2020 Performance Review and Outlook – Aviation Division AVIATION DIVISION A Cathay Pacific Airbus A350-1000 aircraft OVERVIEW OF THE BUSINESS AVIATION DIVISION The Aviation Division comprises an associate interest in the Cathay Pacific group and the Hong Kong Aircraft Engineering Company (HAECO) group. Cathay Pacific group (100% Basis) (Loss)/Profit Attributable to Return on Capital Employed the Shareholders of Cathay Pacific HK$M % 5,000 5 0 0 -5,000 -10,000 -5 -15,000 -10 -20,000 -25,000 -15 16 17 18 19 20 16 17 18 19 20 Net Cash Generated from/ Capital Employed (Used in) Operating Activities HK$M HK$M 20,000 150,000 15,000 120,000 10,000 5,000 90,000 0 60,000 -5,000 30,000 -10,000 -15,000 0 16 17 18 19 20 16 17 18 19 20 SWIRE PACIFIC ANNUAL REPORT 2020 33 HAECO group (100% Basis) Profit/(Loss) Attributable to Return on Capital Employed the Shareholders of HAECO HK$M % 1,000 15 800 12 600 9 400 200 6 0 3 -200 0 -400 -600 -3 16 17 18 19 20 16 17 18 19 20 Net Cash Generated from Capital Employed Operating Activities HK$M HK$M 2,500 12,000 10,000 2,000 8,000 1,500 6,000 1,000 4,000 500 2,000 0 0 16 17 18 19 20 16 17 18 19 20 34 2020 PERFORMANCE REVIEW AND OUTLOOK AVIATION DIVISION The Cathay Pacific group Cathay Pacific owns 18.13% of Air China, the national flag carrier and a leading provider of passenger, cargo and other airline- Cathay Pacific Airways Limited (Cathay Pacific) is listed on The related services in the Chinese mainland. Cathay Pacific has a Stock Exchange of Hong Kong Limited. The Cathay Pacific group cargo joint venture in the Chinese mainland, Air China Cargo, includes Cathay Pacific, its wholly-owned subsidiaries Hong which operated 15 freighters at 31st December 2020 and carries Kong Dragon Airlines Limited (Cathay Dragon, which ceased cargo in the bellies of Air China’s passenger aircraft. operations in October 2020) (Cathay Pacific and Cathay Dragon together the Airlines), Hong Kong Express Airways Limited Cathay Pacific and its subsidiaries employed more than 25,600 (HK Express) and AHK Air Hong Kong Limited (Air Hong Kong) people worldwide (around 80% of them in Hong Kong) at and associate interests in Air China Limited (Air China) and Air 31st December 2020. China Cargo Co., Ltd. (Air China Cargo). Cathay Pacific also has interests in companies providing flight catering and passenger The HAECO group and ramp handling services, and owns and operates a cargo The HAECO group provides aviation maintenance and repair terminal at Hong Kong International Airport. services. Its primary activities are aircraft maintenance and modification work in Hong Kong (by HAECO Hong Kong), Immediately prior to the onset of COVID-19, Cathay Pacific in Xiamen (by HAECO Xiamen) and in the USA (by HAECO offered scheduled passenger and cargo services to 77 Americas), and engine overhaul work in Hong Kong (by HAECO’s destinations in 33 countries (244 and 54 respectively including 50% joint venture company, Hong Kong Aero Engine Services codeshare agreements). At 31st December 2020, it had 199 Limited (HAESL)) and in Xiamen (by Taikoo Engine Services aircraft and had ordered 43 new aircraft for future delivery (Xiamen) Company Limited (TEXL)). (including those deliveries of which it was in negotiations to defer). HAECO Americas manufactures aircraft seats. The HAECO group has other subsidiaries and joint venture companies in the HK Express is a low-cost airline based in Hong Kong and offers Chinese mainland, which offer a range of aircraft engineering scheduled services within Asia. At 31st December 2020, it had services, and has a 70% interest in HAECO ITM Limited, an 28 aircraft and had ordered 17 new aircraft for delivery up inventory technical management joint venture with Cathay to 2025. Pacific in Hong Kong. Air Hong Kong operates express cargo services for DHL Express HAECO is a wholly-owned subsidiary of Swire Pacific. to 17 Asian cities. At 31st December 2020, Air Hong Kong operated 12 freighters. STRATEGY – Developing the fleets of Cathay Pacific and HK Express (by investing in modern fuel-efficient aircraft) with a The strategic objective of Cathay Pacific (as a listed view to their becoming two of the youngest, most fuel- company in its own right) is sustainable growth in efficient fleets in the world. shareholder value over the long term. The strategies – Maintaining and enhancing high standards of service to employed by Cathay Pacific in order to achieve this passenger, cargo and aircraft engineering customers. objective (and the strategic objectives of HAECO) – Strengthening the airlines’ passenger and cargo are these: networks and improving what they do on the ground and in the air. – Continuing to build the strategic relationship with Air – The development and strengthening of Hong Kong as a China. centre for aviation services, including passenger, cargo and aircraft engineering services. – Increasing the range and depth of aircraft engineering services offered by HAECO. – The development and strengthening of the airline (Cathay Pacific and HK Express) and aircraft – Endeavouring to minimise the impact of the airlines and engineering (HAECO) brands. of HAECO on the environment. SWIRE PACIFIC ANNUAL REPORT 2020 35 2020 PERFORMANCE Financial Highlights 2020 2019 HK$M HK$M HAECO group Revenue 11,483 15,901 Operating (loss)/profit (94) 1,048 Attributable profit 96 825 Cathay Pacific group Share of post-tax (loss)/profit from associated companies (9,742) 761 Attributable (loss)/profit (9,751) 1,550 Accounting for the Aviation Division The Group accounts for its associate interest in the Cathay Pacific group using the equity method of accounting. The Group recognises its share of net profit or loss as a single line-item in the consolidated statement of profit or loss. For more information on the results and financial position of the Cathay Pacific group, please refer to the abridged financial statements on pages 218 and 219. The figures above do not include Swire Pacific’s consolidation adjustments. CATHAY PACIFIC GROUP Cathay Pacific and Cathay Dragon* – 2020 Performance 2020 2019 Change Available tonne kilometres (ATK) Million 14,620 33,077 -55.8% Available seat kilometres (ASK) Million 34,609 163,244 -78.8% Available cargo tonne kilometres (AFTK) Million 11,329 17,558 -35.5% Revenue tonne kilometres (RTK) Million 10,220 24,090 -57.6% Passenger revenue HK$M 11,313 72,168 -84.3% Passenger revenue per ASK HK¢ 32.7 44.2 -26.0% Revenue passenger kilometres (RPK) Million 20,079 134,397 -85.1% Revenue passengers carried ‘000 4,631 35,233 -86.9% Passenger load factor % 58.0 82.3 -24.3%pt Passenger yield HK¢ 56.3 53.7 +4.8% Cargo revenue HK$M 24,573 21,154 +16.2% Cargo revenue per AFTK HK$ 2.17 1.20 +80.8% Cargo revenue tonne kilometres (RFTK) Million 8,309 11,311 -26.5% Cargo carried ‘000 Tonnes 1,332 2,022 -34.1% Cargo load factor % 73.3 64.4 +8.9%pt Cargo yield HK$ 2.96 1.87 +58.3% Cost per ATK (with fuel) HK$ 4.14 3.06 +35.3% Cost per ATK (without fuel) HK$ 3.41 2.19 +55.7% Fuel consumption per million RTK Barrels 1,708 1,867 -8.5% Fuel consumption per million ATK Barrels 1,195 1,360 -12.1% Aircraft utilisation (including parked aircraft) Hours per day 4.3 11.9 -63.9% On-time performance % 86.7 76.3 +10.4%pt Average age of fleet Years 10.1 10.3 -0.2 years * Cathay Dragon ceased its operations in October 2020. 36 2020 PERFORMANCE REVIEW AND OUTLOOK AVIATION DIVISION 2020 AIRLINE INDUSTRY REVIEW and revenue improved due to the imbalance in the market between available capacity and demand. The Airlines increased The Cathay Pacific group experienced the most challenging 12 cargo capacity by chartering services from Cathay Pacific’s months of its more than 70-year history in 2020. COVID-19, and all-cargo subsidiary, Air Hong Kong, operating cargo-only the resultant travel restrictions and quarantine requirements passenger flights and carrying cargo in the passenger cabins of in place around the world, brought about an unprecedented some aircraft. disruption of the global air travel market and the repercussions have been huge. The International Air Transport Association To reduce cash expenditure, the Airlines reduced capacity, (IATA) estimates that global passenger traffic will not return to deferred capital expenditure, suspended non-critical pre-COVID-19 levels until 2024. expenditure, froze hiring, cut executive pay and asked employees to participate in two special leave schemes. 2020 RESULTS SUMMARY In June 2020, Cathay Pacific announced a HK$39 billion The Cathay Pacific group’s attributable loss on a 100% basis recapitalisation. It is very grateful to the Hong Kong SAR was HK$21,648 million in 2020, compared with a profit of Government and its shareholders for their support for the HK$1,691 million in 2019. Cathay Pacific and Cathay Dragon recapitalisation at a critical time. reported an attributable loss after tax of HK$17,393 million (2019: profit of HK$241 million), and the share of losses from The recapitalisation enabled the Cathay Pacific group to subsidiaries and associates was HK$4,255 million (2019: profit of continue. But the business needed to be restructured as well. HK$1,450 million). A restructuring was announced in October 2020. Headcount was reduced by 8,500. Cathay Dragon ceased to operate. Hong The loss for 2020 was net of the receipt of HK$2,689 million Kong-based Cathay Pacific pilots and cabin crew were asked to of COVID-19 related government grants globally and included transition to new competitive conditions of service.