Cathay to exploit mainland

A member of Cathay Pacific's ground staff helps a passenger check in at Chek Lap Kok Airport in Hong Kong. The airline will invest more in the mainland to allow its cargo venture to take advantage of inland manufacturing bases. [Photo /Bloomberg]

HONG KONG - Hong Kong-based Cathay Pacific Group announced on Wednesday that its plan of a cargo joint venture with Air China Ltd has received official approval from the mainland and the partnership is completing the necessary paperwork.

The airline group, composed of Cathay Pacific and Dragon Airlines Ltd carriers, did not disclose a time frame for the launch of the venture. "So far the process is well-managed," said John Slosar, chief operating officer of the group, adding that he hopes it will be "imminent".

Air China Cargo, a subsidiary of Air China, will be used as the platform for the joint venture. The Cathay Pacific Group, with a 49 percent stake, is selling four Boeing 747-400BCF freight aircraft and two spare engines to the joint venture. One of these aircraft has already been sold to Air China Cargo. The other three are expected to be delivered this and next year.

Shanghai-based Air China Cargo is in a good position to exploit the attractive air cargo opportunities in the Yangtze River Delta region, analysts said. That region, a traditional manufacturing base, and Hong Kong will continue to be Cathay Pacific's principal source of growth. With the new base in Shanghai, the Hong Kong-listed aviation group can carry goods from the delta to Hong Kong, an international air hub, and deliver them to global destinations.

Manufacturers are increasingly moving west - to places such as Chengdu and Chongqing - and abroad - for example to Vietnam and Bangladesh - in pursuit of lower labor costs. But Slosar said he believes the main manufacturing bases will remain on the Chinese mainland, so the group will invest more in the mainland market.

According to Cathay Pacific's annual report filed at the Hong Kong Stock Exchange on Wednesday, the group's cargo revenue increased by 50.1 percent to HK$25.9 billion ($3.3 billion). Freight traffic surged by 18.1 percent to 1.8 million tons year-on-year, with cargo capacity growth of 15.2 percent year-on-year. The group expected cargo growth of 12 percent this year.

Cathay recorded an attributable profit of HK$14.048 billion for 2010, a 199.3 percent increase over the HK$4.694 billion of the previous year.

Attributable profit refers to profit available for distribution to shareholders after the deduction of company tax, preference dividends, payments to minority interests and other provisions.

The group's turnover for 2010 rose by 33.7 percent year-on-year to HK$85.924 billion.

Cathay's business began to recover from the global economic downturn in the second half of 2009, and the momentum was sustained throughout 2010, according to Christopher Pratt, the chairman.

"We also benefited from the strong profits earned by our associated company, Air China, which contributed HK$2.428 billion to the 2010 result," he added.

Chen Huanyu, an aviation analyst from Guotai Junan Securities, said that cooperation with mainland counterparts will greatly help the group's long-term development, given the rich cargo service resources in terms of the routes and commodities of the vast mainland market.

The international cargo aviation market began to rebound in late 2009 and has continued its recovery this year, but around 80 percent of the market share is dominated by foreign carriers, according to Li Lei, an analyst at Citic China Securities.

"It's a way for Air China to expand its cargo business and Cathay Pacific Group to explore the mainland market," Li said.

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