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            september 17, 2019

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Cathay fuel hedging losses rise, profit margins come under pressure


Cathay Pacific Airways has lost millions of dollars from fuel-hedges over the past two years, and the airline has to overcome more challenges to retain profit margins now that the Hong Kong government has added new fees on passengers to finance the construction of a third runway.
The charges to fund the expansion of the Chek Lap Kok airport follow a ban on airlines to levy fuel surcharges that was imposed by the government in February, after crude oil prices plummeted to as low as US$26 a barrel. Cathay said in March that 60 per cent of its fuel needs this year is hedged at an average $85 a barrel, reported Bloomberg.
The government's measures pose the risk of pushing ticket prices down further and lowering yields as the airline fights to prevent passengers switching to Chinese and Middle Eastern carriers that are rapidly expanding in the region.
"There has been substantial capacity increase from Chinese carriers," analyst K Ajith at UOB Kay Hian Pte in Singapore was quoted as saying. "Cathay has to lower fares to make it more attractive for people to come to Hong Kong and that's hurting yields."
According to the median estimate in a Bloomberg News survey of four analysts, Cathay's net income is anticipated to have declined by 46 per cent to HK$1.07 billion ($138 million) in the first half compared to the same period last year.
Cathay's ticket prices fell by six to seven per cent after the fuel surcharge was removed in February. More challenges await the airline as the authorities have introduced a fee of between HK$70 and HK$180 on passengers flying out of Hong Kong to fund the HK$141.5 billion expansion of the airport.
Furthermore, the Hong Kong airport plans to raise aircraft parking and landing fees by up to 27 per cent from September 1.

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