March 14th, 2012
02:42 PM GMT
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Hong Kong, China (CNN) – What a difference a year makes for one of Asia’s flagship airlines.

For its 2010 fiscal year, Cathay Pacific reported a record $1.8 billion in net earnings. Wednesday, it revealed a huge reversal for 2011. Its net profit slid 61% year-on-year to just about $700 million.

That multi-million dollar sum may sound good to those of us on the outside looking in, but it’s clearly a major disappointment for Hong Kong’s famous air carrier.

The reason for its big plunge in profits is two-fold.

The first is oil. Its soaring cost isn’t just burning a hole in our pockets. It’s also a huge headwind blowing away the black from Cathay’s bottom line.

And while fuel costs rose, cargo demand fell. Cathay reported an 8.6% drop in freight volumes last year.

That’s not a good thing for a company that relies on the transport of goods for one-third of its profits. Last year’s sluggish global economy meant weaker European and U.S. demand for manufactured goods, like clothes and electronics, from here in Asia.

But if we look to Cathay’s competitors, we can see this profit plunge narrative isn’t confined to just one single carrier.

Singapore Airlines’ most recent third quarter net profit was down 53% year-on-year. The Lion City’s flagship carrier blamed high jet fuel prices.

Air China’s third quarter net earnings fell 26% year-on-year. The airline blamed weak demand from overseas travelers and, yes you guess it, higher fuel prices.

And Japan’s All Nippon Airways said its third quarter net profits fell more than 10%. The country’s largest airline did, however, raise its outlook thanks to a stronger yen, cost cutting measures and continued recovery after last year’s quake and tsunami. What it doesn’t need at this fragile time is higher fuel prices.

Other regional players like Qantas and United/Continental also saw earnings drop in the most recent quarters for much the same reason.

For sure, the airline world isn’t in love with oil right now. And that emotional gap has widened to a gulch over the last four years.

The price of Brent crude has risen every single year since 2008. In December of that year, it was trading at just over $36 per barrel. Now, Brent is trading at about $126 per barrel. That’s a surge of more than 225% in just about three years.

To cope, Tom Ballantyne, chief correspondent with Oriental Aviation, says airlines will do what they always do, “Refocus on cost cutting, improving fuel efficiency and improving productivity.”

He expects income for most airlines, including Cathay, to stay depressed all this year because of uncertainty in global economies, especially in Europe, which will continue to act as a damper.

Ballantyne adds: “Although passenger traffic is performing relatively well, they need a strong recovery in the cargo sector, which will be a sign of renewed business and consumer confidence, and an easing of fuel prices to get their bottom line back on track.”

But as long as that doesn’t happen, the world’s airlines will only whisper to oil, “I only love you when you’re cheap.”

soundoff (6 Responses)
  1. ProperVillain

    Thanks again, oil speculators!

    March 14, 2012 at 11:07 pm |
  2. Scott from NH

    Singpoare Airlines flight 21, Newark to Singapore non-stop goes 10,000 miles in 18.5 hours. It holds 100 passengers and 57,000 gallons of Jet A1 fuel. Jet A1 costs $6 a gallon, so that is $340,000 to fill up the plane. If the plane is 100% full that is a fuel cost of $3400 per passenger, not to mention the salaries of the FA's, pilots, ground crew, home staff, multiple gourmet meals for 100 people, taxes, and paying off a $230,000,000 airplane.

    March 15, 2012 at 1:00 am |
  3. Floyd Burgoz

    As in any business, if they can not compete then move on to something else. We are all having an issue with oil prices and I do not feel a bit sorry for the Cry Babies of this industry. Stop ordering so many planes and lean out the routs you currently have. Less Expansion does not mean the end to growth. Energize the routes you have and stop acting as if you have no alternatives. We all do.

    March 15, 2012 at 5:24 am |
  4. Jim Korando

    Scott, you failed to also include cargo revenues which are significant on trans-pacific routes. As such, the outlook is not as bad.

    March 15, 2012 at 11:29 am |
  5. Nina Brown

    good info! thanks

    March 16, 2012 at 9:18 am |
  6. icon design

    Charming question

    November 4, 2012 at 1:55 pm |

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