Good afternoon, everybody. Welcome to the Cathay Pacific Interim Results. My name is Martin Murray, CFO, and with me today I've got Rupert Hogg, CEO, and Paul Loo, the Chief Customer and Commercial Officer. Usual format, Rupert will say a couple of words then I'll go through the financials, then Rupert will say something on the transformation, then the three of us are here to answer your questions. With that, I'll pass over to Rupert.
I think you have the agenda in front of you. Recall the goal when we launched this transformation program at the beginning of last year, a three-year transformation program. The goal for 2019 is to get ourselves to a point where the airline is returning above its cost of capital. That's the trajectory that we're aiming for. We're halfway through the program now. We're not yet in the black, I must acknowledge that to start with. There are some things that I'm pleased about. The first is, this slide shows you, I think very clearly, that the results are largely airline led. That's what we manage. That's important to us. Second point I would make is that the revenue performance, in many ways, is gratifying. That's critical to us.
You'll recall that we had three years of negative revenue growth on the passenger side. This is a holistic transformation. It's all about improving every aspect of our business. Basically, in both cargo and passenger, all of the revenue metrics have been positive. On the cost side of the business, this is a thin margin business at the best of times, no doubt it's challenging. We'll dig into that because there are some factors that affect the headline numbers that you see. We have big external pressures, the underlying unit cost rise is 3% without fuel. We have still a lot to do, we're moving into the second phase of the transformation now, I'll talk about that later. I guess the key message is that we have a plan. There is no one silver bullet.
We've got lots of initiatives on, we're very focused on the execution. We're also much better placed than when we started last year. We got a lot of building blocks in place, digital technology, great fleet, we've invested in the customer experience, we're on it. I'll just take you through the big factors that I think contribute to this result, then I'll let Martin dig into the numbers with no further ado. As I said, strong revenue, across both sides of the business. We've had a big focus on customer service. We've done quite a lot in terms of investing in the customer experience. That's what makes us different. That's what make the customers come back. That will continue. Cargo has been very strong, in every respect. Operating costs, obviously, weak U.S.
U.S. dollar has been problematic for us at the beginning of the period in question. New accounting standards mean that we need to make some explanations to you, and we've invested a lot in our fleet. You can see that come through on our cost per ATK without fuel. Because the revenue's been strong, we've taken a decision to invest in some of the customer initiatives a bit earlier. Our subsidiaries are doing well. Air China, Martin will elaborate on, basically in the second half of the year, there's a renminbi factor. Finally, before I hand over to Martin, I would say, it's encouraging to see much stronger cash generation from the business, and we've been able to reduce our debt, too. Martin.
Thank you. This is just the underlying trend in attributable profit. The key statistics, group attributable profit, HKD 263 million loss compared to the HKD 2 billion same period last year. On an airline level, HKD 900 million loss compared to the HKD 2.8 billion loss there. It is, as we keep repeating, a transformation of growth. We are growing around 4% per annum. ATK growth 3.7%, ASK in the first half, 3.2%. It's a yield story. Passenger yield up 7.6%. Cargo and mail yield up 16.3%. Our costs with fuel up 4.8%, and our underlying costs up 3.3%. This slide here basically reconciles to the first slide on airline loss before tax. There's a couple of things to point out in this slide just to make sense of it.
In 2017, in the first half, there were two exceptional cost items in that, the EU fine of HKD 498 million and redundancy costs of HKD 224 million. There's HKD 722 million in that 2017 number. On the 2018 number, we sold some carbon credits for HKD 110 million, which was a gain. On a like-with-like basis there, you're looking at HKD 3 billion to HKD 850 million in that piece there. On the cost front here, we have a new accounting standard that we will explain later in the presentation, but it's basically added HKD 1 billion to the revenue side and HKD 1 billion to the cost side, mainly in landing and parking and in the other table there. Again, we'll strip those out and we'll look at it on a like-for-like basis later in the presentation.
On the passenger side, very much a strong yield despite the intense competition. Passenger revenue up 10.4%, as I said, on ASK growth of 3.2%. 7.6% increase in passenger yield, 6.6% if you strip out the IFRS 15 impact. On that growth, there's your yield growth there. Yes, we had some benefit on the weaker U.S. dollar at the start of the year and the higher fuel price with fuel surcharge, but also good revenue management, stronger front end, better third and fourth freedom, and I'm sure Paul will talk further about that in the Q&A. Passenger revenue growth, passenger efficiency up 7.1% there too. Keep reiterating the transformation being a growth story, 3.2% increase in ASK. Here we have our new routes to Brussels, Copenhagen, and Dublin for Cathay Pacific and for Cathay Dragon, Nanning and Jinan.
We've done this so that, again, sort of highlighting the strategy, the destinations being in green. We're the only airline serving these destinations from Hong Kong, which normally leads to higher yielding destinations. Here is our route map here. Again, we're seeing we're growing at 4% per annum through the transformation. You'll see the bottom there. Planned growth for the year, 4.3%, 3.2 in the first half. Planned growth for the second half, 5.4%. You'll see the big ASK growth being there on the top left in Europe, which a lot of it is driven by the new destinations. In the Southwest Pacific there, you've got the move that's sort of slot constrained there. We're moving to the A350 777s from the A330s there, which is creating the ASK growth there. Good yield growth across the board.
Some of the bigger ones are driven by currency. Particularly the India, Middle East route. India, the throughput through to the U.S. has been particularly strong. Because of the strong yield growth, I'm sure Rupert and Paul will touch on this later too, but it has allowed us to continue our strategy of investing in the customer. There's been an awful lot of investment on the ground, particularly in the Asia Miles, enhancing that program, 20% more redemption seats. Our mobile applications, heavy investment in that. Obviously, the deck opened in terms of our lounges. In the air, we've got our new seat configuration in economy class and the new in-flight entertainment systems. We're rolling out restaurant-style delivery in business class there. So much going on in terms of the digital space.
The A350s all come with Wi-Fi, and we're adding that to the 777s and the A330s, and it'll be on all our fleet by 2020. A lot of work doing in terms of improving the self-service of the customer feedback, and also digital in terms of instant feedback, as well from both our lounges and our flights. A lot of work in doing in terms of enhancing the customer experience. In terms of cargo's a good story throughout. Again, cargo mail revenue up 25% and all the metrics strong on AFTK growth of 4.1%. Load factor up 2.1% and cargo yield up 16.3%. As we've mentioned before, it's a good mix of sort of e-commerce coming out of Hong Kong and machinery and food coming back in.
As a premium carrier, obviously carrying specialist equipment, whether it be food, pharmaceuticals, bulk size, et cetera, and higher yielding too, is helping on the cargo front. Strong yield. Again, this graph also highlights, again, the expectation that despite the politics going on at the moment, the second half, you can see there on the green bars, the second half's normally a lot stronger than the first half with the summer, Thanksgiving, Christmas peaks, et cetera. This one here, you'll see the improvement in load factor in cargo over the last couple of years. The dotted graph there is the 2013-2017 period there. Again, a significant pickup in cargo over the period and a 20% increase in our cargo efficiency. Moving on to the cost front. As we mentioned at the last analyst briefing, there is pressure on our cost here.
We are going to strip out the impact of FX. Obviously, over the period, we've actually benefited from a weaker FX, which is good for the business. Higher revenue, but it does impact the cost front. There has been a change with IFRS 15, which is a revenue recognition accounting practice. We'll strip that out. Underneath all that, on the cost front, yes, there's been a 30% increase in the fuel price, which is obviously bad for all airlines. 7% if we strip out our hedging. We have got the new fleet. We're heavily investing in that. As we alluded to, significant increase in owning the asset costs, depreciation, and our finance assets. The benefit of that actually comes through the fuel consumption and our fuel consumption per RTK, as you'll see in the operating stats, is down 2.5%.
That comes through on the fuel efficiency side there too. There are known costs in terms of overflying and landing and parking. As we've alluded to, our benefit and yield has allowed us to bring forward investment in the customer experience, Asia Miles, et cetera, there. Fuels are 30% of our costs, the biggest one there, up 31%. Savings in our hedging losses, down 7.4%. Our hedging book to date, 45% hedged at an average Brent price of $80. Going forward, that's the end of our legacy contracts at the end of 2018. Going forward to 2019, we have 30% hedged around $68 for the first half of 2019, 31% hedged at $60, third quarter, 25% at 61 fourth quarter.
Those that follow the balance sheet, the hedge reserve is now positive for today's spot price and the forward curve and $75 Brent today. We've got about HKD 900 million positive credit in our hedge reserve, which is a first for a number of years. Here's the cost front here. On the cost side, as I said, these have been heavily distorted by the FX and the new accounting standards. Once we strip those out and the exceptionals, you'll see that underlying cost without fuel goes up 3.3%. Two things there. This graph here starts in January 2017 and takes us right through to today. You'll see that overall in the period, even though everyone's talking about a strengthening U.S. dollar at the moment, for the period we're comparing here compared to the first half of 2017, the U.S. dollar has weakened.
That's a good thing for a number of reasons for Cathay. It makes Hong Kong a more attractive destination to come to. It improves our revenue in terms of FX translation, and it has the net but partial offset on the cost front there. If we strip out there, the first time we've shown this, if you strip out the currency fact there, we've got a net benefit in the first half of HKD 275 million at the airline level there, HKD half a billion additional cost. The new accounting standard is revenue recognition, so you're increasing your costs and increasing your revenue there. No impact on the P&L account, but obviously in terms of looking at your comparisons, you have to take that out. The exceptional being the European Commission sale of HKD 110 million there.
If you look at that, once you have stripped out the impact of the accounting standard and the currency movement, then this is where our underlying cost, which we are trying to hold flat, is impacted here. A 3.3% increase there. As mentioned, the biggest factor of that by far is our depreciation and finance cost, the owning the asset element. Again, the benefit of that comes through in the fuel side. We also expected the first half of 2018 to have this increase. As you have the more ASK in the second half with the fleet joining, the cost per ATK will come down in the second half. This is, as expected, part of that. In the others and inflight services and passenger expenses, these are customer-facing costs.
You can see the benefit in terms of the Asia Miles commissions and inflight stuff and the customer piece there. Landing and parking up a little bit with the charges there. Those are the main drivers of our operating costs. In terms of our subsidiaries. Subsidiaries are all performing satisfactory. No real impact on the group financial statements in terms of how you look at it there. Just point to note out, Air Hong Kong does become 100% owned next year, and it gives us options for our cargo business going forward. Rupert alluded to Air China and Air China Cargo. We do have a slight anomaly in that we had a sort of strong June for Air China and a very weak June for Air China Cargo.
It is all to do with the revaluation of the renminbi because we account for Air China three months in arrears. March had a strengthening of the renminbi, and June was a weakening, which means that come September, there will be an impact, whatever Air China announce, you will see it shortly in terms of what will happen in September from our associates. We would expect a weaker results in September for Air China, as we saw in Air China Cargo in June. In terms of the cash flow and balance sheet, you will see the trend continues. Very strong operating activity, cash flows. We only have one delivery in the first half of 2018. We did get that revolver credit loan there, so we have paid down our debt, some of our debt there. You will see the gearing has reduced to 0.85 from 0.97.
I think you are going to see from that slide, it is the first time in my seven years that the gearing is now starting to come down and is at 0.85 as we sit today. In terms of the fleet, the overall fleet profile, we have gone through this over the last number of analyst briefings of how we have simplified both the fleet and the sub-fleets in terms of helping with the efficiencies. The new deliveries coming through, moving to 22 A350-900s are now in service. We have taken our first A350-1000. We have two now and six more in 2018, and then we move on to the A321s and the 9Xs. With that, I will pass back to Rupert to update on the transformation.
Thanks, Martin. We briefed you in June. The background context, competition is still there. We see that as the new normal. It was one of the drivers for transforming our business. In terms of the economic context, and always a relevant driver, of course, you'd have to say that the global economy by and large is positive, but uncertainty is increasing. I'm sure we'll talk about that in question times. Transformation itself, we're halfway through. It's built around four pillars, but we've been doing some things, if you like, to create the strategic platform. Organizational change, we're largely finished in head office. We've just finished restructuring of subsidiaries management. At the moment, we are now working through our overseas operations, not just to make ourselves leaner and more agile, but actually to change the way that we work, modernize the way we work, and interface with head office.
On the digital side, which is absolutely critical to better understanding our business and driving productivity, we've done a lot of work there, invested a lot, and we're at the stage where we have much better data, not just that shows what our customers think, but for asset utilization and other aspects. In terms of the customer, Martin's talked about it, we've got a program of investing to make sure that we're different and better. Just in terms of the four pillars themselves, the first is putting the customer at the center of everything we do. I'll let you read most of this. It's the first year we've launched nine new destinations, so we're improving connectivity at the Hong Kong hub. We're improving connections to Hong Kong, and we're deploying our new fleet on routes that we couldn't do before.
We're also retrofitting a very large part of our 777 fleet, introducing better seats, better in-flight entertainment, and Wi-Fi. On the operational side, a lot of programs are in place now. Crew rostering system, which is helping us as we go through each of the fleets, and drive patterns and then roster against it, and various other things that allow us to be more productive. We're doing a lot of work with our people, particularly our frontline people, to make sure we're higher performing teams. I would say the biggest single focus now is redesigning the whole business. If you like, the next part of our transformation program, the end-to-end process redesign, and we are taking the big nine processes or work streams that together comprise everything that we do in the business, and we are mapping them out, and we're redesigning them.
We're not just redesigning them in the traditional way of business process re-engineering. We're applying new technologies, we're applying digital and better data so that we make better decisions, and we're able to improve the customer service. That's a big piece of work. We're confident that it will structurally change the way this business operates so that we become more productive year on year, and we're well underway with that. We've got five of the big processes already started. A sixth will start this year. We've greatly enhanced our investment in digital and lean and also global business services, which are, if you like, shared services. That is the biggest single driver of future productivity, and we've got it underway. We've got a plan, and we're on to it. If I can take you then to the outlook, we will then talk about or take questions.
Broadly speaking, we think the environment's going to remain challenging. Obviously, the strength of the U.S. dollar has a number of implications for us, benefits us on the cost side. There are also concerns about the global trading environment. We think competition will continue, and fuel prices are higher than they've been before. As Martin pointed out, we're working through the end or through the last period of what has turned out to be adverse fuel hedging impact. I think the cost pressure, particularly external costs, will remain. Having said that, we always have traditionally done better in the second half than the first. Not least, as Martin pointed out, we've launched 3% ASKs or ATKs in the first half of the year. We'll fly 5%, [let the phrase] fixed costs, to arrive at an average 4%.
We think that yields will improve, and it's worth noting that we've had underlying growth when you strip out the benefits of currency, et cetera, on our yields to date. Our fleet continues to improve the customer experience, allow us to fly to new destinations, and take our unit fuel consumption costs down. Our program to transform our business is ambitious, wide-ranging, but it remains on track. That is how we see the world at the moment. Thank you.