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Cathay Pacific has joined legacy carriers from Singapore Airlines to Lufthansa and Australia's Qantas in reporting a plunge in earnings as high fuel prices and the global uncertainty stemming from Europe bite.

Full-year net income at Hong-Kong based Cathay slumped 61 per cent to $HK5.5 billion ($671 million) in 2011, despite a 10 per cent rise in revenue to $HK98.4 billion.

Disregarding the effect of fuel hedging, Cathay's fuel bill increased by $HK12.5 billion, or 44 per cent, during the year.

Relative to competitors, even those with the geographical advantage of being based in higher-growth Asian markets, Qantas's underlying earnings fared no worse than the pack in the latter half of 2011 as the high Australian dollar cushioned the impact of high oil prices and with its dominant domestic business offsetting losses in its long-haul division.

European giants Lufthansa and Air France-KLM both posted surprise full-year losses this month and painted a gloomy outlook for the year ahead as the region's economic gloom trickles down to cause weaker demand for travel.

Closer to home, Malaysia Airlines described its position as "in crisis" after a fourth consecutive quarterly loss – a development that came immediately before Qantas ended talks about a new joint-venture airline – while even stalwart Singapore Airlines saw net income plunge 53 per cent in its second quarter.

Analysts expect Singapore's full-year result will be an even steeper 56 per cent drop as premium demand continues to wane across the region.

In a sign of how steep the slowdown is in global trade, Singapore has cut freighter capacity by 20 per cent amid sluggish demand in Europe for Asia's manufactured goods.

Cathay's load factor in its cargo division fell 8.5 percentage points last year as shipments from its two most important markets – Hong Kong and mainland China – weakened "significantly" from April onwards.
"We faced a number of major challenges in 2011 and we are still operating in a very challenging environment, particularly for our cargo business," Cathay chairman Christopher Pratt said.
"2012 is looking even more challenging than 2011 and we are therefore cautious about prospects for this year. We will continue to be vigilant in managing our costs while not compromising the quality of our products and services or our long-term strategic investment in the business."

However, analysts at HSBC are forecasting passenger and cargo traffic will improve in the second half of the year, citing Cathay in particular as a likely beneficiary of heightened US demand for products such as Apple's new iPad that is made in China.

Cathay took delivery of nine wide body aircraft in 2011 and expects to have fitted new business class and premium economy cabins in 87 aircraft by the end of 2013 as it looks to lock in repeat business from passengers prepared to pay more for a high-end product. The airline's continued expansion last year also came at a price, with the average number of sold seats per aircraft dropping 3 percentage points compared with the prior year.

With the debate over the limitations on the Australian flag carrier contained in the Qantas Sale Act heating up amid rival Virgin Australia's corporate restructure, the importance of equity alliances was evident in the Cathay result.

Cathay's 19.5 per cent equity stake in Air China contributed 31 per cent of profit before tax, buoyed by a cargo joint venture between the two which began in May. Air China in turn owns 30 per cent of Cathay.
Australian Financial Review