Cathay Pacific Airways Limited
Q4 2020 Earnings Call Transcript

Published: 10 Mar 2021

[Operator:]

Good afternoon. Welcome to the Cathay Pacific 2020 Annual Results Analyst Webcast. Thank you for joining us. Before we begin, please allow us to go with the rundown for the webcast and house rules. Kindly note that today's briefing will be conducted in English. We will begin with a presentation by our Chief Financial Officer, followed by a Q&A session. Slides from the presentation will be displayed alongside the live video for your convenience. A copy of the slides has also been sent to you by e-mail. If you have not yet received a copy of the presentation, kindly contact [e-mail]. You're invited to submit your questions at any time during the briefing by clicking the Q&A box at the bottom of the window and filling out the submission form. Our moderators will then read these out during the Q&A session.

[Rebecca Sharpe:]

Good afternoon, everyone, and I'd like to echo the welcome to this as my first presentation for the analysts as the newly incoming Chief Financial Officer for Cathay Pacific. The format of the session that we'll hold today is broken into 3 key areas. We'll talk firstly about highlights and just a bit of a refresher on our responses to the impact to our business of COVID-19. We'll then cover the group highlights, some of the key figures and then we'll move on to talking to you a bit about the outlook going forward. So without further ado, I'll move onto the key highlights. So I'm sure it does not come as a surprise just for me to say that 2020 was probably the most challenging year in our history. The impact of COVID-19 pandemic has decimated the aviation industry, and the results that you'll see in the following presentation reflect this. At a revenue level, you can see there was a 56% reduction in our revenue. In absolute terms, it was around $60 billion. And a point to highlight here is that while $60 billion came off our top line, you'll note it didn't make its way all the way to the bottom line. Yes, we made a significant attributable loss of HKD 21.6 billion but through measures taken throughout the year, some of this was mitigated. You'll note on this slide, I've also included what we've referred to as an adjusted profit number or rather loss number in this case. And that's because there were quite a number of one-off items that were put through the results in 2020, which then theoretically don't get repeated, as I want to talk a bit about these later on in the presentation. The other numbers to note on this slide are obviously liquidity, key importance for us this year and there's been a huge amount of monitoring and management of this, and our gearing number or ratio of 0.75. Moving on to the impact of COVID-19 and the responses we undertook. I understand that these have been presented before. So I think you're familiar and these reflect the key areas that we tackle the challenges. So using these element, survive, recapitalize, restructure. And as I mentioned at the start, I'm not going to spend loads of time on this section because we have covered it before. So starting with our operational response actions. We group these into 4 key areas, namely our capacity management, our employees, our operating costs and our capital expenditure. And measures were put in place throughout the course of last year to manage and mitigate all of these. We're extremely grateful for the support we received from our employees with respect to special leave schemes or unpaid leave, executive pay cuts that were taken and also to suppliers and partners who worked with us to help us reduce operating costs and capital expenditure and/or defer operating cost, capital expenditure. And in addition to governments, what you hear in Hong Kong and around the world, who worked with us to support the different elements in terms of grant, subsidies throughout the year, and we're extremely grateful for the support we received from everybody that in terms of our stakeholders.

[Unidentified Company Representative:]

Thank you, Rebecca. We'll now hand over to our moderator, General Manager of Corporate Affairs, Andy Wong, to begin the Q&A session.

[A - Andy Wong:]

Thank you. So first question is from Shawn Ng of JPMorgan. There are 2 parts of the question. So let's address first part first. Are there any new updates pertaining to the Hong Kong-Singapore travel bubble? What are the expectations in terms of new measures taken and the demand uptick compared to what was expected in November 2020?

[Ronald Lam:]

Let me take that. On the Hong Kong-Singapore travel bubble. It really depends on the pandemic situation in Hong Kong. And with the recent reduction on the confirmed cases within Hong Kong, our understanding is that both governments from Singapore and Hong Kong, they've been in active discussion. We don't know the time line yet. As I mentioned, it depends on the pandemic situation in Hong Kong and in Singapore. So we'll be watching very closely working with the government to be able to activate that as soon as we can. Thank you.

[Andy Wong:]

Next part. Any color on when the Hong Kong crew quarantine measures will last? How fast can CX redeploy the crew and aircraft upon the lifting of the restrictions?

[Ronald Lam:]

Well, first of all, I would like to emphasize that we will support the government in whatever way we can to fight the pandemic in Hong Kong. So the crew quarantine situation, we are closely working with the government, is, at the end of the day, it's the government decision to make, how long this will last, and it would depend on the pandemic situation in Hong Kong. But within Cathay, we are actively encouraging our crew to take up vaccination as soon as they can. And so far today, we've got pretty encouraging response from our crew community, and we will continue to encourage them to take up vaccination. Once they are vaccinated, we believe they are better protected as well as the family and the risk of them bringing in any imported cases into Hong Kong will be further mitigated. Then it will be a very good time for us to discuss with the government whether there's any opportunity to adjust the crew quarantine arrangement.

[Andy Wong:]

Thank you. Next question is from Chan, Lok Kan of Crédit Suisse. Part one. Given the new air crew quarantine, what other measures can we take to reduce the additional $300 million to $400 million loss per month?

[Ronald Lam:]

Okay. I can take that.

[Rebecca Sharpe:]

Go ahead.

[Ronald Lam:]

Yes. Well, since last year, we've been looking at every other ways we can find to reduce our cash burn while preserving our long-term capability to support the Hong Kong aviation hub. So we continue to look at all aspects of our cash spend, including working with suppliers, and we would continue to look at every aspect of our business to make sure that we can find saving in terms of cash, both in terms of cost reduction as well as deferral as much as we can.

[Andy Wong:]

Thanks. Next part. How many more aircraft will unlikely be back into service before the retirement this year?

[Rebecca Sharpe:]

I'll take that. So as I mentioned, we have impaired 34 aircraft in -- for 2020, and that is based on the aircraft that will not be back into service in 2021.

[Andy Wong:]

Okay. Thank you. Okay. Next question is from Parash Jain of HSBC. On your guidance, given the first quarter of '21, is almost washed out, are we eyeing for some sort of V-shaped recovery in the second half to achieve capacity to just under 50%? Do we have any visibility as to when can Hong Kong government may relax the quarantine rules given the faster-than-expected adoption of the vaccine?

[Ronald Lam:]

I would say the current situation is still very, very dynamic. It's hard to predict how the quarantine situation and the travel opening will evolve for the rest of this year. So I think our emphasis is that we will remain agile, and then we will capitalize on any opportunity available to us.

[Andy Wong:]

Okay. Thank you. Next question is from Jeffrey Kiang of CLSA. Given the collapsing demand, have you considered adjusting of your fuel hedging strategy going forward?

[Rebecca Sharpe:]

We have a standard fuel hedging policy that has been operating appropriately for the last few years, and we don't have any plans to change it. It operates quite mechanically. It's managed through sort of a committee. So no, no plans to change our hedging policy at the moment.

[Andy Wong:]

Okay. Next we have Ian Wong of UBS. How much savings can the deferral of Airbus and potentially with Boeing can generate in terms of CapEx spend in 2021 to 2023?

[Rebecca Sharpe:]

All right. To be honest, off the top of my head, I can't recall that number, so we can get back to the gentlemen.

[Andy Wong:]

Yes. Okay. So moving on to the next part. Of the $20.6 billion on restricted liquidity as of December '20, does that include the $7.8 billion bridging loan facility to be paid?

[Rebecca Sharpe:]

Yes, it does include it.

[Andy Wong:]

Okay. Next we have Luya You of BOCOM International. Can we get a sense of potential impairment for 2021? Given the number of old-generation wide-body aircraft remaining in the fleet, should we expect similar levels of impairment for this year as well?

[Rebecca Sharpe:]

That's an interesting question. So the assessment that we've done now based on what we know today is, as I say, what we've reported in the results for 2020. But the situation is extremely uncertain. So what we've also done and disclosed in our annual report is if the recovery were to slip by 6 months, we've included what aircraft or the value of the aircraft as at 31 December, 2020, that would then potentially need to be impaired. So the figure we've disclosed there is $800 million of aircraft for 6-month slippage. But we are confident in the numbers that we've presented in our results, we're just doing that for sort of transparency and awareness in these very uncertain times.

[Andy Wong:]

Thank you. Again, we have a question from Jeffrey Kiang of CLSA. Is there any sort of dialogue with the government about waiving this for any flight crew in terms when they get vaccinated?

[Ronald Lam:]

Well, as usual, we are in very close contact with the government on various issues. And we would continue to have dialogue with them. And as I mentioned just now, our priority is to get our crew vaccinated so that they can protect themselves and protect their families and also reduce the risk of any imported cases because of the air crew. And we will continue such dialogue with the government.

[Andy Wong:]

Okay. Thank you. Next we have Kelvin Lau from Daiwa Capital Markets. How significant would be the vaccine logistics be contributing?

[Ronald Lam:]

I would say, so far, right, we have transported 3 shipments into Hong Kong in terms of vaccines. But I must say the volume compared to our overall cargo volume is not significant at the moment. Also, we've been transporting vaccines via Hong Kong to different parts of the world, like into Mexico, into Malaysia. So we'll continue to get as much business as we can get from the vaccine shipment. But in the overall scheme of things, it's not a very significant proportion of our cargo business at the moment.

[Andy Wong:]

Okay. Thank you. Coming on to the last question. We have a question from Ajith Kom of UOB. Are you still receiving grants or rebates from the Hong Kong Airport Authority? If so, when would that expire?

[Ronald Lam:]

Well, as of today, we are still getting discounts from the airport authority on various fronts, like landing and parking right, rental charges. And the airport authority, they've been extending it every 2 months so far. So I think we would observe the situation. And we believe that as long as the airline industry is in a difficult situation, they will continue to assist us.

[Andy Wong:]

Okay. Thank you. One more question just came in. Andrew Lee of Jefferies. How many more Cathay Dragon routes ? Are these only to or from China? How many of them are successful?

[Ronald Lam:]

Well, as we mentioned during our restructuring announcement last year, we have intention to resume most of the Cathay Dragon route using Cathay Pacific or HK Express. And the resumption of KA routes involve a number of factors. Most important factor is the passenger travel demand, which is yet to recover. And it will involve approval for slots at various airports in Hong Kong and outside as long -- as well as some traffic rights for certain routes. So far, as of today, we have managed to resume five Cathay Dragon route using Cathay Pacific as the brand.

[Unidentified Company Representative:]

Thank you, Andy, and thank you all for your questions. Kindly note that the slides from today's presentation will be -- also be made available to download at our Investor Relations website later this afternoon. If you have any further questions, please write to us at [e-mail]. We will endeavor to respond to them as soon as possible. This concludes the Cathay Pacific 2020 Annual Results Analyst Webcast. Thank you for joining us.

[Rebecca Sharpe:]

Thank you.

[Ronald Lam:]

Thank you.