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

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This is [ Chan Li ] from Morgan Stanley. Congratulations on the very robust results for the full year. I have 2 questions. The first question is about engines. So it seems like you mentioned the problems related with the PW engines and seems like it has a negative impact on Hong Kong Express. We have also heard from other global airlines that right now, there are also some problems related with the LEAP engines. So I'd like to understand going forward into 2025, what's the potential impact from engine -- potential engine issues, particularly on, one, effective capacity impacts; and two, on the maintenance cost? My second question is about unit cost. So I think first just asked about the ASK increase. So I mean, what percentage of ASK increase for next year are we expecting? And then on that ASK increase, excluding fuel, how should we forecast the unit cost dynamics? And also, we have noticed that the fuel efficiency seems to be a little bit lower in 2024 on a year-on-year perspective. What's the reason for that? And what's the outlook?

Okay. I would let Rebecca take the cost questions, and then I would answer the engine question. So first of all, the current situation is that within the HK Express fleet, currently, they have around 41 aircraft and then 10 of those aircraft are A330neo aircraft. And these 10 aircraft are equipped with the Pratt & Whitney engine in question. And throughout last year, 5 of those aircraft on average were grounded because of the engine issue. The engine had to go into the shop, and therefore, we had to ground half of that fleet on average, if you like. And similar situation will continue into 2025 because we need to send all the engines into the shop and then wait for them to come out before we can fly all the aircraft. So that's already expected in our plan. So the same similar impact will appear. Regarding the LEAP engine, so far, we haven't seen any material impact to our operations, both at Cathay Pacific narrow-body fleet as well as HK Express. So we haven't seen any similar impact yet. Yes, it would have an impact on aircraft utilization given these grounded aircraft, we cannot fly and aircraft utilization is a key measure for LCC best practice. But having said that, despite these challenges, HK Express fundamentals have been improving. Last year, they have improved their aircraft utilization by around 10% despite the grounding of those 5 aircraft on average. They've also improved their unit cost, which is measured by cost per ASK without fuel by more than -- by double digit, more than 10%. So there's a lot of other initiatives that we have implemented, which will see more benefits in the coming years when it comes to aircraft utilization as well as unit cost moving forward. So despite the fact that HK Express make a loss in 2024, but we are very confident about the future of HK Express because their fundamentals actually are improving. And then we truly believe in our dual brand strategy with Cathay Pacific focusing on the premium travel side and HK Express focusing on the low-cost travel side. And we believe the low-cost travel model still has a lot of potential for this market in Hong Kong and in the Greater Bay Area. So we are very confident, and we can see a path to profitability for HK Express given time. Thank you.

So in terms of fuel efficiency and costs, fuel efficiency, you're right. If you look at the metric that we showed on the slides and in our reports, it's gone up slightly in 2024 compared to 2023. Now what's interesting about that metric is it's affected by many different dynamics. So the proportion of long-haul flights versus short-haul flights, the different aircraft types that we're using on different routes. And so -- but as a general principle, I guess, at the moment, we started the rebuild focusing on the most fuel-efficient aircraft that we have, the A350s, for example. And gradually, as we're adding more capacity, there's more flying on the less efficient aircraft. So that is having a bit of an impact. But it's also affected very much by the routes you're operating and whether they be shorter or longer. So yes, it has gone up a little bit. In terms of costs, as you alluded to, the unit cost came down in 2024. We're expecting capacity to continue to grow as we go forward. I can't give you a specific number of ASK that we will do in 2025. My crystal ball is not quite working. But it will obviously grow, and therefore, there will be an impact on our cost because we'll be spreading them on our unit cost rather. We'll be spreading them across a broader base. Now the sort of percentage improvement, again, I can't be specific, but sort of I suppose it's the law of diminishing returns to some degree as you're spreading it over a bigger base and then a bigger base. But I can say that we would expect that it should come down a bit further.

Okay. Well, thank you all. Allow us to turn our attention to online. So we have a question coming from UBS. So the question is, the company is now guiding to only receive 4 aircraft in 2025. With further delays in the delivery of the 777-9, is the company seeing the supply constraint industry-wide to put passenger yield to stay at a relatively elevated level? Do you expect the deceleration of yield normalization? So slowing down in terms of how yields are coming down?

Well, I already partly answered that question, right, when I answered the earlier question. So for 2025 and 2026, in fact, we are not taking a lot of aircraft apart from some narrow-body aircraft. So any adjustment in aircraft delivery schedule is not going to have a significant impact to our capacity. Regarding the industry, yes, I think the industry continue to face a supply chain issue, affecting our product retrofit, aircraft maintenance and aircraft delivery. I think this is a known industry issue that is here to stay for a while. I can't comment on the overall global yield and market supply because it's a very complicated market. I think airlines can choose to deploy their aircraft to different markets based on supply and demand within very short notice. So it's really hard to tell. But for ourselves, we expect, right, the process of yield normalization will continue as we add more capacity into the market this year and in coming years. Thank you.

Okay. Thank you. Well, I think that's all the time we have. So thank you to our speakers, and thank you for all of you and for all your questions. If you have any further questions, please e-mail them to ir@cathaypacific.com. Thank you very much for joining us. Have a good day.