Good morning. Welcome to the Cathay Pacific 2022 Q3 Analyst Briefing Webcast. Thank you for joining us. Introducing our speakers for today, Chief Customer and Commercial Officer, Mr. Ronald Lam. General Manager of Finance and Performance, Mr. Christopher Buckley. We will begin with a presentation by Mr. Lam, after which we will hold a Q&A session with our speakers. Slides from the presentation will be displayed alongside the live video for your convenience. A copy of the slides has also been sent to you by email. You are invited to submit your questions at any time during the webcast via the submission box in the bottom right of the window. Our moderator will then read these out during the Q&A session. We'd now like to invite Mr. Ronald Lam to begin the presentation.
Good morning, everyone. Welcome to today's briefing. Our CFO, Rebecca, is away traveling. Today, you have a change. You have a new face for me presenting for you. Today, just like our previous agenda, I would like to go through the short term, which is about our COVID-19 responses. Then I will give you a download on our latest operating performance, and then looking forward on our outlook. Firstly, on our COVID-19 responses, I'm happy to report that despite the challenges over the past three years, we have done pretty well from a survival angle. I just wanna highlight on this slide, it's a rather busy slide, but if you zoom into the latest liquidity, we have a very healthy liquidity position. As at October 2022, our overall liquidities stood at HKD 28.6 billion, which is a very healthy level.
We have been operating cash generative overall since May 2022, and we expect it will remain so for the remainder of this year and moving into next year as well. Meanwhile, we continue our cash preservation and cost optimization effort. We've also seen a noticeable recovery in our capacity since the second half of this year. As of October, we operated 21% of our pre-pandemic capacity on the passenger flight side, and 63% on the Cargo side. This is a sharp increase, because in the first half of this year, we were only operating single digit passenger flight capacity, as you will remember. This is a welcome change since the uplifting of quarantine requirements for our crew as well as for travelers entering to Hong Kong around September, October this year.
Next, I'm gonna give you an update around the operating performance of our four lines of business, Travel, Cargo, Lifestyle, and HK Express, and then a very quick briefing on the other subsidiaries as well as our associates. As I mentioned, from the first of July onwards, Hong Kong has seen a turning point, in particular when it comes to our international aviation hub. This chart shows the international passengers in Hong Kong through the Hong Kong International Airport. For the past two and a half years, almost three years, as you can see, we have been heavily impacted by COVID-19. Since July, as I mentioned, we have seen gradual recovery in the capacity and movement within the Hong Kong International Airport. The first line of business I want to talk about is our travel business, i.e., Cathay Pacific.
It is obvious that since the opening of the traveler relaxation of the traveler requirement into Hong Kong, as I mentioned, we have seen a very sharp recovery in travel sentiment, especially among our Hong Kong people. We've been gradually increasing our capacity. As I mentioned, in the first half of 2022, we were only operating on average 4% capacity compared to pre-pandemic. Since July, we have gradually ramped up our capacity. For average between July and October, our capacity was 16%, the highest being October, 21%. On the top table, you can see that actually our volume of passengers traveling on us has actually increased faster than the capacity.
From those figures, you can see RPK, revenue passenger carry has increased by more than 100% in both cases, compared to the same time last year to date. Our load factor has increased to 68.8% year to date, which is very encouraging to see. We've also resumed connectivity for Hong Kong into different markets in the world. As of October, we are already connecting Hong Kong with 51 destinations, compared to 29 only at the beginning of the year. A bit more detail on the travel side for Cathay Pacific. As you can see, the capacity has been increasing. Actually up to October. In the second half, only four months, our capacity has already surpassed the entire second half of last year, and more is to come.
As we mentioned before, as a group, we are aiming for 1/3 of passenger capacity to be resumed by end of this year. Load factor also has been climbing up quite sharply. If you look at the lower charts of the second half 2022, the load factor has already exceeded 72% as a whole. Moving on to the second line of business, which is Cargo. I have to set the scene that last year, 2021, was an exceptional year in our history ever on our Cargo business. The supply and demand situation were really abnormal. To compare 2022 with 2021, no doubt we have seen a lot of decline. Still, I would say 2022 remains a strong year by comparison with a normal year.
This year's capacity is gonna be less than last year's, because in the first half of this year, we were under heavy restrictions. We couldn't operate a lot of capacity. We have caught up in the second half, but overall for the whole year, we expect the Cargo capacity will be lower than the whole of last year. The tonnage and load factor has seen a normalization compared to last year as well. This chart shows a clearer picture on the capacity front, the first half of this year compared to last year. There's been a sharp decrease because of all the restrictions on our crew at the beginning of this year. Second half, we believe we would normalize and be comparable more to the second half of last year.
Also if you look at load factor, 2021 was exceptional, 80 something % for both halves. This year we're just normalizing back to a more normal level. Still pretty encouraging. If you look at first half, 75%, second half, 68%, is still higher than normal, I would say. The third line of business I want to talk about is our Cathay Lifestyle business. As a result of travel sentiment improving, there's stronger demand for our Lifestyle offers as well, because people really wanna earn Asia Miles to be able to travel on redemption. Our Lifestyle proposition is mostly premised on people wanting to earn Asia Miles. Therefore, as travel sentiment improves, our Lifestyle performance also has seen improvement. Here, I won't read out the detail.
We have constant development on this front to develop our Lifestyle business, and we've been making good progress overall. The fourth line of business I would like to talk about is our low-cost carrier arm, HK Express. In fact, among the four lines of business, this line of business will be the most rapidly recovering line of business. Since the relaxation of quarantine requirements for travelers into Hong Kong announced in September, we have seen a sharp increase in the demand for LCC travel out of Hong Kong, and HK Express has benefited from that sharp recovery on leisure travel sentiment among Hong Kong people. As of October, HK Express operated 12 destinations, up from the four only at the beginning of 2022. We'll keep adding more destinations in the coming months.
By this time, all of the parked aircraft of HK Express would have returned to Hong Kong already. We have a full fleet ready for the recovery on HK Express front. Overall, as already mentioned to the public, HK Express is expecting to be able to return to pre-pandemic flight capacity by March 2023. A bit more update on our other subsidiaries. Air Hong Kong is another airline that we run as in the group. We continue to expand our network with Air Hong Kong. Air Hong Kong is a cargo-only carrier, and recently we have added two new destination to Chengdu and Bahrain. We also have a number of subsidiaries that provide catering and ground handling services at Hong Kong International Airport.
As a result of improvement in passenger traffic, all these subsidiaries, they have benefited from the recovery as well. On the cargo terminal side, they continue to invest in our differentiator product. Recently, we have launched a new pharmaceutical handling center, and we have issued a press release to that regard earlier this week. Turning on to our associates, mainly Air China and Air China Cargo. A point to note that their results are reported in three months in a rear in our P&L. If you refer to the announcement, Air China has already announced their performance up to end of September. I think you can refer to Air China's announced performance. Just a couple of things on our cost side.
I think the all eyes are on fuel and interest rates, both have been on a rising trend on a high level. I just wanna mention that we continue with our fuel hedging mechanism in a consistent way, we're hedging out by two years, we have a very robust matrix that we hedge against. This slide shows our hedge cover, as well as the average strike price for the coming two years. No doubt, interest rate has been rising for all the companies worldwide, we're not alone. This slide, I would like to share that roughly half of our interest rate is hedged under the fixed rate arrangement. I think we have some mitigation mechanism to keep our interest expense under control as well. Moving on to outlook.
Firstly, on the passenger side of our business, i.e., for Cathay Pacific and HK Express. Recently we have announced our measured and responsible recovery roadmap, and I would like to just recap that roadmap. By end of this year, which is only a few weeks away, as a group, we aim to recover to 1/3 of our pre-pandemic capacity, and it looks like I think we are on a very good track of being able to achieve that. We've also, map out our recovery road for the next two years, for 2023 and 2024. We announced that by end of 2023, our group capacity will be back to 70%. And then by 2024, we will fully recover to our pre-pandemic capacity as our goal.
That's just before when the Three-Runway System at Hong Kong International Airport will come in. We believe this is a good roadmap for recovery. Our pace for recovery actually is ahead of what IATA has projected when it comes to Asia-Pacific's travel demand recovery. On the Cargo front, we're already running a full freighter schedule, and the coming capacity recovery would depend on the recovery of the passenger flight frequency, because we also carry cargo in the belly of our passenger aircraft. We've announced that we will target to return to 2/3 of our cargo capacity by end of 2022. It looks like we're also on a good track to be able to do that. On the demand side, as I mentioned, it's no comparison compared to last year, which is exceptional in, by any standard.
No doubt, I think this year has come down, but still a solid peak season by comparison to a normal year, I would say. There are a lot of interest about our arrangement in terms of aircraft and manpower in supporting that planned capacity recovery. First of all, aircraft parked overseas are being gradually brought back to Hong Kong. Every month we have more aircraft returning for both HK Express as well as Cathay Pacific. We don't see that as a bottleneck because we can plan ahead quite well on the aircraft resources. The other concern we have heard quite a lot is about our manpower, whether we are confident and whether we're gonna have enough manpower to support our planned capacity recovery.
Here I would like to share with you that we're very pleased to see that there's a marked improvement in our overall employee turnover for the group since the quarantine requirements for crew and travelers arriving into Hong Kong has been relaxed recently, as we all know. We expect this positive trend of lowering attrition turnover continue in the coming months. Importantly, we have sufficient pilots, cabin crew, operational employees to support our current flight schedule. In order to support our recovery coming up for next year and the year after, we've been actively also recruiting for the resources required. I'm glad also to report that since July, we have around 1,800 new employees joining us across the Cathay Pacific Group.
We are confident that our ongoing recruitment plans will continue to attract the necessary talent to support our planned recovery, as I mentioned just now. Moving on to a picture about the cash burn. This chart shows our history throughout the pandemic, how our cash burn performance has been. As you can see, each half we have announced our target and our results come in the target. I think we are pretty consistent with our results vs our target. The second observation, as you can see, is that we have done a great job in controlling our cash burn. Actually from second half of this year onwards, we expect we will be operating cash generative overall.
Last Friday, I issue a press release on our traffic figures, and in the press release, I've also given some guidance about our full year results. Let me also repeat that guidance. First of all, for our airlines and subsidiaries-The second half result will be expected to see a marked improvement over the first half result. Although overall for the whole year, we still expect a loss for the airlines and subsidiaries. The result from our associates, mainly Air China and Air China Cargo, their results are reported three months in arrears, as I mentioned, will incur a significant loss as announced by those associates. As a result, if we look at the overall group, including airlines, subsidiaries, and associates, we still expect a substantial loss for the full year of 2022.
That will be our latest guidance in terms of performance for the whole year. I also want to mention our commitment to sustainability. Cathay Pacific commits to net carbon zero emission by 2050. I think all of you are already aware of that. Within that, we've also announced our target to use 10% Sustainable Aviation Fuel by 2030. We've been taking actions to fulfill that commitment. We have launched our first SAF corporate program in Asia, and we've also signed supply agreement to procure SAF from San Francisco International Airport beginning 2025 as a first step in fulfilling our commitment to SAF. We've also secured the first sustainability linked aircraft financing in Asia Pacific for a brand new A321 neo aircraft as well.
Our effort continue to be recognized by third-party endorsement, so this is a little table showing the recognition we've got from various association that you can refer to. To conclude, I think overall we are definitely seeing bright light at the end of the tunnel. Hong Kong is coming back, and Cathay Group is coming back. We have managed a very tough situation well, and so much so that I think we are still standing strong financially after three years of turmoil. Now finally we're seeing recovery in the travel sentiment, and we are doing our best in increasing our capacity in a measured and responsible manner for the next two years in recovering towards our pre-pandemic capacity as a group. There will be a lot of headwinds.
All the economic indicators will be working against many companies, including ours, but we are very confident about the future for the next few years. We have a great team working together to bring Hong Kong and Cathay Pacific Group to a big success in the coming few years. On that note, thank you.
Thank you, Mr. Lam. We'll now hand over to our moderator, General Manager of Corporate Affairs, Andy Wong, to begin the Q&A session.
Thank you. We have two questions, concerning cargo, and we can handle them one by one. The first one from HSBC. With Cargo already at 63%, why is the guidance for the year end only 2/3s of capacity and not higher? Is it due to weaker demand? Could you provide more colors for next year? Thank you.
Sure. Okay. This is regarding our cargo capacity projections. A bit of context. Traditionally, right, before the pandemic, we carry half of our cargo capacity on freighters, dedicated freighters, and the other half roughly on our passenger aircraft belly. We have already fully recovered our freighter capacity, so the 50% is there solid since June of this year. But the other half depends on the recovery of our passenger flights. As I mentioned, our passenger flight capacity will only recover to 1/3 by end of this year. If you calculate 1/3 of that 50%, it's roughly 2/3+ the other 50% from freighter. I think that's the constraining factor on how fast our passenger belly capacity will recover, which is a significant portion, i.e., half of our overall capacity for cargo.
Thank you. A follow-up question from Daiwa Capital Markets. What is the recent trend of cargo freight rates? Should we expect for it to go downwards in 2023 as more capacity becomes available? Thank you.
Well, the freight rate compared to last year has been on a downward trend, compared to a normal year is still at a slightly elevated level. There's a lot of uncertainty about 2023, but we expect the market to continue to normalize as the world's supply and demand for air cargo normalize for next year.
Thanks. Next question from Credit Suisse on mainland transit. The question comes as, could you give us more color on the recovery of the mainland transit demand? What would be our strategy on capacity resumption ahead in terms of the destinations and frequencies? How is the yield trend for both passenger and cargo is gonna change as the capacity increases? Thank you.
Okay. First question, is regarding Chinese mainland flight capacity. I want to tell the story by two different halves. Where the first half of the story, coming out from Chinese mainland, connecting via Hong Kong to the world, we have been seeing strong demand even throughout the pandemic, because we have a strong network, and now we are increasing our international network out from Hong Kong. From that perspective, outbound from Chinese mainland connecting to Hong Kong and to the rest of the world, we are seeing strong demand. The other half of the story is our inbound demand into Chinese mainland. At the moment, our flight capacity is still heavily constrained. We are not able to add the frequency we need because of the local authority control in Chinese mainland.
For example, out of Shanghai at the moment, we can only run one flight a week into Shanghai. We wanted to run more flight, but it's subject to the relaxation of the local authority's policy in order for us to do that. For international passengers coming to Hong Kong and connect into Chinese mainland, currently they are not able to do transit on the air side directly into Chinese mainland, again, because of the restrictions that the Chinese authority has imposed. Currently, people cannot transit directly via Hong Kong. People can land Hong Kong and then, after three days, they are free to travel into Chinese mainland. We are seeing a bit of demand using that means to go into Chinese mainland.
We don't expect any significant recovery on the Chinese Mainland flight capacity unless there's relaxation on allowing more capacity going into those airports, as well as relaxation of the transit restriction into Chinese Mainland. The second question is regarding the yield situation. For the cargo front, I've already explained, so I won't repeat. On the passenger front, the dynamic is still changing all the time. I think it's quite hard to predict, but we are adding capacity as fast as we could in a measured and responsible way. As we add more capacity, we believe the yield will come down and come to a more normalized level coming up.
Okay. Thank you. Next, we have some questions on capacity, maybe we can address that in one response. I think the questions mainly are around what are the constraints in terms of building up to 1/3 by the end of the year and to 70% by the end of next? We are seeing that the UO capacity is recovering faster than CX. Is it because of fleet size or other reasons? Can you please add some colors? Thank you.
Okay. Firstly, on the constraint in our capacity increase, well, as we have seen worldwide, as other airlines recover, they've been facing a lot of constraints in resources, whether it's the air crew, ground resources, ground handling agent, airport resources. Cathay is not alone. We are subject to that global ecosystem of aviation. We're facing a wide range of constraints, whether it's in Hong Kong or overseas, whether it's in the air or on the ground. Therefore, I think we've chosen this path of recovery, and we believe this is a measured and responsible way in managing our recovery path in the next few years. It's not gonna be easy because there will be many constraints, as we have seen.
I think we are tackling it, and we are confident that we are able to live up to that recovery path moving forward. Sorry, can you remind me about the second part of the question?
UO.
Oh.
Recovering faster. Is it because of fleet size, the market? Can you please add some colors? Thank you.
Well, the situation in HK Express is very different. They are a low-cost carrier of a relatively much smaller scale compared to Cathay Pacific. The constraint they face will be quite different compared to Cathay Pacific. I think it's not fair to draw a comparison between the two. I think their main target audience is Hong Kong people traveling outbound for leisure, which is the part that has recovered the fastest. They're less relying on visitors coming to Hong Kong, and therefore, I think they are able to enjoy the relaxation of outbound travel for Hong Kong people more so than other airlines.
Thank you. Next, we have a people question from Daiwa Capital Markets. It goes: Do we see any difficulty on recruiting crew to resume the capacity? Do we expect more salary increases in 2023? Thank you.
Against our planned recovery, which we have chosen a measured and responsible manner, we are recruiting, as I mentioned, according to our plan, and we are confident that we will have sufficient talent joining us in order to support our planned recovery. I will refer back to slide 20 on the slides on our statements regarding our manpower. Regarding, well, salary increment, recently, we have announced a 3.3 salary increment. From 1st of January 2023 already across our staff, we've also announced a one-month extra gracious payment for our overall people to be paid out quite soon. All these are very welcome and good news. 2023 is full of uncertainty, but we have every confidence that we will continue to recover.
When we recover, we will be able to share more rewards for our people.
Thank you. Next question is on debt from HSBC. What are the plans to pay down the debt given operations are improving and generating cash? Thank you.
Okay, let me divert to Chris to answer this question, if I may. Thank you.
Yeah. Thank you for the question. We have been cash generative for several months. You'll see that we are carrying elevated liquidity levels still at this time. In terms of paying down the debt, we have been progressively paying down debt over the past three years. If you look, you'll notice that our debt level is lower now than back in 2019, when we entered the, I guess, entered the pandemic. There is the preference share from the government, which is not really classified as debt. It's an equity instrument. We will eventually want to repay that, but the timing for that is still some way off, I would expect.
Thank you. Next question we have from Citigroup, I think it's mainly on business performance. Can you please help to share the pre-COVID PAX volume and revenue contribution from corporate travelers? Pre-COVID, what is roughly the point of sale split between Hong Kong and the Chinese mainland, inbound from North America, Europe and Australia? Thank you.
Well, sorry, I wish I could answer those questions in detail, but sorry, I don't have the numbers with me, so maybe we can get back to you offline. Thank you.
Thank you. As a continuation on the question, in terms of fleet, I see that you have material amounts of 777s and 330s in excess of 20 years. How should investors think about CX fleet policy? Do they expect major orders to replace those pretty soon? Thank you.
Well, for our fleet, we can roughly talk about it in three different parts. Firstly, on the long-haul passenger aircraft, we have a number of 777-300ER, as you rightly pointed out, those will be there to stay. We also got orders of A330, sorry, A350, a long-haul fleet that we still continue to take order. We will have new 777-9 arriving from 2025 onwards. Overall, I think we have enough long-haul aircraft to fuel Cathay Pacific's growth plan on the long-haul market for the coming years. On the regional aircraft, as I mentioned before to the media, we are looking at acquiring more regional aircraft to fuel the growth for the group moving forward. We are running an RFP and in regular discussion with the OEMs to that regard.
The last part is on freighters. We're also looking at more freighter capacity moving forward. To that regard, we're also working with the OEM actively to acquire new freighters coming up after 2025.
Thank you. The last question we have from Bloomberg. It's about comparison on the with our peers. The question goes, peers such as Singapore Airlines in 2Q and 3Q 2022 and Qantas in 3Q and 4Q of this year, they are reporting record profits in the current periods at capacities at around 60%- 95% of 2019 ASK levels. Excluding Air China losses, at what level of ASK recovery would CX be able to join those peers in recording such profits, especially given the operating leverage from pandemic cost cuts? Thank you.
Yeah. Thank you for the question. Sorry I am not able to give more forecast than what I've just done on our P&L. I think it's fair to say that Cathay as a group, we are behind. We are behind because of the well, the timing of the relaxation of travel restrictions in Hong Kong. Both Singapore and Australia, they have uplifted the hotel quarantine restriction for travelers much earlier than Hong Kong. They were never subject to any restrictions when it comes to crew quarantine. We were subject to crew quarantine restriction until quite recently. It's very difficult to compare our situation with those other airlines. Despite a late start, we will be recovering as fast as the other airlines in terms of pace, if not faster, according to our plan recovery path.
Yes, I think we will do everything possible to further improve our financial performance. I think at the moment, sorry, I'm not able to give any concrete guidance on that.
Thank you to our speakers and our moderator, and thank you for your questions. This concludes today's webcast. A copy of the presentation slides will be available to download on the investor relations page of our website later. If you have any further questions, please email them to ir@cathaypacific.com. Thank you for joining us.