As Hong Kong’s home airline for more than 76 years, Cathay Pacific represents Hong Kong on the world stage. We are a key enabler of the city’s economic development through our ability to connect Hong Kong to the Chinese Mainland and the rest of the world. We have played our part by maintaining hub connectivity even during the most difficult times of the COVID-19 pandemic, ensuring the important flow of people and cargo continued.
Cathay Pacific has experienced three challenging years due to the COVID-19 pandemic, with 2022 very much being a year of two halves. The emergence of the Omicron variant at the beginning of the year led to increasingly stringent travel and operational restrictions during the first few months of 2022, particularly in Hong Kong and the Chinese Mainland. This significantly constrained our ability to operate both passenger and freighter flights. The challenge this posed for our business was exemplified on 12th March 2022 when we carried just 58 passengers.
As the COVID-19 situation in Hong Kong improved and these restrictions were progressively adjusted from 1st May onwards, we were able to slowly add back some of our flight capacity. The most significant adjustments came in September, when the quarantine requirements for both passengers entering Hong Kong and for Hong Kong-based aircrew were lifted.
Financial Results
The Cathay Pacific Group, including airlines, subsidiaries and associates, reported an attributable loss of HK$6,548 million in 2022 (2021: loss of HK$5,527 million). The loss per ordinary share in 2022 was HK111.3 cents (2021: loss per ordinary share of HK95.1 cents).
The second-half 2022 results for our airlines and subsidiaries saw a marked improvement over our first-half 2022 results, reporting an attributable profit of HK$2,261 million in the second half of 2022, but an attributable loss of HK$255 million for the full year of 2022. However, the results from associates, the majority of which are recognised three months in arrears, reflected a significant loss of HK$6,293 million (2021: loss of HK$1,710 million). As a result, the Group’s attributable loss in the second half of 2022 was HK$1,549 million (2022 first half: loss of HK$4,999 million; 2021 second half: profit of HK$2,038 million).
The difficult start to the year initially had an adverse impact on our monthly operating cash burn. However, following the Hong Kong SAR Government’s initial adjustments to travel restrictions and quarantine requirements from 1st May, we returned to being operating cash generative towards the end of the first half of 2022. Further adjustments to restrictions came into effect in Hong Kong in the second half of the year, and we were operating cash generative in the second half of 2022 and consequently overall for the full year.
Our available unrestricted liquidity stood at HK$27.2 billion as at 31st December 2022. We are grateful to the Hong Kong SAR Government for agreeing to extend the drawdown period of the HK$7.8 billion bridge loan facility for a further 12 months to 8th June 2023, giving us greater flexibility to manage our liquidity position.
Prospects
After three years of unprecedented disruption due to the COVID-19 pandemic, we are pleased to now be at the stage where we are rebuilding a new Cathay Pacific which Hong Kong can be proud of. We have a crystal- clear strategy that we are confident will deliver long-term success.
To achieve this, we are focused on reconnecting. This means reconnecting Cathay Pacific with Hong Kong, the Greater Bay Area (GBA) and the Chinese Mainland, as well as reconnecting Hong Kong with the world.
Hong Kong has an important role to play in the overall development of the country under the 14th Five-Year Plan, which notably reinforces the importance of strengthening Hong Kong’s status as an international aviation hub. We are reconnecting the Hong Kong international aviation hub by rebuilding our flight capacity to serve the needs of the Hong Kong, Chinese Mainland and international travel markets. We anticipate that the Group – comprising passenger airlines Cathay Pacific and HK Express – will be operating about 70% of its pre- pandemic passenger flight capacity by the end of 2023, with an aim to return to pre-pandemic levels by the end of 2024.
The aviation landscape is evolving and Cathay Pacific must meet the changing needs of our customers, of our people and of Hong Kong. We are taking a measured and responsible approach to the rebuilding of our operations. We recognise there have been difficulties regarding crew rosters, resourcing, schedules and customer support hotlines. We will continue to do our utmost to minimise such issues as we continue to rebuild.
The three challenging years of the COVID-19 pandemic have had a significant impact on our financial position. We are grateful to the Hong Kong SAR Government and our shareholders for their continued support. As we rebuild our operations, our cash generation is improving. Going forward, we will continue to take a measured and prudent approach to our cash management given the need to invest in support of the further development of the Hong Kong international aviation hub with the opening of the Three-Runway System.
The Three-Runway System at Hong Kong International Airport is expected to be fully operational by early 2025, and this will usher in a new phase of exciting opportunities as well as increased competition. We are also greatly encouraged by the potential of the GBA as our extended home market. As Hong Kong is integrated economically into the vibrant GBA, we are eager to play our role.
Appreciation
On behalf of the Board, I would like to extend our gratitude to Augustus Tang for his immense contribution as Chief Executive Officer in guiding the Group through the most turbulent period in our more than 76-year history. It gives me great pleasure to congratulate Ronald Lam on his appointment to Chief Executive Officer, and the rest of our new leadership team who are assuming their new responsibilities. Succession planning has always been a core strength of the Group.
I would like to thank all of our customers for their outstanding support over the past three years. We are continually working to add more flights and more destinations as quickly as feasible, and we look forward to welcoming all of our customers onboard.
I would also like to extend a sincere thank you to all of our people, especially our front-line employees. Despite extremely difficult conditions, they have continued to provide our customers with the industry-leading service that we are known for and to keep our airlines, and our home city, safely connected to the world.
Chief Executive Officer’s Review and Outlook
2022 was another challenging year for the Cathay Pacific Group due to the travel restrictions brought by the COVID- 19 pandemic. However, we were very encouraged to see a bright light at the end of the tunnel in the second half of 2022, and the positive momentum has continued into 2023. After three brutal years of the COVID-19 pandemic, we have finally entered into a new exciting phase, in which we will rebuild Cathay Pacific for Hong Kong.
Review of 2022
Our travel and cargo operations in 2022 were constrained by travel restrictions and quarantine requirements for both travellers and Hong Kong-based aircrew that were in place in Hong Kong until the Hong Kong SAR Government began introducing progressive adjustments from 1st May onwards. These adjustments enabled us to gradually resume more flights, especially between October and December.
On the travel side, across Cathay Pacific and HK Express, we added about 3,000 passenger flights during the fourth quarter of 2022. By December, the Group was operating about one-third of pre-pandemic passenger flight capacity, representing approximately eight times the average capacity the airlines together operated in the first half of the year. Cathay Pacific ended the year operating passenger flights to 58 destinations, double the 29 destinations the airline flew to in January 2022.
On the cargo side, we resumed operating a full freighter schedule in August. As we added more passenger flights, the additional belly capacity provided by our passenger aircraft enabled us to offer more options to our cargo customers. By the end of the year, the Group was operating about two-thirds of pre-pandemic cargo flight capacity levels.
Business Performance of Cathay Pacific
In 2022, Cathay Pacific’s passenger revenue increased by 214.9% to HK$13,686 million compared with 2021. Passenger flight capacity, measured in available seat kilometres (ASKs) increased by 51.6%, while traffic, measured in revenue passenger kilometres (RPKs) increased by 258.3%. We carried a total of 2.8 million passengers in 2022, an average of 7,682 per day, which was 291.1% more than in 2021. Load factor was 73.6% compared with 31.1% in 2021.
Meanwhile, cargo revenue in 2022 decreased by 16.6% to HK$26,990 million compared with 2021. Capacity, measured in available cargo tonne kilometres (AFTKs), decreased by 19.0% mainly due to the reduction in cargo capacity operated, particularly in the first part of the year, due to elevated COVID-19 crew quarantine restrictions. Traffic, measured in cargo revenue tonne kilometres (RFTKs) decreased by 29.8%. Total tonnage decreased by 13.4% to 1,154 thousand tonnes. Load factor was 70.6% compared with 81.4% in 2021, and yield increased by 18.5% to HK$4.67.
We remained focused on prudent cost management, as has been the case throughout the pandemic. However, certain factors such as high fuel prices did have an impact on our costs. Non-fuel costs for 2022 decreased by 5.9% to HK$34,599 million compared with 2021. Total fuel costs for Cathay Pacific (before the effect of fuel hedging) increased by HK$4,207 million (or 48.2%) compared with 2021.
Business Performance of Subsidiaries and Associates
HK Express reported a loss of HK$1,359 million for 2022 (2021: loss of HK$1,978 million). The airline’s results were adversely affected by the stringent travel restrictions and quarantine requirements, but benefitted from adjustments to these restrictions from 1st May onwards, particularly in the last quarter.
Air Hong Kong reported a profit of HK$776 million for 2022 (2021: profit of HK$748 million). Quarantine requirements for Hong Kong-based cargo aircrew, which were in place from the start of 2022 until 1st May, affected the airline’s ability to operate greater capacity during that period.
Our airline services subsidiaries’ financial performance declined in 2022 compared with 2021. The substantial reduction in passenger and cargo volumes due to the global pandemic affected their results.
Results from associates declined compared with 2021.The losses were caused by the continued impact of COVID- 19, low passenger demand and capacity, high fuel prices and fluctuating exchange rates.
Key Developments
While 2022 was a challenging year for the Cathay Pacific Group, we also achieved a number of important milestones. In addition to taking delivery of five new, modern aircraft, we also reactivated 24 of our aircraft that had been parked overseas as we start to build back our flight capacity.
Expanding on the introduction in 2021 of our new premium travel lifestyle brand, Cathay, 2022 saw the introduction of an elevated membership experience that has brought the best of the Marco Polo Club and Asia Miles under one Cathay membership programme. We have more than 13 million members and we want to thank them for their ongoing loyalty and support over the years. In 2022, we also opened our very first Cathay-branded retail space in Hong Kong.
Furthermore, we continued to make major strides towards our sustainable development goals. In 2022, we launched the Cathay Pacific Corporate Sustainable Aviation Fuel (SAF) Programme, the first major programme of its kind in Asia, and SAF was uplifted and used at Hong Kong International Airport for the first time as part of the programme. We also signed an offtake agreement with Aemetis for the supply of blended SAF starting in 2025.
Outlook for 2023 and Beyond
As we put the past few challenging years behind us and move into a new phase, our focus is now firmly on rebuilding Cathay Pacific for Hong Kong. We are reconnecting Cathay Pacific with Hong Kong, as well as reconnecting Hong Kong with the world.
To achieve this, we are doing more than simply returning to where we were before the pandemic. We are rebuilding a Cathay Pacific that is better than before. We have a purpose of moving people forward in life and an ambitious vision to become one of the world’s greatest service brands, a brand that our people, our customers and Hong Kong can be truly proud of. Being thoughtful, progressive, and can-do form the core of our culture.
Four Lines of Business
Underpinning our corporate strategy are our four lines of business – Premium Travel, Low-Cost Travel, Cargo and Lifestyle. Each of these is guided by an ambition to excel: to be one of the world’s best premium airlines; to be the best-practice low-cost carrier in Asia; to be the most customer-centric air cargo brand in the world; and to inspire and enable our customers to enjoy a premium travel lifestyle.
For Travel, we take a strong dual-brand approach that leverages the premium service of Cathay Pacific alongside the unique strengths and growth potential of our low-cost carrier HK Express. This enables us to cater to the needs of all customers, providing them with greater choice to enjoy travel the way that suits them.
Cargo has been an especially important part of our business over the past few years, and remains so. The efforts of our cargo team to go above and beyond for our customers have been exceptional. This was exemplified by Cathay Cargo being named Cargo Airline of the Year in Air Transport World’s (ATW) 2023 Airline Industry Achievement Awards for continuing to grow, innovate and adapt through some of the most challenging restrictions.
Our Lifestyle business – built on the five core pillars of Holidays, Payment, Wellness, Shopping and Dining – will also continue to expand and grow.
Customer centricity is one of our key pillars guiding how we will deliver on our strategy. This means forging deep, data-driven insights into what our customers love about Cathay to build loyalty and advocacy. We are also acutely focused on delivering operational excellence to ensure a consistently efficient operation; building a high- performance culture that emphasises creating a signature employee experience, and a diverse and inclusive workplace; and maximising productivity and value creation, to help us work smarter, better and to continuously improve.
Three Key Development Areas
To enable the success of our four lines of business, it is crucial that we look ahead and continue to build new capabilities for the future. The three key development areas to help us deliver on our corporate strategy are: making
the Greater Bay Area (GBA) part of our extended home market; transforming into a digital leader famous for our strong digital culture and capabilities; and becoming a leader in sustainability.
Our goal in the GBA is to become the preferred choice for both premium and low-cost international travel to and from the region. Central to our strategy is offering customers a seamless, hassle-free and differentiated cross- border connecting experience between cities in the GBA and Hong Kong International Airport (HKIA). We are committed to providing a wide range of reliable and convenient intermodal services, including air, sea and land options, for GBA travellers to connect seamlessly with their Cathay Pacific and HK Express flights at HKIA.
On the cargo side, Cathay Pacific Cargo and Cathay Pacific Services Limited became the first carrier and cargo terminal operator, respectively, to have cargo shipments accepted in Dongguan Logistics Park and transported to HKIA by ship for outbound airfreight in February 2023. This also involved establishing our own upstream bonded facility – the Cathay Cargo Terminal Dongguan – located at the Bestar Logistics Centre in Dongguan.
To enable our GBA strategy, we opened a new GBA head office in Shenzhen last July and we continue to explore opportunities for growth and investment in the region, including building partnerships to expand our curated lifestyle propositions.
Our digital strategy is underpinned by our focus on customer centricity with a framework built around data analytics, technological innovation and company-wide digital transformation. We have been having great success in these areas, including being recognised with a number of industry awards and rolling out new technological innovations such as artificial intelligence to improve the efficiency and quality of our customer service offering.
Regarding sustainability, we are dedicated to achieving our target of net-zero carbon emissions by 2050 and using Sustainable Aviation Fuel (SAF) for 10% of our total fuel consumption by 2030. We have set specific key performance indicators (KPI) related to our climate-change performance. Notably, Cathay Pacific secured its first sustainability-linked aircraft financing for a new Airbus A321neo aircraft in 2022, and we will continue to explore opportunities to incorporate sustainability-linked targets in our financing. We also achieved a major milestone in our journey towards gender equality this year by being listed on the 2023 Bloomberg Gender-Equality Index (GEI).
Outlook and Appreciation
As global travel resumes, and Cathay Pacific and the Hong Kong international aviation hub rebuild, we are eager to welcome visitors to our home city. We are excited to support initiatives by the Hong Kong SAR Government, the Hong Kong Tourism Board and the Hong Kong Trade Development Council to attract visitors, as well as returning mega events such as the Cathay/HSBC Hong Kong Rugby Sevens and the Clockenflap music festival.
The past few years have been challenging, but we are taking forward lessons to be the Cathay Pacific for the future. As we move beyond the challenges, we want people to reconnect with Cathay Pacific and see for themselves how we are moving into a new exciting phase.
We are truly grateful for the continued support our customers have shown us throughout the past few years. We are committed to bringing them more flights, more destinations and even more exciting things to come as we rebuild for the future.
I would particularly like to recognise and thank our global team of aviation professionals who have kept Hong Kong people and businesses connected to the world. I wish to acknowledge their contributions in what has been an extremely challenging environment. Taking on my new role as the Chief Executive Officer from 2023, I am truly blessed with a team that has displayed such high levels of professionalism, teamwork, customer focus and resourcefulness.
Ronald Lam
Chief Executive Officer Hong Kong, 8th March 2023
Tags: Ronald Lam, Cathay Pacific
