SINGAPORE (MarketWatch) -- Cathay Pacific Airways Ltd.'s (0293.HK) expects its cargo operations to improve in the second half after a softer first half, and China remains its major growth driver as the nation's demand for air travel continues to soar, Chief Executive John Slosar said Monday.
The blue-chip carrier's weekly cargo revenue was behind target because of softening demand in its Hong Kong home market, according to an internal document seen by Dow Jones Newswires on Sunday.
Meanwhile, Slosar said Monday he expects oil prices to remain volatile and the carrier aims to hedge around 30% of its jet fuel purchases over the next 12 to 24 months.
Analysts said while Cathay Pacific's fortunes are improving, surging oil prices and intense competition among regional airlines threaten to derail its growth momentum. Oil prices are currently hovering around US$100 a barrel.
The air cargo market is normally busy in the second half of the year because of the Christmas season, Slosar said on the sidelines of the International Air Transport Association's annual meeting in Singapore. The carrier expects a stronger second half, with the industry likely to record 5% to 6% on-year growth during the period, he added.
"When we talk to the forwarders and the shippers, they're all saying things are a bit quiet now but they're expecting pretty good demand in the second half," said Slosar, who in April succeeded Tony Tyler to take the helm of the Hong Kong-based carrier.
On the passenger side, Slosar said yields on the first-and-business fares have returned to pre-crisis levels, and that he sees good growth in Asian markets because of soaring demand in China for air travel and sustainable growth in regional economies.
He noted demand for flights bound for Japan has improved over the past few weeks. "Most of (load factors in) April and May were pretty low…but it's starting to come back a bit," he said.
Air traffic demand to and from Japan plunged after the devastating earthquake and tsunami on March 11 damaged a nuclear power plant in northeastern Japan.
Slosar said the carrier continues to look at buying more aircraft and hopes to take delivery of six Boeing Inc. BA -0.35% 747-8 freighters scheduled in the second half of this year, but declined to elaborate.
In a weekly business report sent to Cathay Pacific staff on Friday, the blue-chip carrier revealed its cargo revenue for the week ended May 28 was below budget by 12%, though there was a week-on-week improvement of 1.9%.
Revenue from Japan routes continued to improve and the load factor, or the proportion of seats filled on its flights, reached nearly 70% in the reporting week, adding that the improvement was mainly because of lower capacity against the same period last year.
Like other major airlines, Cathay Pacific was severely affected by the global financial crisis that began in 2008, as passenger and cargo volumes fell significantly. Nonetheless, demand for air travel has improved markedly since the last quarter of 2009 and has returned to levels seen before the crisis, leading to increased capacity and higher ticket prices.
Cathay Pacific, which is controlled by conglomerate Swire Pacific Ltd. (0019.HK), is Asia Pacific's fourth-largest carrier by market capitalization after Air China Ltd. (0753.HK), Singapore Airlines Ltd. (C6L.SG) and China Southern Airlines Co. (1055.HK).
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