Cathay Pacific CEO Sees 'Normal' Cargo Recovery In 2011

The head of Cathay Pacific Airways Ltd. (0293.HK) said Thursday he expects a "normal" second-half recovery in cargo traffic, with new Boeing Co. (BA) freighters still expected to arrive this year.

Hong Kong became the world's largest air freight hub last year but Cathay carried 4.1% less freight in the six months to June 30 than the same period last year when the market rebounded after the sharp falls seen in 2009.

Cathay is investing heavily in new cargo aircraft and a dedicated terminal at its Hong Kong base to serve a market that is typically weighted heavily towards business in the second half of the year.

"We don't see anything that tells us it won't be a normal second half," said Chief Executive John Slosar in an interview, referring to feedback from clients and freight forwarders.

Slosar said Cathay expected to receive a new Boeing 747-8 freighter by late September or early October, the first of 10 due by the end of 2012 following design and production delays to the aircraft, which will initially be used on services to North America. The first deliveries are expected to be financed using guarantees from the Export-Import Bank of the U.S..

The relative weakness of the freight market in the early part of the year has contrasted with the strength of premium passenger traffic, buoyed by a revamp of its premium cabin.

Cathay is eyeing similar improvements to its coach product, and Slosar dropped the strongest hint to date that this could include a premium-economy product.

He said premium economy - an intermediate step between coach and business class - had become "omnipresent" in the industry. "If it's a global product, we'll be competitive," he said.

Slosar, who took charge in March, was in Chicago as Cathay launched an expanded pact with Oneworld alliance partner American Airlines - a unit of AMR Corp. (AMR) - ahead of starting service to the Midwest city from Hong Kong in September.

He said Cathay would look at asset-backed financings in yuan to hedge its Chinese currency exposure, though the market remains immature.

The Hong Kong-based carrier's expansion into more Chinese markets has made the yuan its single largest currency exposure, and it has used non-deliverable forwards - which are linked to the Chinese currency but settled in dollars - and other instruments for a number of years.

"We expect to have surplus renminbi earnings for some time," said Slosar.

Slosar said in an interview that Cathay had monitored the development of renminbi-based debt issuance - so-called dim sum bonds - and saw potential for asset-backed deals.

"We would be very happy to finance some assets in renminbi," he said. "But [the market's] not there yet."

-By Doug Cameron, Dow Jones Newswires; 312-750-4135; [e-mail]