Good afternoon. Welcome to the Cathay Pacific 2019 Annual Results Analyst Briefing webcast. Thank you for joining us. As this is the first time we'll be conducting the analyst briefing by webcast, before we begin, please allow us to go over the rundown for the briefing and the house rules. Kindly note that today's briefing will be conducted in English. We will begin with the presentation, after which we'll hold the Q&A session. 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. If you've not received a copy of the presentation, kindly contact ir@cathaypacific.com. You're also invited to submit your questions at any time during the briefing by clicking the Q&A box at the bottom of the window and filling out the submission form.
Our moderators will then read these out during the Q&A session. With that in mind, allow us to introduce our speakers for today. Martin Murray, Chief Financial Officer, Cathay Pacific, and Ronald Lam, Chief Customer and Commercial Officer. We'd now like to invite our Chief Financial Officer, Martin Murray, to begin the presentation.
Thank you. Good afternoon, everybody, and welcome to the 2019 Annual Results Briefing. What we'll do is take you through 2019. A relatively strong first half, given a very difficult year with a strong U.S. dollar and the U.S.-China trade tensions impacting cargo throughout the year. We completed the successful acquisition of Hong Kong Express in the second half, and then obviously since the year-end, we've had the onset of COVID-19, a complete collapse in demand. While entering this latest crisis in a position of relatively good strength with gearing and liquidity, the outlook remains very uncertain, and we've already declared that we'll be making substantial losses in the first half of this year.
Overall from the Group, we made a profit of HKD 1.7 billion compared to a profit of HKD 2.3 billion in 2018. Small decrease in Group revenue, ASK up 5.1%. The impact of the unrest impacting both passenger and cargo yield. Cargo yield impacted for the whole year, down 7.9%. Passenger yield down 3.9%. In terms of what we can control, our operating costs, ex fuel, were down 2.7%, and even if we adjust for FX, the underlying cost adjusted for FX, and IFRS 16 are down 0.9%. I mentioned that we started the year with relatively strong balance sheet. After we take out the new standard for leasing, our net borrowings went up 6.6%. We have unrestricted liquidity at year-end of over HKD 20 billion, and our gearing went up just from 0.92- 0.96, which is significantly below our financial covenants of 2.0.
For the full year, again, both at the consolidated level, we made a profit in both the first and the second half. At the airline level, we also made a profit in both this year and last year, although the second half of the year was a loss with the impact of the unrest in Hong Kong. It was the end of our three-year transformation program. This slide demonstrates our main tier of trying to get the business back to our return on capital employed of above seven, with 3.2% in 2019. The transformation program started in 2017, and you can see the progress that we made right through to even saying the first half of 2019. It was a good year despite the challenges, and obviously the impact of the unrest impacted the second half of 2019.
2019 is very much, big picture-wise, is just a big collapse in both passenger and cargo yields. Particularly in the second half, inbound traffic to Hong Kong was down around 40%, and we were relying on the lower yielding sixth-freedom traffic for the second half, offset in part by a lower fuel price. At the passenger level, again, we mentioned that all key metrics are down. Passenger revenue per ASK down 6.2% in terms of revenue efficiency. Passenger yield down 3.9%. Passenger load factor down 1.8%. Again, this is very much driven by the second half and the impact of the unrest, and even with our sixth-freedom traffic, that was down more than usual because most of it had normally come from the mainland.
This again depicts the whole transformation period and how well we were doing on a revenue efficiency graph, and then the impact on revenue efficiency in the second half of 2019. Around the regions, again, if we just go around the block here, significant growth in ASK from the U.S. as we had the full year of Washington and Seattle with the A350-900. The trade tensions and also the unrest had a big impact on load factor and yield in that case. In Europe, we have the full year of Brussels and Dublin, and we increased frequencies to Madrid, Paris, and Frankfurt. The yield again was more impacted by sixth-freedom traffic.
Particularly, we had quite a strong Kangaroo Route from Europe to Australia, and hence the Southwest Pacific, you see again, a relatively good load factor but lower yield. South Asia, Middle East, and Africa, we had good traffic from India through to the U.S. Southeast Asia, also strong first half, weak second half, and similarly, the same with North Asia. Cargo was depressed all year. The U.S. cargo trade tensions impacted the full year, with a slight pickup at the very end of the year through the holiday season, and some new product to match the holiday season. Again, similarly, you'll see there on the cargo side, the U.S.-China tensions in the first half showing a big impact there in terms of our cargo revenue efficiency, and then slowly picking up towards the end of the year in the second half.
Our cost per ATK, in terms of our operating costs, our operating costs came down 2.7%. As I said, if you adjust for HKFRS 16 and foreign exchange movements, our unit costs came down 0.9%. Again, our fuel costs were down significantly, 9.9%, with the impact of hedging down 13.4%. On fuel, again, fuel relatively steady throughout the year, but lower than the prior year in 2018. Our fuel hedging current position, which we normally disclose, we're normally around 40% hedged at HKD 64, HKD 65 for the first half. Two things to note there. Obviously, the oil price has fallen this week. Similarly, with the cut in capacity, the planned capacity of that 40% in the first half will be impacted. We'll have a higher hedging cover, and also be impacted by the lower fuel cost.
For March, the average fuel cost to date is $48. If it was to stay at this price, then for the month, we'd have hedging losses of approximately $33 million. Our overall absolute costs are down, as I've mentioned, 2.7% and 0.9%. In terms of cost per ATK, which we'll be measuring over the transformation period, it's down 0.9%. Again, the big red one there is in others, which is, again, planned, as we've been talking about through the Transformation Program. This is spend on marketing and Asia Miles and investment in Asia Miles. The cost in terms of what we control, staff costs down slightly. Obviously, we had the organization design in the outports, reduction in the number of staff in the outports, and lower bonuses through the year.
Productivity in the inflight services, landing and parking, down slightly due to the lower cargo volumes there. Aircraft maintenance, we had lower lease return costs. In July, we had the successful acquisition of HK Express. The purchase consideration of HKD 4.8 billion, resulting in a goodwill figure of HKD 4 billion. Very excited about what HK Express will bring to us in the medium term. We already announced the movement of 16 of the A321s in 2022. For HK Express, it made a small loss in 2019, again, driven particularly by the Hong Kong social unrest. 24 aircraft with an average fleet age of below five years, and with an average load factor of 91.5% over the year period. In terms of other subsidiaries, Air Hong Kong, we took control of 100% of Air Hong Kong, under the new block space agreement with DHL.
The business there, profit went up slightly, but some of that was to do with some asset sale. Overall, marginally down. Asia Miles performed relatively well, and the other subsidiaries made small losses, again, due to the cargo and downturn in passenger. Air China had a good result. We report Air China three months in arrears, impacted slightly, offset by the strength of the U.S. dollar. Air China Cargo, our shareholding changed in the 31st of October from 49%- 35% as part of the mixed-ownership reform in the freight logistics business in China. I mentioned at the start on terms of 2019, despite the difficult year, relatively strong cash flows, balance sheet, again, net borrowing up just a mere 6.6%. Unrestricted liquidity, relatively high at HKD 20 billion. Our gearing, 0.96 against the covenants of two.
Again, that shows the impact of the new accounting standard on our gearing and where it would've been on a like for like basis. Return on capital employed on the bottom there, hitting 3.5% in a difficult year compared to our target of 7%. That leads us on to the transformation program. As I mentioned, the whole point of the transformation program, the big goal was to get our return on capital up above our weighted average cost of capital. We didn't achieve that for all the reasons just mentioned. Our ASK growth, we said that this was an unusual transformation in that we were growing all the way through to the third runway at an average of about 4% per annum. Obviously, that has been impacted by the unrest and also events this year.
On the cost front, we have over that period, did what we set out to do and reduced our cost per ATK ex-fuel. As you know, back in 2017, we reduced our head office headcount and management level by 30%. The foundations of the transformation are still very much in place. These are slides that we showed the last time, I'll be quickly go through them. We do still move to a period of constant improvement. The foundations that the transformation set are still in place. We carry out with the workshops, we carry on creating new initiatives, and we carry on executing to those. Moving on to COVID-19. The first thing to say is obviously the priority is safety and our customers and our staff.
We've had great feedback from many customers on what we've done in terms of Marco Polo Points, what we've done in terms of working with refunds and rescheduling, and the guides we've given in terms of the virus. Similarly with staff, taking all sorts of precautions and provisions there, looking after their safety and thanking them for the effort that's happened over the last month. It's been tremendous. In terms of the business impact, I can't underestimate the significance of it. Again, the numbers there sort of speak for themselves. We normally are traveling with about 90,000 passengers for Cathay Pacific and KA. That's down to 16,000 this week and falling. UO, Hong Kong Express, normally carrying 12,000, down to 4,000. In terms of frequencies, returns, 120 in Cathay down to 35, 80 for Cathay Dragon down to 15, 34 for Hong Kong Express down to around five.
90% of our flights to mainland China are suspended, and the outlook remains very uncertain. We continue to monitor the market and cut on a daily basis. This is where our current capacity suspensions are. We have 45 destinations in Cathay and Cathay Dragon network, and we have 20 destinations in HK Express. As I said at the start, we started this period with relatively strong position, with a relatively low gearing as compared to our financial covenants and with unrestricted liquid funds of HKD 20 billion. These remain extremely challenging times, as the last slide showed, and it's very uncertain times. The focus has been, which has been made very public, the need to preserve cash at this time, and doing all sorts of things.
The special leave scheme was highly public, and it's great to see that over 80% of the entire staff signed up for that. We're working hard in both operating costs and capital costs with our strong relationship vendors. The key vendors, about 25% of our vendors make up the significant part of our costs, and we have strong relationship with them, and we're working hard in both deferring and getting discounts from those. Lots of work being done on that front. The outlook, even before COVID-19, with the situation in the second half of 2019 was going to be challenging. We had reduced capacity and forward bookings on that basis. COVID-19 has absolutely compounded that challenge. As I've mentioned, the outlook remains very uncertain. We're focused heavily on liquidity, and we do believe that the business can weather the immediate challenges that we face.
We have cautious optimism on the cargo side of things, as the U.S.-China trade tensions ease. Despite all our best efforts, as we've announced already in early March, we will have substantial losses in the first half of 2020. Our commitment to our customer remains the top priority, and we're grateful for all the staff and hard work and support they're doing during these challenging times.