Cathay reports 2013 cargo results and undertakes a major freighter fleet revamp

Hong Kong-based Cathay Pacific released its full-year 2013 results, and while the company as a whole had an excellent year, with profit more than tripling to US$337 million, cargo activities suffered in comparison to 2012. As Cathay said in its report: “The Group’s cargo business has been adversely affected by weak demand since April 2011. There was some recovery in business during the last three months of 2013, though business was still weaker than the same period of 2012.”

As can be seen in the chart at right, all the basic metrics of cargo performance were down a little from the previous year. Total cargo declined 1.5% in tonnes carried and 2.1% in revenue-tonne-kilometers flown, load factor was down 2.4 percentage points, yield dropped 4.1%, and total cargo revenue was down 3.6% to just over $3 billion. (Cathay does not break out operating profit separately for its cargo and passenger units).

Following several years of weak cargo demand, and looking ahead to a future of low demand growth and increasing utilization of belly capacity, Cathay undertook a major revamp of its own freighter fleet, and a complete revamp of the freighter fleet of its Air China Cargo joint venture. As part of an agreement among Cathay, Air China Cargo, Air China, and Boeing, signed in March 2013, the carriers set up the following changes:

  • Cathay cancelled an order for eight 777Fs, placed an order for three more 747-8Fs, and acquired an option to purchase five 777Fs
  • Air China Cargo ordered eight 777Fs (effectively a transfer of the eight cancelled by Cathay)
  • Boeing agreed to purchase four 747-400BCFs from Cathay and seven from Air China Cargo

These agreements, combined with the decision to retire Cathay’s remaining 747-400Fs and Air China Cargo’s 747-400Fs and 747-400BDSFs, will leave the two carriers with smaller, but much newer and more fuel-efficient freighter fleets. Within a year or two, Cathay will be down to 20 freighters (fourteen 747-8Fs and six 747-400ERFs) and Air China Cargo will have just the eight 777Fs.

Not shown in the cargo results is the impact of Cathay’s decision to build and operate its own cargo terminal at Hong Kong International. That impact on the company’s bottom line was negative in 2013, as the terminal did not become fully operational until October, but Cathay says that “in the long run this facility will reduce costs and improve efficiency in our cargo business, and enable us to provide a wider range of services for our cargo customers. We will open the terminal for third-party business in due course.”

Needless to say, given its just-built status, the new terminal is one of the most modern in the world, and Cargo Facts is pleased that Cathay will offer a tour of the facility to delegates at the conclusion of the Cargo Facts Asia event in Hong Kong next month. Cargo Facts Asia will take place at the Langham Hotel, on 1 – 2 April. If you haven’t registered already, go to www.cargofactsasia.com

We look forward to seeing you there.

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2 Comments

  1. karenjberg says:

    I find it very interesting the aircraft order juggling that took place – very surprised they ordered more 748s, as it seems like the freighter flavor du jour is the 777. OK, yes, they want to replace the 744 and it’s nice to have the nose cone door, but is the 748 as fuel efficient (& cost effective) as the 777?   Rob Martin at BOC said a few years ago that the volume of airfreight pretty much won’t change in the long term– ships have gotten more efficient and quicker crossing their oceans — so the airfreight volume will stay around 3-5% of total freight movement on the planet. Is there just too much lift out there? And is the revenue no longer the icing on the cake that it was in the glory days?

    My money wonders if CX will take delivery of the additional 748s they just ordered….

  2. davidharris says:

    Hi Karen… Cathay has already taken delivery of all of them. They had originally ordered 10 748Fs and eight 777Fs. When they did the deal with Boeing/Air China/Air China Cargo last March, they’d already taken  delivery of six. The next two came in (I think) May and August, and the three they ordered as part of the deal were all delivered in December. And in fact, at the end of December, Cathay ordered one more, bringing the total to fourteen (although that last one won’t be delivered for a while).

    As to your question about why they chose 747-8Fs instead of 777Fs, I don’t have an answer. If you can fill a 747-8F, it’s an incredibly efficient freighter on a cost per tonne-mile basis. If you can’t fill it, well, then you’ve got problems. So my assumption is that Cathay believed that their cargo demand over the next decade or so was such that they would be able to fill them…

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