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4Cathay Pacific Airways Limited Annual Report 2008
As the impact of the financial crisis in the second half
of 2008 became clearer further measures were
announced to limit the impact on the business,
including revising downwards the original growth
plans for 2009. As a result of the downturn we plan
to dispose of the five Boeing 777-200 aircraft in the
Cathay Pacific fleet, while leases on two Airbus
A330-300s and one Airbus A320-200 operated by
Dragonair will not be renewed when they expire in
June and October 2009. On the freighter side, three
of our Boeing 747-400BCF “Boeing Converted
Freighters” have now been taken out of service –
two from Cathay Pacific and one from Dragonair. We
also announced in January 2009 suspension of the
construction of the Cathay Pacific cargo terminal at
Hong Kong International Airport for two years.
In June 2008, Cathay Pacific announced it had
entered into an agreement with the United States
Department of Justice under which it pleaded guilty
to a violation of the United States Sherman Act and
paid a fine of US$60 million (equivalent to HK$468
million). A provision for this amount was made in the
interim results, and this amount was paid in August.
Cathay Pacific is still the subject of antitrust
investigations by competition authorities in a number
of other jurisdictions and is cooperating fully with the
relevant authorities and vigorously defending itself as
applicable. 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. 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 further provisions for any
antitrust fines.
Having made a painful adjustment to high fuel prices,
the aviation industry now has to adjust to a severe
economic downturn. Cathay Pacific expects an
extremely challenging year in 2009. Passenger and
cargo demand are expected to remain weak and, if fuel
prices remain at their present levels, further losses on
fuel hedging contracts will be incurred (although they
will not be at the levels incurred in 2008 and the actual
cost of fuel will be substantially lower than in 2008).
Up to the end of February, unrealised mark to market
losses on fuel hedging of HK$1.9 billion have been
incurred in 2009, compared with HK$7.6 billion for the
whole of 2008. The 2009 losses principally reflect
reductions in the forward prices payable for fuel during
the periods in which the relevant fuel hedging
contracts will mature.
As a commercial airline with no financial support or
subsidies from the government, we will manage
resources in a responsible and prudent manner.
Despite current difficulties, Cathay Pacific will continue
to offer a superb international network through the
Hong Kong hub, bolstered by the synergies with our
sister carrier Dragonair and a continued strong
relationship with Air China.
Christopher Pratt
Chairman
Hong Kong, 11th March 2009
Chairman’s Letter