Cathay Pacific Airways Limited (293) Earnings Call Transcript & Summary

Thank you. The first question, from Bloomberg. Does the company intend to draw down on the government loan or request for an extension?

Oh, sorry. We -- as you've seen from the figures and I talked about, we have the HKD 30.3 billion as a total amount of liquidity, of which HKD 11.1 billion which includes the HKD 7.8 billion government loan remains part of. We will continue to manage our liquidity prudently, and depending on the situation, we may draw down or we may not. It's really something that we manage on a day-to-day, month-to-month basis, so at this point in time, given the uncertainty, it's really hard for me to comment. So at this juncture, I can't comment whether we will or we won't.

Thank you. Next question, from Standard Chartered. Could you provide more guidance on the CapEx for 2022 and 2023?

I, from memory -- and this -- there is further information on this in the announcement. We have got a number of aircraft which [ are, of course ], in our sort of capital expenditure. The biggest part of that is the aircraft. We have [ bought ] 11, I think it is, delivering in 2022, of which 3 are wide body, so they're more expensive. And 8 are narrow body. We have 12 delivering in 2023, 2 of which are wide body and 10 narrow body. And then we have some others on order for delivery post 2024 and beyond. One thing perhaps just to remind people: Typically when we purchase aircraft, we secure financing against them, so it's not an immediate drain on the cash flow. And indeed because of the predelivery payments we make, some instances actually is cash positive to us to -- once the aircraft are delivered.

Thank you. Next question, from Jefferies. It's something that's very close to our hearts. So what is the current closed -- crew quarantine situation? And how does that affect the strategy in terms of planning on our closed loop?

I think that is probably a question that Ronald is better placed to answer than me, so maybe if I can ask Ronald to answer that one.

Sure, Rebecca. Well, currently we are subject to a very tight crew quarantine for both our passenger and cargo operation. On the passenger operations front, whether it's for turnaround [ or layover flight of crew ] and they come back to Hong Kong, they are subject to 14 days quarantine at a hotel, whereas on the [ cargo front ], for any crew that has layover overseas, they are also subject to 7 days of hotel quarantine when they are back into Hong Kong. And these constraints has limited our ability to provide capacity both on the passenger flights and on the cargo flights. At the moment, on the passenger side, because of the crew constraint, we can only operate around 2% of our pre-pandemic capacity, whereas on the cargo side, we started with around 20% of pre-pandemic capacity when the crew quarantine was firstly introduced late December. And later on, [ actually ] we managed to improve to around 30% in that in March as well, but we don't foresee -- unless the crew quarantine arrangement changes, we don't foresee we will be able to [ cover ] more than 1/3 of pre-pandemic cargo capacity at the moment. So it is our #1 priority, right, to look forward to the relaxation of the crew quarantine. Otherwise, our capacity will be seriously constrained. Thank you.

Ronald, thank you. Next question were from DBS. So it's a few parts so we can handle them one by one. So can we expect solid parental support from Swire Pacific to CX in case of further business [ downturn ]? And maybe just on a related note, any further cost-cutting initiative given the highly unfavorable operating environment in Hong Kong? Do we expect more restructuring?

Okay, thank you for the question. I can't comment on behalf of Swire Pacific or other shareholders, but I can say that there is no change to the current shareholding structure. And we would, of course, like to express our deep appreciation both to the Hong Kong SAR government and for our shareholders for their continued support through the recapitalization in 2020 and on an ongoing basis to us as we work our way through this crisis. Thank you. Second question, around restructuring and cost cutting.

And cost cutting.

I have to say, through everything that's happened, our people have -- what -- our people have endured. And we as a team will emerge even better, I believe, even stronger, as we come out of this crisis. We have reassured our people that there are no plans for pay cuts or special leave schemes this year. Our restructuring in October 2020 created a more efficient, more competitive and focused airline. And we think, from the time being, that, that is sufficient, enough to make us -- or rather enable us to emerge from this crisis once the recovery begins. Of course, you can never say never, but with the dual-brand approach and benefiting from, as I say, these efficient and competitive restructuring that has already been done, we think there is no need for redundancies or special leave schemes at this point in time.

Rebecca, thank you. A quick follow-up question, also from DBS. In light of the interest rate hike expectations, are there any changes to the interest rate hedging plans [ set up ], for example, at the [ IRS ]?

Okay. So there is -- I should highlight there's more information on this in our annual report. Typically we do have -- carry some funding that is fixed rate and some that is floating. And we monitor this on an ongoing basis within certain parameters under our sort of company policy. At the end of December 2021, I believe it was -- slightly more than 50% was fixed. And we will continue to monitor this. Thank you.

Rebecca, thank you. So coming up, there are actually a number of questions surrounding fuel hedging, so perhaps we can address them one by one and then so that we can get a clearer message to the market. So maybe the first one: [ Is CX entering into ] any new fuel hedging contracts before February? If yes, what's the notional amount and the average tenor? And any percentage guidance on the overall hedging strategy?

Okay, that's a lot of detail. We have a prudent fuel policy in -- fuel hedging policy, rather, in place. I think I touched on this during the course of the presentation and I don't know whether it would be helpful to go back to that. I'm not sure that I can at the moment, but in this slide you saw that chart that sets out our projection going forward. So the hedges we had in place at December 2021 and the percentage cover effectively through the quarters for the next few years, so you're going to see that percentage information that you're asking there. The fuel hedging policy remains in place. We hedge based on the forecast consumption and the price at the time, so yes, we have continued to hedge in line with that policy and on an ongoing basis. There is no change to that for the time being.

Thank you. "Can you please comment on the rising fuel costs? And how will that affect your cost structure?"

Yes. So again you can look at the -- that page because, I guess, it would give you an indication of this there too because you can see there in terms of the proportion that's hedged. I think, for the first quarter, from memory, we're at least 100%. So you can see the proportion that's hedged. And therefore, the impact on our business will be less. There's also, of course, fuel surcharges that are driven by the price of fuel, which will be generated through the business. So of course, there will be an impact, but based on having the prudent fuel hedging policy in place which is to manage the short-term and medium-term volatility of the fuel price, we believe that is the prudent approach going forward.

[ Thank you ]. Perhaps one more question just on oil price. If the oil price retreat from the current high, at what level will we consider entering into new hedging contracts? "Do you have some existing hedging contracts that go into 2024?"

So this is a similar question, I guess. We are continuing to hedge in accordance with our policy that sets out how much we should hedge at a certain price and dependent on the projection we have for volume to be consumed. That runs from a 2-year period. So as we continue to do it, the 2-year period extends, so yes, we do have some into the early part of 2024.