accordance with the joint venture agreement.
Hong Kong Airport Services Limited (“HAS”)
and Hong Kong International Airport Services
Limited (“HIAS”)
• HAS, a wholly owned subsidiary, is the largest
franchised ramp handling company at HKIA whereas
HIAS was a wholly owned subsidiary providing
ground services at HKIA to Dragonair and 13 other
airlines.
• In November, the two companies successfully
merged to become an integrated ground handler
offering both ramp and passenger handling services.
It is now providing a variety of ground services to 44
airlines including Cathay Pacific and Dragonair.
• Both companies’ results were impacted by the
economic downturn in the second half of the year.