CATHAY PACIFIC 1986 PROFIT SEEN ABOVE TARGET
Buoyed by low fuel prices and
favourable currency factors, Cathay Pacific Airways Ltd's
<CAPH.HK> 1986 profits are expected to surpass the airline's
forecast of one billion H.K. Dlrs, stock analysts said.
    Analysts said they expect the airline to show net earnings
of between 1.1 billion and 1.25 billion dlrs when it reports
results tomorrow for its first year as a public company.
    Cathay, 51 pct owned by Swire Pacific Ltd <SWPC.HK>, made
its earnings forecast in the prospectus for its flotation in
May last year.
    Cathay is expected to pay a 13-cent final dividend, making
a total of 19 cents for the year, as forecast in the
prospectus, analysts polled by Reuters said.
    They said the airline's performance improved in the second
half of the year after it reported interim profits of 503 mln
dlrs.
    The weakness of the local currency, pegged at 7.80 to one
U.S. Dollar, and low fuel prices moved further in the company's
favour from the assumptions made in the prospectus at the time
of the flotation, James Capel (Far East) Ltd said.
    James Capel estimates average fuel prices for the airline
industry in 1986 at 63 U.S. Cents per gallon, 27 pct below the
1985 level. It said a one pct movement in fuel prices would
affect Cathay's net profits by 10 mln dlrs and forecast profits
of 1.25 billion dlrs.
     Analysts said the company's estimates of fuel price and
currency movements set out in its prospectus were conservative.
    "This is reflected in their interim results which showed
that profit margin has increased," said Frederick Tsang of
Mansion House Securities (F.E.) Ltd.
    Cathay's six-month turnover rose 19.8 pct from year-earlier
levels, but profits rose 69 pct.
    The rise in oil prices in late 1986 had little impact on
the company's fuel oil bill last year, as aviation fuel prices
usually lag behind crude price movements by several months,
analysts said.
    By last September the yen had risen some 54 pct against the
Hong Kong dollar from the end of 1985, the mark 43 pct and
sterling 12 pct.
    "Overall the weakness of the Hong Kong dollar against
Cathay's major trading currencies helped push passenger yields
in the first half up 7.2 pct," said James Capel. "This should
continue through the second half to enable passenger yields to
end the year up 7.6 pct."
    A strong performance from the 2.9 billion dlrs in cash
under management also improved profits, James Capel said.
    A general improvement in air traffic last year contributed
to Cathay's revenue increase, but the company's load factor
declined because of increased competition and an expansion of
its fleet and services.
    James Capel estimated Cathay's passenger-kilometres flown
last year rose six pct from 1985 and freight-kilometres flown
climbed 17 pct, though the airline's load factor probably fell
to 68.8 pct from 70 pct.
    "Cathay added new planes, and was forced to fly some routes
last year because of the threat of competition from Dragon Air,"
said Tsang. "This affected its load factor."
    Fear of possible competition from fledgling carrier <Hong
Kong Dragon Airways Ltd> may have contributed to Cathay's
decision to resume service to New Zealand last year, analysts
said.
 REUTER
