Hong Kong carrier Cathay Pacific Airways Ltd. (0293.HK) on Wednesday delivered record 2010 results and announced multi-billion dollar deals for new jets in a strong vote of confidence to the region's aviation market that has seen a dramatic rebound in air travel demand since the end of the global financial crisis in 2009.

Though Cathay Pacific said it expects continued strength in passenger and cargo demand to boost revenues this year, it noted that surging fuel prices remain a key concern that could hurt profitability, especially as the carrier operates a large proportion of long-haul flights.

"Demand is at present expected to remain strong in 2011, but this expectation could be undermined if the current or any higher level of oil prices were to reduce global economic activity," said Cathay Pacific Chairman Christopher Pratt in a statement, noting that current fuel prices are higher than they expected.

"Managing the risk associated with fuel price changes is a key challenge."

Like other major airlines, Cathay Pacific was severely affected by the global financial crisis that began unfolding in 2008, as passenger and cargo volumes fell significantly. Nonetheless, business have improved markedly since the last quarter of 2009, with demand now back at levels seen before the crisis, leading to increased capacity and higher ticket prices.

The blue-chip airline, which is controlled by conglomerate Swire Pacific Ltd. (0019.HK), said its net profit for the 12 months ended Dec. 31 tripled to HK$14.05 billion (US$1.80 billion) from HK$4.69 billion. The result was above the average HK$12.5 billion net profit forecast of nine analysts polled earlier by Thomson Reuters.

Revenue jumped 34% to HK$89.52 billion from HK$67.00 billion. The airline recommended a final dividend of 78 HK cents, up sharply from 10 HK cents a year earlier.

The substantial increase in dividend payout came as Cathay Pacific recorded HK$2.17 billion worth of gains from the sale of its stakes in Hong Kong Aircraft Engineering Co. and Hong Kong Air Cargo Terminals Ltd. It also booked a HK$2.48 billion gain from the profit contributions of Chinese flag carrier Air China Ltd. (0753.HK), which is 18.7%-owned by the Hong Kong carrier.

"The improved business conditions helped us to rebuild our balance sheet. Our financial position is strong," said Pratt. "This enables us...to increase the size of the airline and to further strengthen Hong Kong's position as a leading international aviation hub."

After its results were announced, Cathay Pacific said it has signed deals to buy a total of 25 jets from Airbus and Boeing Co. (BA) at a total catalog price of US$5.99 billion. It also said it is in discussions to buy an additional 14 planes. The Airbus A330-300 and Boeing 777-300 extended range jets on order will join its fleet between 2013 and 2015 to replace other ageing aircraft, such as the Boeing 747-400.

The airline didn't disclose the actual cost of the latest purchases, but it said Airbus and Boeing have both granted it "significant price concessions," which are typical in such arrangements.

The airline, which also owns China-focused Hong Kong Dragon Airlines Ltd., has been investing heavily to ramp up its capacity and services as it competes with other carriers in the region to meet the upswing in passenger demand. With the latest deals, Cathay Pacific now has 91 aircraft on order for delivery through 2019.

For 2010, Cathay Pacific carried 26.80 million passengers, up 9% from a year earlier. Total cargo carried rose 18% to 1.8 million metric tons.

The airline's passenger yields--a key measure of airline profitability--rose 19.8% in 2010 to 61.2 HK cents from 51.1 HK cents, reflecting higher average prices. Yields for cargo operations jumped 25% to HK$2.33 from HK$1.86.

-By Joanne Chiu, Dow Jones Newswires; 852-2802-7002; joanne.chiu@dowjones.com
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