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Hong Kong flag carrier Cathay Pacific reported a loss of HK$575m ($74m) for 2016, its first annual loss since 2008, as rival Chinese airlines added more direct flights to international destinations and the demand for its premium class tickets fell.

This net loss compares to a HK$6bn profit in 2015 and came amid what the company described as a “difficult” operating environment with “intense and increasing” competition from other airlines.

Cathay said increased competition from mainland Chinese carriers operating more flights to the US put downward pressure on yield. Passenger yield in particular fell 9.2 per cent to 54.1 Hong Kong cents, which the company attributed to a fall in premium class demand and strength in Hong Kong’s US dollar-pegged currency.

Overcapacity also hurt the airline’s cargo revenue, which fell 13.2 per cent to HK$20bn. Cargo yield fell 16.3 per cent to HK$1.59.

Cathay’s fuel hedging loss for the period was HK$8.46bn, down marginally from a Hk$8.47bn loss in 2015. The airline expects to benefit from lower fuel prices in 2017 while forecasting a further hedging loss for 2017, although it expects this to be lower than that seen in 2016.

Chairman John Slosar said:

We expect the operating environment in 2017 to remain challenging. Strong competition from other airlines and the adverse effect of the strength of the Hong Kong dollar are expected to continue to put pressure on yield. The cargo market got off to a good start, but overcapacity is expected to persist.

The airline reported an 82 per cent fall in net income in the first half linked to losses from fuel hedging and a slowdown in China. As a result, Cathay launched its largest strategic review in two decades and in January said it would undergo a reorganisation that would include job cuts, without specifying numbers.

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