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Cathay Pacific issues profit warning over jet fuel prices

HONG KONG - Hong Kong carrier Cathay Pacific issued a profit warning Wednesday in the latest sign that the soaring cost of jet fuel is piling pressure on the aviation industry.

The airline said big swings in the fuel price made it impossible to accurately forecast the impact on its bottom line but its shares still tumbled nearly six percent.

‘The financial results of Cathay Pacific for 2008, including those for the first half, are expected to be disappointing,’ the company said in a statement to the Hong Kong stock exchange.

‘Cathay Pacific's financial performance is being materially and adversely affected by the high price of jet fuel.’

The warning came with analysts saying near record-high high oil prices have sparked the biggest crisis in the Asian airline industry for years, with weaker carriers at risk of going under unless crude costs ease.

Upstart Hong Kong-based budget carrier Oasis has already folded this year, while other regional airlines have cut flights or closed routes in a desperate scramble to pare back costs.

Cathay said the most recent spot price for jet fuel had risen 93 percent compared to the average price it paid in 2007, adding cost volatility ruled out accurately predicting the effect on its 2008 financial results.

Shares in the firm -- viewed as one of Asia's best managed airlines -- closed down 5.9 percent at 13.98 dollars, after falling as much as 7.8 percent during afternoon trade.

‘The market is now beginning to realise how significantly the oil price impact could be on Cathay Pacific,’ Jim Wong, an analyst at Nomura Securities, told Dow Jones Newswires.

Earlier this year, Cathay posted 2007 profits well above market forecasts, boosted by record turnover on strong passenger demand. But it also warned that 2008 could be more difficult.

The airline posted a 71.8 percent increase in net profit to 7.02 billion Hong Kong dollars (900 million US), beating estimates of 5.9-6.06 billion dollars. Turnover rose 24.0 percent to 75.36 billion dollars.

However, its shares have fallen 31 percent since the start of this year, dragged down by oil prices and overall stock market weakness.

Wong said he expected Cathay's 2008 net profit to be around 3.5 billion Hong Kong dollars based on an average oil price of 115 US dollars per barrel.

If oil remains above the current 140 dollars, ‘that Hong Kong 3.5-billion-dollar figure could easily be wiped out,’ he added.

‘I wouldn't be surprised if the airline comes out with a loss-making figure for the first half.’

Cathay was given permission by transport authorities here to raise passenger fuel surcharges 37 percent in June for all its flights, but has argued for even greater increases.

The company last week agreed to a 60-million-US-dollar criminal fine in the United States for conspiring to fix air cargo prices along with other major airlines.