Cathay Pacific: King Hong
Turning the corner? — March 2019

Profit warnings are not unusual. What is rare is for a company to notify the markets that its annual results will be substantially higher than market expectations. And this is what Cathay Pacific did in February this year suggesting that annual profits would approach HK$2.3bn, twice as high as market expectations. Indeed when it published its results in March net attributable profits came in at HK$2.3bn (US$218m) for 2018 up from a loss published a year ago of HK$(1.2)bn.

But Cathay Pacific has had a tough time since the GFC. It last made a decent profit in 2010 — an operating margin of 12% on revenues of HK$89bn (see chart). Since then, it has achieved an average operating margin of a paltry 2.7%, while revenue has grown by an annual average of only 2% a year. The results for 2018 show operating margins of 3% and net margins of 2%. And this is one of the few well-run airline groups based at the heart of the region displaying some of the highest rates of air traffic growth and potential in the world.