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

As to the question about how much of our cargo capacity has been contracted out? I'm afraid this is commercially sensitive. So I'm not able to review that. So I'm sorry about that.

Gentleman back, on our right.

It's Tim Bacchus from Bloomberg Intelligence. Just a couple of questions. One is continuing on that capacity note. So I noticed the fixation or the focus on flights in terms of the recovery. When I look at the schedules in [ serial ] that you filed, which tend to be quite accurate in terms of what you actually then do fly, it's lower on an ASK basis, right? And so oftentimes, the best [ we're getting ], we're looking at ASK. So I see maybe second quarter were like 70% of 2019 rather than 80% on the flight side. I guess my question here is it looks like you're flying much shorter stage lengths. I mean much fewer long-haul flights. So how long do you sort of expect that sort of situation to continue? Is there a time when long haul will catch up and you'll see that average stage length return, ASKs will pick back up? And the second question is on the labor cost side. So we've seen the volume side, the up 20% that you're projecting for this year. I guess the question is, how about on the pricing side, the salary side. So I presume we're going to see that bonus from last year's good results come in the first half, but then average sort of salary type increases that we could see. And also on the labor, if you could break down where sort of cabin crew pilots and others, the 5,000 would come from.

Yes, it is correct that we -- when we talk about 80%, 100%, we're talking about flights, passenger flights. I think it's fair to say that when we say pre pandemic comparison, we were really talking about 2019 already. And today is already 2024. So it was really 5 years ago, and it was a very outdated market, I would say. So the world has changed a lot, and we are not necessarily flying back to where we used to fly 5 years ago. So we -- our route planning, network planning is based on the latest well situation depending on where the customer demand is, then we will build our network accordingly. So it is really hard to just compare, therefore, right? That's the same risk structure. And therefore, we believe that by looking at the number of flights is more relevant because the risk structure has changed. That's one factor. The other factor is that before pandemic, we had 3 airlines, right? We have Cathay Pacific, we have Cathay Dragon and HK Express. But after the pandemic, we are now under this dual brand strategy. So Cathay Pacific only and HK Express. So our strategy has changed also by a great deal. And HK Express was airline that we acquired in the mid of 2019. And we have been growing it. In fact, in terms of its number of flights is already by end of last year, it was already 130% when compared to pre-pandemic. So the market is really changing, I would say. And therefore, we're less hung up on chasing the pre-pandemic ASK, which reflected the restructure that we had at that time. And therefore, we'll be more looking at the frequency moving forward. In terms of -- you spoke about labor cost. I think it is worth mentioning that during the pandemic, we have done a lot of transformation in our organization, including the cessation of Cathay Dragon being one of them and then turning into this deal brand strategy. The other thing major transformation we've done is with regard to our pilots and cabin crew. We've transformed the way our crew work. And in general, I would say now our crew are able to work in a more efficient and productive way than before. So when we look at labor costs, it's not just the salary or other remuneration, we should look at productivity. And I would say, overall, I think we are in a much more competitive position versus our industry peer coming out from the pandemic. So end of last year, we announced a salary increment of 3.8%, which is more or less in line with the market. And today, I think you'll find out from the news anyway that we've announced a proper share for our people up to 7.2 weeks. And last September, we paid our people, special recognition reward for people who have supported us throughout the pandemic. We paid our people up to 6 weeks. And then in January this year, we have paid a discretionary bonus of 1 month. So in the span of around 8 months, we have actually rewarded our people up to 17 weeks' worth of additional pay. Some of these are one-off, right, like the 6 weeks last year is to we want people who stuck around with us. But hopefully, in future, when we continue to create more success financially as a company, we can share back more success with our people through the form of discretionary variable pay, while keeping our ongoing labor cost competitive when compared to our peers.

Thank you, Ronald. Perhaps in the interest of time, we can address some of the questions from our online audience. So we have a question from Grand Alliance Asset Management. So the flight service to the Chinese Mainland seems to underperform and the load factor is the lowest amongst the groups. So may I have your idea about the outlook of this market with the weak economy in the Chinese Mainland affects the capacity resumption plan.

Well, as of end of 2023, we -- as a group, we fly to 17 airports and 16 cities in Chinese Mainland already. So it's a very wide coverage. And we have been -- we're building as quickly as we could. And we're very confident about our Chinese Mainland's flight performance. And we are seeing good results. And a lot of them coming between Hong Kong and Chinese Mainland and many of them using Hong Kong as a transit hub to go to Asia, to the U.S., Canada, to Europe, by and large. So this is a very important traffic stream for us, and we are very confident. And in fact, yesterday, our low-cost subsidiary, HK Express, they launched another new point in Chinese Mainland, i.e., Daxing Airport in Beijing, they are at its flux. So we are all very excited about that. And recently, we have -- we welcome the news of adding 2 points to the individual visa scheme, adding 2 points [ Xi'an - Qingdao ]. And after that, we have also announced that we are adding more flights or capacity to those 2 points by end of March. So just a reflection of our commitment to further strengthening our Chinese Mainland asset group.

Thank you, Ronald. So maybe a couple of more questions from online. We can take them together. So the question was what's the expected CapEx plan for the next few years? And what's the reason for lower fuel hedging gain for full year '23? So I think maybe Rebecca?

Yes, I can take this. So in terms of the CapEx over the next few years, you'll see in the announcement that we have, I think as at 31st December, 75 aircraft on order, 21 of those are the wide-body 777-9 that Ronald talked about in his part of the presentation. So the majority -- well, there's a mix, in fact, between the number of narrow-bodies and wide-bodies. So I think that can give you an indication in terms of capital expenditure in the coming years because, of course, the fleet is by far the biggest amount of investment. But we will be investing in product, again, as Ronald shared in his description. The other comment on the fuel hedging. Of course, the amount of the gain is dependent on the price that we fix the fuel at and then what the fuel price does. So the number that we end up being much smaller is purely as a result of the fact that the fuel price was at the level it was a bit lower versus the price that we'd fix those hedges at. So it's nothing more scientific than that in terms of the impact as a result of the market and when we take out the hedges. And you'll remember that we hedge up to 2 years out, but more in the earlier part of that 2-year period, in line with the schedule that you saw on the slide.

Thank you. I think -- well, that's all the time we have. So thank you to all our speakers, and thank you for all your questions. So this concludes the briefing for today. If you have any further questions, please email them to ir@cathaypacific.com. Thank you very much for joining us. Have a good day.