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Cathay Pacific Airways Limited
Stock Code: 00293
Annual Report 2010
Hong Kong
Cathay Pacific is an international airline registered and
based in Hong Kong, offering scheduled passenger
and cargo services to 141 destinations in 39 countries
and territories around the world.
The Company was founded in Hong Kong in 1946 and
remains deeply committed to its home base, making
substantial investments to develop Hong Kong as one
of the world’s leading global transportation hubs. In
addition to its fleet of 127 wide-bodied aircraft, these
investments include catering and ground-handling
companies and the corporate headquarters at Hong
Kong International Airport. Cathay Pacific is also
building its own state-of-the-art cargo terminal at the
airport, which will open in early 2013.
Hong Kong Dragon Airlines (“Dragonair”) is a wholly
owned subsidiary of Cathay Pacific. Dragonair is an
Asian regional airline, registered and based in Hong
Kong, which offers scheduled passenger and cargo
services to 33 destinations in 14 countries and
territories with a fleet of 31 aircraft. Cathay Pacific also
owns 18.7% of Air China Limited (“Air China”), the
national flag carrier and a leading provider of
Contents
Financial and Operating Highlights
Chairman’s Letter
2010 in Review
Review of Operations
Financial Review
Directors and Officers
Directors’ Report
Corporate Governance
Independent Auditor’s Report
Principal Accounting Policies
Consolidated Statement of
Comprehensive Income
Consolidated Statement of Financial Position
Company Statement of Financial Position
Consolidated Statement of Cash Flows
Consolidated Statement of Changes in Equity
Company Statement of Changes in Equity
Notes to the Accounts
Principal Subsidiaries and Associates
Statistics
Glossary
Corporate and Shareholder Information
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Cathay Pacifc
Cathay Pacifc Freighter
Dragonair
Air Hong Kong
passenger, cargo and other airline-related services in
Mainland China, and is the major shareholder in AHK
Air Hong Kong Limited (“Air Hong Kong”), an all-
cargo carrier offering scheduled services in the Asian
region.
Cathay Pacific and its subsidiaries employ some
27,500 people worldwide (more than 20,000 people in
Hong Kong). Cathay Pacific is listed on The Stock
Exchange of Hong Kong Limited, as are its substantial
shareholders Swire Pacific Limited (“Swire Pacific”)
and Air China.
A Chinese translation of this Annual Report is available upon request
from the Company’s Registrars.
本年報中文譯本,於本公司之股份登記處備索。
Cathay Pacific is a founding member of the oneworld
global alliance, whose combined network serves more
than 750 destinations worldwide. Dragonair is an
affiliate member of oneworld.
2
Financial and Operating Highlights
Group Financial Statistics
2010 2009 Change
Results
Turnover HK$ million 89,524 66,978 +33.7%
Profit attributable to owners of Cathay Pacific HK$ million 14,048 4,694 +199.3%
Earnings per share HK cents 357.1 119.3 +199.3%
Dividend per share HK cents 111.0 10.0 +1,010.0%
Profit margin % 15.7 7.0 +8.7%pt
Financial Position
Funds attributable to owners of Cathay Pacific HK$ million 54,274 42,238 +28.5%
Net borrowings HK$ million 15,435 26,131 -40.9%
Shareholders’ funds per share HK$ 13.8 10.7 +29.0%
Net debt/equity ratio Times 0.28 0.62 -0.34 times
Operating Statistics – Cathay Pacific and Dragonair
2010 2009 Change
Available tonne kilometres (“ATK”) Million 24,461 22,249 +9.9%
Passengers carried ‘000 26,796 24,558 +9.1%
Passenger load factor % 83.4 80.5 +2.9%pt
Passenger yield HK cents 61.2 51.1 +19.8%
Cargo and mail carried ‘000 tonnes 1,804 1,528 +18.1%
Cargo and mail load factor % 75.7 70.8 +4.9%pt
Cargo and mail yield HK$ 2.33 1.86 +25.3%
Cost per ATK HK$ 3.16 2.76 +14.5%
Cost per ATK without fuel HK$ 2.02 2.00 +1.0%
Aircraft utilisation Hours per day 12.0 11.2 +7.1%
On-time performance % 80.9 86.8 -5.9%pt
Cathay Pacific Airways Limited Annual Report 2010
3
Chairman’s Letter
The Cathay Pacific Group recorded an attributable profit of HK$14,048 million for
2010. This result, a record for the Group, compares to an attributable profit of
HK$4,694 million for 2009. Turnover for the year rose by 33.7% to HK$89,524 million.
Earnings per share rose by 199.3% to HK357.1 cents.
The Group’s business began to recover from the global
economic downturn in the latter part of 2009. The
momentum was sustained throughout 2010. Our
passenger and cargo businesses both performed well
with consistently strong loads and significant increases in
revenues. We also benefited from the strong profits
earned by our associated company, Air China (which
contributed HK$2,482 million to the 2010 result), from the
aggregate profit of HK$2,165 million from the disposal of
our interests in Hong Kong Air Cargo Terminals Limited
(“Hactl”) and Hong Kong Aircraft Engineering Company
Limited (“HAECO”) and from the profit of HK$868 million
from the deemed disposal of part of our interest in Air
China. The deemed disposal occurred because Air China
issued some new shares, an issue in which we were
unable to participate.
Cathay Pacific and Dragonair between them carried a
total of 26.8 million passengers in 2010, representing
an increase of 9.1% over 2009’s figure. The load factor
increased by 2.9 percentage points as a result of
consistently strong demand for economy class seats
and a steady increase in demand for premium class
seats. Passenger revenue for the year increased by
29.3% to HK$59,354 million. Yield increased by 19.8%
to HK61.2 cents. Demand was strong in most markets,
there was a marked pick-up in premium travel and seat
revenue was managed astutely. Passenger capacity
increased by 4.1% as we restored services which had
been reduced or suspended during the downturn and
added new destinations.
The Group’s cargo revenue increased by 50.1% to
HK$25,901 million. Freight carried by Cathay Pacific and
Dragonair increased by 18.1% to 1.8 million tonnes.
Cargo capacity increased by 15.2%, as we brought back
into service freighters which had been parked in the
desert during the downturn. Despite this substantial
increase in capacity, the strength of demand was such
that our load factor increased by 4.9 percentage points to
75.7%. Demand in all key markets was strong, and
especially so in the peak season of October and
November. This was reflected in yield increasing by
25.3% to HK$2.33.
Fuel remains our largest single cost, representing 35.6%
of the Group’s total operating costs. The fuel price
increased during the year and was 28.0% higher on
average than in 2009. Our total fuel costs for 2010
(disregarding the effect of fuel hedging), reflecting both
the higher price and increased operations, increased by
40.4%. Managing the risk associated with fuel price
changes is a key challenge. The Group’s fuel hedging
activities resulted in a reported loss of HK$41 million in
2010, while unrealised mark-to-market gains of
approximately HK$1 billion have been recognised in
reserves. These gains, depending on intervening
movements in the price of oil, will be released to the
profit and loss account in 2011 and 2012 as the
underlying contracts mature.
As business conditions improved, we restored capacity,
reinstated services and added new destinations. This
reflected a superb and sustained effort on the part of our
staff. We were able to thank those who took voluntary
unpaid leave in 2009 by making an ex gratia payment to
them. Staff will also receive a 2010 profit share greater
than five weeks’ salary.
The improved business conditions helped us to rebuild
our balance sheet. Our financial position is strong. This
enables us (while continuing our policy of maintaining a
conservative balance sheet) to increase the size of the
airline and so further strengthen Hong Kong’s position as
a leading international aviation hub. We continue to
invest in a modern, fuel-efficient fleet. In 2010 we took
delivery of seven new aircraft. In August 2010 we
announced our biggest-ever aircraft order, of 30 Airbus
A350-900s (to be delivered between 2016 and 2019) and
of six more Boeing 777-300ERs. In December, a further
two Airbus A350-900s were ordered. In March 2011,
Cathay Pacific announced the acquisition of 15 new
Airbus A330-300 aircraft and 10 new Boeing 777-300ER
aircraft. Cathay Pacific is also in discussions which, if
successfully concluded, will result in the acquisition of 14
further aircraft. Unfortunately, there will be a delay in the
delivery of our new-generation Boeing 747-8F freighters,
with the first now scheduled to arrive in August 2011.
1
Cathay Pacific launched services to two new destinations
in 2010, Milan and Moscow, added services to Haneda
and has announced the commencement of passenger
services to Abu Dhabi commencing in June 2011 and to
Chicago commencing in September 2011. It also added
22 destinations to its network through codeshare
arrangements with airlines in Central and Latin America,
the United States, Canada and Japan. Dragonair added a
new service to Hongqiao in Shanghai, restored services
to Fukuoka and Sendai in Japan and added Okinawa to its
network. In December 2010 Cathay Pacific announced
the introduction of a new long-haul flat-bed business class
seat. During the year we opened a new first and business
class lounge in London and a fourth first and business
class lounge in Hong Kong, called The Cabin. We also
began to renovate our signature lounge in Hong Kong,
The Wing.
In November 2010, the European Commission imposed a
fine equivalent to HK$618 million on Cathay Pacific. The
Commission issued a decision finding that Cathay Pacific
and a number of other international air cargo carriers
agreed on cargo surcharge levels and that such
agreements infringed European competition law. We are
appealing this decision but, consistent with accounting
standards, have made full provision for the fine in our
accounts for 2010. Cathay Pacific remains the subject of
antitrust investigations and proceedings in various
jurisdictions and will continue to cooperate with the
relevant authorities and, where applicable, defend itself
vigorously. We remain committed to our longstanding
policy of full compliance with the law and reaffirms our
support for full and fair competition among air carriers.
The authorities in Mainland China have given formal
approval for our cargo joint venture with Air China, and
the two airlines are now in the process of completing the
necessary paperwork to enable operations to commence.
An existing Air China subsidiary, Air China Cargo, will be
used as the platform for the joint venture. Air China Cargo
is based in Shanghai and is in a good position to exploit
the attractive air cargo opportunities in the Yangtze River
Delta region. The Group is selling four Boeing 747-
400BCF freighters and two spare engines to the joint
venture. One of these aircraft has already been sold to Air
China Cargo. The other three are expected to be sold in
2011 and 2012. Our commitment to Hong Kong as an
international air cargo hub remains unwavering. The
construction of our own cargo terminal at Hong Kong
International Airport is progressing on schedule. When
the facility opens in early 2013 it will be one of the
biggest and most advanced of its kind in the world.
The rapid turnround in our business from the lows of
2008 and much of 2009 to the record highs of 2010 is
very welcome. It is also indicative of the volatile nature of
our business. We cannot afford to be complacent. Our
results would be adversely affected, and very quickly so,
by a return to recessionary economic conditions. Demand
is at present expected to remain strong in 2011, but this
expectation could be undermined if the current (or any
higher) level of oil prices were to reduce global economic
activity. Capacity will increase with the introduction of
new destinations and increased frequencies. If our
expectation as to demand is met, revenues will increase
in line with capacity. Fuel costs are now higher than was
expected at the beginning of 2011. Other operating costs
are expected to increase, some at a faster rate than
revenue. With regard specifically to fuel, increased oil
prices can be expected to have a significant adverse
effect on profitability if they are not recovered through
higher tariffs or fuel surcharges or if the effect of their
being so recovered is to reduce demand significantly.
2011 will see significant expenditure on aircraft interiors
and airport lounges (undertaken with a view to enhancing
the quality of service) and on information technology. The
airline industry is challenging and unpredictable. We will
continue to manage our finances prudently and will strive
to keep costs firmly under control. Many good things
happened in 2010. I am confident that these, together
with our core strengths of a capable and committed team,
a superb international network, the quality of our product
and services, our strong relationship with Air China and
our position in Hong Kong, one of the world’s great
international aviation hubs and a key gateway to
Mainland China, will help to ensure the continued
success of the Group.
Christopher Pratt
Chairman
Hong Kong, 9th March 2011
Chairman’s Letter
Cathay Pacific Airways Limited Annual Report 2010
5
Cathay Pacific and Dragonair enjoyed a strong and sustained improvement in their
businesses in 2010. The more stable operating environment enabled the airlines to
reinstate services that were cut back during the downturn, add new destinations and
announce important improvements in customer service. The Group remained
focused on further developing its home city, Hong Kong, as one of the world’s
leading international aviation hubs and reinforced its commitment to sustainable
development.
2010 in Review
Award winning products and services
In December, Cathay Pacific launched its new
business class seat, a passenger-led move to improve
comfort, versatility and functions. The new seat has
been designed with passengers’ needs firmly in mind.
It maximises space and affords both privacy and
freedom of movement. The seat is both wider and,
when fully flat, longer than its predecessor. All controls
are within easy reach.
The new business class seats will be installed on all
new long-haul aircraft and will be progressively
retrofitted on existing long-haul aircraft. The new seats
are expected to be installed in all long-haul aircraft by
February 2013.
We operate five lounges at Hong Kong International
Airport, four departure lounges and one arrival lounge.
In October we opened our latest departure lounge, The
Cabin. The design of this 1,339 square metre facility
follows that of our current lounges, but with new
features like The Deli and the Cathay Solus Chair.
After opening The Cabin, we started to renovate our
signature lounge, The Wing. The work will take place in
phases in order to minimise the impact on our
premium class passengers. We expect to complete
the renovation in the third quarter of 2012.
Our arrival lounge at Hong Kong International Airport,
The Arrival, won the Best New Lounge award from the
US edition of Travel + Leisure magazine.
We opened a new first and business class lounge in
Terminal 3 at London’s Heathrow International Airport
in July. This new facility offers passengers using our
busiest long-haul route a new level of pre-flight
comfort and service.






Dragonair celebrated its 25th anniversary in 2010. To
mark the anniversary, one of its Airbus A330 aircraft
was painted in a special anniversary livery, there were
special inflight menus developed in conjunction with
renowned restaurants in Hong Kong, Beijing, Shanghai
and Taiwan. An anniversary website and
commemorative brochure were produced featuring
milestones in the airline’s development and there were
fare promotions.
Cathay Pacific won a number of prestigious awards in
2010, including the Total Caring Award (part of the
Caring Company Scheme organised by the Hong Kong
Council of Social Service), which recognised the
airline’s commitment to caring for the well-being of the
community, its employees and the environment.
Other honours for Cathay Pacific in 2010 included
being named, for the fifth year in a row, top company
in Hong Kong in the “Asia’s Most Admired
Companies” poll run by Wall Street Journal Asia, being
named Cargo Airline of the Year at the 2010 Centre for
Asia Pacific Aviation Awards (when it was praised for
responding astutely to the downturn and laying an
“exceptional platform” to benefit from China’s
economic and trade boom) and being named Carrier of
the Year in the Canadian International Freight
Forwarder Association awards in October.
Dragonair received a number of honours in 2010,
including being named World’s Best Regional Airline in
the annual Skytrax World Airline Awards, Best
Regional Airline in the TTG Asia Travel Awards and
Best Airline Economy Class in a Business Traveller
China reader survey.




ë
Cathay Pacific introduced a new uniform for its cabin
crew and for its airport and reservations staff in
December, designed by Hong Kong’s renowned
fashion designer Eddie Lau. The new uniform will be
introduced throughout the network later in 2011.
Hub development
As business conditions improved, we restored
passenger services and added new destinations, so
reaffirming our commitment to the continued
development of the Hong Kong hub. Frequencies were
restored on most routes where they had been cut back
and destinations which had been temporarily removed
from the network were reinstated. Services on some
routes were increased from their pre-downturn levels.
By the end of the year, the passenger and cargo
capacity of Cathay Pacific and Dragonair had increased
by 4.1% and 15.2% respectively compared with 2009.
Cathay Pacific added two new destinations to its
passenger network in 2010. A four-times-weekly
service to Milan commenced in March and a three-
times-weekly service to Moscow commenced in July.
A new twice daily service to Haneda International
Airport in Tokyo was launched in October. The airline
added 22 destinations to its network through
codeshare arrangements with airlines in Central and
Latin America, the United States, Canada and Japan.
Cathay Pacific will add two destinations to its network
in 2011. A four-times-weekly service to Abu Dhabi in
the Middle East will commence in June. It will operate
as a triangular route with flights returning to Hong
Kong via Jeddah. In September a daily service to
Chicago will commence. This will be the airline’s fourth
passenger destination in the United States.
Dragonair began a new daily service to Shanghai’s
Hongqiao International Airport in September and
now has 14 daily flights (including those to Pudong)
to Shanghai.
Dragonair restored its daily service to Fukuoka in
October, resumed seasonal services to Sendai in
December, and converted its charter services to
Okinawa into a scheduled service in November.







2010 in Review
Cathay Pacific’s flight restorations and increases in
2010 included the addition of five flights per week to
Toronto, three flights per week to Jeddah, three flights
per week to Los Angeles, seven flights per week to
Seoul, seven flights per week to Singapore, 21 flights
per week to Taipei, extra flights to Australia and four
flights per week to Paris. The airline also increased the
number of flights to Denpasar and Sapporo in response
to seasonal demand.
We are continuing to enhance services in 2011. Milan
will move to a daily flight from July. From late March,
Paris will move to a double-daily service, seven more
flights per week will be reinstated to Taipei, Jakarta
will become a thrice-daily service and Surabaya will get
one extra flight a week to make it a daily service. We
will also boost our Penang operation by making all daily
flights non-stop.
Dragonair restored services to Xiamen, increased
services to Chengdu, Chongqing and Nanjing in the
summer period and increased services to Changsha
and Wuhan on a year-round basis. The airline also
restored daily services to Bengaluru, added three
flights per week to Busan, added four flights per week
to Kaohsiung and increased services to Phuket and
Kota Kinabalu.
Dragonair’s flights to Dhaka and Kathmandu were
combined (in order to improve efficiency) and their
number was increased from five to six per week.
Capacity was increased on the Shanghai route in order
to accommodate the increase in demand caused by
the World Expo.
We are committed to maintaining Hong Kong as the
world’s leading international air cargo hub. During the
year we restored freighter services which had been
suspended during the downturn and added capacity on
a number of routes. By September we were operating
our full freighter schedule and had added extra
services where necessary to meet demand.
We launched our first round-the-world freighter service
in July, flying twice-weekly to Chicago and then on to
Amsterdam and Dubai before flying back to Hong
Kong. This is the first time Cathay Pacific has operated
transatlantic flights.







Cathay Pacific Airways Limited Annual Report 2010
7
We recommenced work on our HK$5.5 billion cargo
terminal at Hong Kong International Airport. The state-
of-the-art facility, which will begin operations in early
2013, will provide more choice and competition in
Hong Kong’s airfreight industry. The construction of
the terminal and preparation for operations are
progressing well.
Fleet development
In August Cathay Pacific announced its biggest-ever
aircraft order, of 30 Airbus A350-900s (to be delivered
between 2016 and 2019) and of six more Boeing 777-
300ERs. These aircraft were in addition to the 29
aircraft already on order. In December, a further two
Airbus A350-900s were ordered. In March 2011,
Cathay Pacific announced the acquisition of 15 new
Airbus A330-300 aircraft and 10 new Boeing 777-
300ER aircraft. Cathay Pacific is also in discussions
which, if successfully concluded, will result in the
acquisition of 14 further aircraft.
Cathay Pacific took delivery of five new aircraft in
2010, comprising four new Boeing 777-300ERs and
one new Airbus A330-300.
Dragonair took delivery of two new Airbus A320s in
2010. It also dry-leased two Airbus A330-300s from
Cathay Pacific to replace two of its own Airbus A330s
when they were returned to their lessors.
By July, Cathay Pacific had brought back into service all
five of its Boeing 747-400BCF freighters which had
been parked in the desert during the downturn.
A Boeing 747-400BCF freighter was sold to Air China
Cargo in November and another three such freighters
will be sold in 2011 and 2012.
One of Cathay Pacific’s Boeing 747-400BCFs was wet-
leased to Air Hong Kong.
One of Cathay Pacific’s two Boeing 747-400 passenger
aircraft parked in the desert was brought back into
service in December to increase capacity during a
period of peak seasonal demand. The other parked
Boeing 747-400 has been retired from the fleet. The
airline still has four Airbus A340-300s in the desert.
These will in due course be returned to their lessors.








Cathay Pacific is scheduled to take delivery of 15 new
aircraft in 2011, three Airbus A330-300s, six Boeing
777-300ERs and six Boeing 747-8F freighters.
Deliveries of the freighters were due to commence in
January. As a result of production problems at Boeing,
they are now scheduled to commence in August.
Pioneer in technology
Cathay Pacific expects to launch a new broadband
service for its aircraft in early 2012. This will enable
passengers to use their mobile devices on board the
aircraft and will provide an inflight entertainment portal.
The service will also be available on the Dragonair
fleet.
Cathay Pacific is pioneering the move to electronic
airway bills (e-AWB) in Hong Kong. e-AWB was
implemented for all airway bills in Hong Kong on 1st
January 2011 and will be implemented in outports
during the next two years. e-AWB will reduce costs
and improve efficiency.
Passengers can buy online travel insurance when
booking flights departing from Hong Kong. In late 2010
this service was extended to flights departing from
Singapore and Australia.
In June 2010, Cathay Pacific became the first Asian
airline to introduce an online ticket change function.
The service was launched in the North American
market and was introduced for a number of other
destinations in early 2011. The service will be available
in Hong Kong from March.
By using an interactive map on the Cathay Pacific
website, passengers can review their bookings, update
their personal information, select special meals and
make advance seat reservations. The system enables
passengers to be contacted when services are
disrupted.
Cathay Pacific was one of the first airlines to introduce
an application, or app, specifically for the iPad. The app
enables passengers to book tickets on their iPads.
We plan to start introducing a new website based
reservations and check in systems for Cathay Pacific
and Dragonair in quarter one of 2012.








2010 in Review
8
Partnerships
The authorities in Mainland China have given formal
approval for our cargo joint venture with Air China, and
the two airlines are now in the process of completing
the necessary paperwork to enable operations to
commence. An existing Air China subsidiary, Air China
Cargo, will be used as the platform for the joint
venture. Air China Cargo is based in Shanghai and is in
a good position to exploit the attractive air cargo
opportunities in the Yangtze River Delta region. The
Group is selling four Boeing 747-400BCF freighters and
two spare engines to the joint venture. One of these
aircraft has already been sold to Air China Cargo. The
other three are expected to be sold in 2011 and 2012.
Cathay Pacific launched codeshare arrangements with
oneworld partners LAN, LAN Peru and Mexicana
Airlines, bringing three destinations in Central and
Latin America – Santiago, Lima and Mexico City – into
its network.
Russian carrier S7 became the 12th full member of
oneworld when it formally began offering the full
range of alliance benefits and services from November.
With the addition of S7, oneworld serves more than
750 destinations around the world.
Kingfisher Airlines, India’s only five-star airline, has
agreed to join oneworld and is expected to begin
flying as part of the alliance in 2011.
Germany’s second largest carrier, Air Berlin, has agreed
to become a full member of oneworld. NIKI, part of the
Air Berlin group, will become an affiliate member.
Japan Airlines has reaffirmed its commitment to
oneworld, following an extensive review of its
alliance strategy.
The oneworld alliance and its member airlines offered
support to LAN after its operations were affected by
February’s major earthquake in Chile.
Several new codeshare arrangements in North
America and Japan were announced towards the end
of 2010. The Japan Airlines code is now on Cathay
Pacific flights between Hong Kong and five
destinations in Japan and the Cathay Pacific code has









2010 in Review
gone on Japan Airlines flights between Hong Kong,
Tokyo and a further 10 destinations in Japan. The
arrangements also extend to Japan Airlines’ flights to
Honolulu. Cathay Pacific launched codeshare services
with WestJet and Alaska Airlines and added eight
destinations to its existing codeshare network in
North America.
Environment
Cathay Pacific continues to work with international
organisations such as the United Nations Framework
Convention on Climate Change and the International
Civil Aviation Organization to ensure that the voice of
airlines is heard with regard to climate change.
We made presentations on climate change at the
Corporate Social Responsibility (CSR) Asia Summit
2010 in September, the Association of Asia Pacific
Airlines conference in October and the Climate
Leaders Group in Japan in December.
In March, we participated in the World Wildlife Fund for
Nature’s (WWF) Earth Hour. We switched off all non-
essential lighting in our buildings and on our billboards.
Cathay Pacific published its first Sustainable
Development Report in April. The report demonstrates
our intention to embed sustainable development
processes and principles in our operations. It was
given a top A+ rating under the Global Reporting
Initiative Guidelines.
Our environmental efforts were recognised in May
when Cathay Pacific collected a Silver Award (Sectoral
Awards – Transport and Logistics) in the 2009 Hong
Kong Awards for Environmental Excellence.
Our staff participated in a number of environmental
activities. Events were arranged with WWF including a
dolphin boat trip in June and a visit to the Mai Po bird
sanctuary in Hong Kong in August.
In August we had a fruitful session sharing
environmental best practice experiences with Air China.
In August Cathay Pacific was named as one of the top
airline picks in CLSA’s “Sustainable Airlines Thrifty
Flyers” report.








Cathay Pacific Airways Limited Annual Report 2010
9
Our FLY greener carbon offset scheme allows Cathay
Pacific and Dragonair passengers to offset the
environmental impact of their travel. In 2010, we
purchased offsets from two hydropower projects and
one wind turbine project in Mainland China.
Cathay Pacific produced a leaflet for corporate clients
in August aimed at encouraging more businesses to
participate in the FLY greener scheme.
In September we undertook, for the purpose of
compiling our next Sustainable Development Report, a
number of stakeholder engagement exercises. These
involved younger staff members, pilots, environmental
and social NGOs, sustainability experts, businesses
and university students.
Dragonair participates in the “Change for
Conservation” inflight charity fundraising programme.
The programme raises awareness of the importance of
nature conservation. Funds raised on Dragonair flights
(which aggregated over HK$7.9 million at the end of
2010) are used in Yunnan province in Mainland China,
to protect watershed areas, to help alleviate poverty
and to develop sustainable economic alternatives for
the local population.
Cathay Pacific continues its preparation for the
introduction of the European Union’s Emissions
Trading System (ETS) and put a system in place to
comply with regulations under the ETS. In October,
consultants were appointed to assist in the setting of
emissions targets.
In November we received the Green Supply Chain
Award from the Supply & Demand Chain Executive
magazine in recognition of our efforts to make
sustainability a core part of our supply chain strategy.
In November we participated in the Eco Asia Expo
2010 event, taking the opportunity to promote our FLY
greener scheme.
In December we renewed our annual Indoor Air
Quality Certification for Cathay Pacific City and ISO
14001 Certification for Cathay Pacific City and
Dragonair House.








Contribution to the community
In March, Cathay Pacific won the Total Caring Award
(part of the Caring Company Scheme organised by the
Hong Kong Council of Social Service), which recognised
the airline’s commitment to caring for the well-being of
the community, its employees and the environment.
One-hundred students joined the fourth Cathay Pacific
“I Can Fly” programme in February. The students
participated in a six-month series of activities designed
to increase their knowledge of aviation and to foster
commitment to the community through self-designed
social service projects. Overseas trips were arranged
to Seattle, Toulouse, Tianjin and Adelaide.
The “CX Volunteers” continued to help the local
community. Their English on Air programme has
helped more than 1,000 Tung Chung school students
to improve their conversational English. Other
volunteering projects included a beach cleanup, a sale
of donated items to help the underprivileged, help for
the elderly in remote Lantau villages and collecting
Christmas gifts for needy children.
Cathay Pacific continued to support UNICEF through
its Change for Good inflight fundraising programme in
the programme’s 20th anniversary year. To date, the
airline’s passengers have contributed more than
HK$100 million to help improve the lives of
disadvantaged children around the world.
A new Change for Good donation envelope and a new
inflight video, featuring UNICEF ambassadors Leon Lai
and Miriam Yeung, were launched in September to
coincide with the 20th anniversary of the programme.
Staff from Cathay Pacific joined trips organised by
UNICEF to Kenya and Ethiopia to see at first hand how
funds from Change for Good are put to good use in
helping to improve people’s lives.
Cathay Pacific and Dragonair, helped by the Swire
Group Charitable Trust, donated HK$5 million to
support UNICEF’s relief work following the earthquake
in the Qinghai province of western China. Money
contributed by staff and passengers was matched by
the airlines.







2010 in Review
10
Cathay Pacific continued its support for the Asian
Youth Orchestra, sponsoring its summer festival and
tour. The airline has supported the orchestra since its
formation in 1990.
Staff from the two airlines continue to support
handicapped children in Hong Kong through the work
of the Sunnyside Club.
In August, Cathay Pacific launched an appeal among
staff to help those affected by the flooding in Pakistan
and the landslides in Gansu. The money raised was
matched by the airline and a total of HK$1.5 million
was given to UNICEF to support its relief efforts.
Cathay Pacific and Dragonair confirmed their
commitment to their home city by putting the updated
Brand Hong Kong logo on their aircraft.
In December, 16 cadets graduated from Dragonair’s
Aviation Certificate Programme, which is jointly
organised with the Hong Kong Air Cadet Corps. 50
cadets have graduated from the programme in the five
years of its existence. Some now have careers in
aviation. The programme will be opened to the Hong
Kong public for the first time in 2011.
For the fifth consecutive year, Dragonair was named a
“Caring Company” by the Hong Kong Council of Social
Service, in recognition of its good corporate citizenship.
Cathay Pacific continued to support major events in
Hong Kong. In February the airline sponsored the
International Chinese New Year Night Parade, in
March it co-sponsored the Hong Kong Sevens rugby
event, in June it co-sponsored the Hong Kong Squash
Open (for the 25th consecutive year) and in
December it sponsored the Cathay Pacific Hong Kong
International Races.
Commitment to staff
In March, the Group made an ex gratia payment to all
staff who took part in the 2009 Special Leave Scheme
(which was introduced in 2009 to help the Company
reduce costs during the global economic downturn).
In August, following the improvement in business,
staff received an advance payment, in amounts
equivalent to two weeks’ salary, of their profit shares
for 2010.









2010 in Review
In November, it was announced that a full 13th-month
discretionary bonus would be paid to eligible staff at
the end of the year and that, when the Group’s full
year results are published in March, eligible staff could
expect a profit share for 2010 equivalent to at least
three weeks’ salary in addition to the advance payment
of profit share made in August.
The Cathay Pacific Cadet Pilot Programme continues to
produce the next generation of local pilots, with
another 61 cadets graduating from the programme in
2010. To date, 359 cadets have graduated and work as
pilots at Cathay Pacific, with 57 former cadets now
working as Captains with the airline.
We regularly review our human resource and
remuneration policies in the light of local legislation,
industry practice, market conditions and the
performance of individuals and the Group. In May we
announced a new three-year profit sharing scheme
that will enable staff of both Cathay Pacific and
Dragonair to share in our success.
Cathay Pacific recruited almost 900 cabin crew in Hong
Kong in 2010. More than 12,000 applications were
received. We recruited principally in Hong Kong, but
also in Korea and Taiwan. We also added more cabin
crew in our overseas bases in San Francisco, London,
Bangkok and Singapore. We intend to recruit 800 to
1,000 more cabin crew in 2011.
Cathay Pacific launched a marketing campaign in
March which focused on members of our staff who
create the airline’s special brand of service.
Advertisements which highlight the professional and
personal qualities of customer-facing staff have been
backed up by a unique “Meet the Team” website.
More staff were featured in the second wave of the
campaign that was launched in September.
Cathay Pacific ran an internal campaign for staff to
create their own advertisements and confirm their
commitment to helping to take our standards of service
to new heights. More than 5,000 staff participated.
The sixth annual Betsy Awards ceremony was held in
June to honour Cathay Pacific and Dragonair service
staff who went beyond the call of duty to assist
passengers in need or to further the excellence of the
two airlines’ service.







Cathay Pacific Airways Limited Annual Report 2010
11
Cathay Pacific launched its CARE Team in September.
This is a special group of volunteers drawn from all
sections of the workforce who will be deployed to
provide support in the event of a serious incident.
Cathay Pacific organised 25 service leadership forums
for its cabin crew managers and airport managers. The
aim was to generate a better understanding of the
airline’s services and to help the managers to deliver
more focused services to passengers.
Cathay Pacific achieved its best-ever result in the
biennial IATA Operational Safety Audit (IOSA) in June.



IOSA is an internationally recognised system which
measures how safely and effectively an airline operates.
Dragonair employed 2,467 staff at the end of 2010,
compared to 2,412 at the end of the previous year.
About 140 cabin crew were recruited by Dragonair in
Hong Kong in 2010. The airline intends to recruit
another 300 cabin crew in 2011.
Dragonair continues to run its own cadet pilot scheme.
12 new cadets were recruited in 2010.
Our complete Sustainable Development Report is
available online at www.cathaypacific.com.



2010 in Review
Fleet profile*
Aircraft
type
Number as at
31st December 2010
Firm orders Expiry of operating leases
Options
Purchase
rights
Leased
Owned Finance Operating Total ‘11 ‘12
’13 and
beyond Total ‘11 ‘12 ‘13 ‘14 ‘15
’16 and
beyond
Aircraft operated by Cathay Pacific:
A330-300 11 15 6 32 3 4 7 2 4
A340-300 6 5 4 15 4
A350-900 32
(a)
32 10
(b)
747-400 17 5 22 2 2 1
747-400F 3 3 6
747-400BCF 6 1 5 12 3 1 1
747-400ERF 6 6
747-8F 6 4 10
777-200 4 1 5
777-300 3 9 12
777-300ER 2 7 9 18 6 5 7 18 9 20
(c)
Total 52 47 29 128 15 13 39 67 4 2 3 1 4 15 10 20
Aircraft operated by Dragonair:
A320-200 5 6 11 6
A321-200 2 4 6 4
A330-300 4 1 9 14 1 3 3 2
Total 11 1 19 31 1 3 3 12
Aircraft operated by Air Hong Kong:
A300-600F 2 6 8
Grand total 65 54 48 167 15 13 39 67 5 5 6 1 4 27 10 20
* Includes parked aircraft. This profile does not reflect aircraft movements after year end.
(a) Including two aircraft on 12-year operating leases.
(b) Options, to be exercised no later than 2016 for A350 family aircraft.
(c) Purchase rights for aircraft delivered by 2017.
12
Review of other subsidiaries and
associates
The results recorded by our other subsidiaries and our
associates were overall satisfactory. The share of
profits from associates increased by HK$2,326 million
to HK$2,587 million mainly as a result of Air China’s
strong results. Below is a review of their performance
and operations.
AHK Air Hong Kong Limited (“Air Hong
Kong”)
Air Hong Kong is the only all-cargo airline in Hong Kong
and is 60% owned by Cathay Pacific. Its core business
is to operate express cargo services for DHL Express.
The airline operates a fleet of eight owned Airbus
A300-600F freighters and three wet-leased aircraft.
One of the wet-leased aircraft is a Boeing 747-400BCF
freighter leased from Cathay Pacific.
Air Hong Kong operates six flights per week to
Bangkok, Seoul, Shanghai, Singapore, Taipei and Tokyo
and five flights per week to Beijing, Manila, Nagoya,
Osaka and Penang (via Bangkok).
On-time performance was 94%, which was slightly
below the target of 95%.
Compared with 2009, capacity increased by 7%. The
load factor and yield improved by 3 percentage points
and 2% respectively.
Air Hong Kong achieved a moderate increase in profit
for 2010 compared with 2009.






Cathay Pacific Catering Services (H.K.) Limited
(“CPCS”) and overseas kitchens
CPCS, a wholly owned subsidiary, is the principal flight
kitchen in Hong Kong.
CPCS produced 22.9 million meals in 2010 and this
accounts for 65% of the airline catering market in
Hong Kong. Business volume increased by 10% from
2009, reflecting the recovery in aviation traffic.
The increase in the volume of sales, coupled with
effective control of operating costs, resulted in an
improved profit margin.
Business volume and profits at the flight kitchens in
Asia (outside Hong Kong) improved over 2009.
However, the Canadian operations showed a deficit in
2010. Operating costs, particularly of labour, were high
and margins contracted.
Hong Kong Airport Services Limited (“HAS”)
HAS, a wholly owned subsidiary, is an integrated
ground handling operator offering both ramp and
passenger handling services in Hong Kong. It provides
ground services to 37 airlines, including Cathay Pacific
and Dragonair.
HAS had 49.5% and 24.4% market shares in ramp and
passenger handling businesses respectively at Hong
Kong International Airport.
In a highly competitive market, the number of
customers for passenger handling dropped to 13 from
17 in 2010. Some new customers were gained despite
the overall loss of customers.
Operating costs were affected by a tight labour market
and increased rates of sickness among staff. It was not
possible to pass on increased costs to customers. The
2010 results of HAS were disappointing.








2010 in Review
Cathay Pacific Airways Limited Annual Report 2010
13
Air China Limited (“Air China”)
Air China, in which Cathay Pacific owns 18.7%, is
the national flag carrier and leading provider of
passenger, cargo and other airline related services in
Mainland China.
As at 31st December 2010, the airline’s scheduled
flights reached 32 countries and regions, including 47
international cities, 91 domestic cities and three regions.
The Group has two representatives on the Board of
Directors of Air China and equity accounts for its share
of Air China’s profit.
The Group’s share of Air China’s profit is based on
accounts drawn up three months in arrear and
consequently the 2010 annual results include Air
China’s results for the 12 months ended 30th
September 2010.
In an announcement made on 13th January 2011 about
its expected results for 2010, Air China made the
following statement. “In 2010, benefiting from the
rapid growth of the macro-economy of China and the
steady recovery of the global economy, the Company
was able to seize the market opportunity of a strong
demand for both passenger and cargo transportation
services. The Company achieved a substantial increase
in its operating profit for the year of 2010 through
active production organisation, effective marketing and
further exploration of its cost potential. In addition, we
increased our shareholding in Shenzhen Airlines
Company Limited becoming its controlling shareholder,
the synergy created by which also contributed to the
improvement of the annual results of the Company.”





2010 in Review
Hong Kong Aircraft Engineering Company
Limited (“HAECO”)
On 7th June 2010, Cathay Pacific announced that it
had agreed to sell its remaining 15% shareholding in
HAECO to Swire Pacific Limited. The transaction was
driven by our strategic priorities and will benefit our
core aviation business. It enabled us to apply the
proceeds from the transaction towards other
investments in Cathay Pacific’s core aviation business,
including new aircraft, in our new cargo terminal and
enhancements in products and services, and towards
Cathay Pacific’s general working capital requirements.
The longstanding operational relationship
between Cathay Pacific and HAECO will remain
unchanged. HAECO has always been our main
provider of overhaul and maintenance services and we
are HAECO’s biggest customer airline.
Cathay Pacific’s share of HAECO’s profits up to the
date of sale in 2010 was HK$44 million, compared with
a share of HAECO’s profits for the whole of 2009 of
HK$188 million.


30 new Airbus A350-900s
ordered in August 2010 –
our biggest-ever single
aircraft purchase.
3 new routes –
Moscow, Milan and
Haneda – launched in
2010, and Abu Dhabi
and Chicago already
set to launch in 2011.
Investing in
Our Future
The HK$5.5 billion Cathay
Pacific Cargo Terminal will
open in 2013, underlining
the airline’s commitment to
developing Hong Kong as a
global airfreight hub.
A total of 91 new aircraft on
firm orders, underscoring
our commitment to our
home city, Hong Kong.
15 new Airbus A330-300s
and 10 new Boeing
777-300ERs ordered in
March 2011.

Cathay Pacific and Dragonair carried a total of 26.8 million passengers in 2010, an
increase of 9.1% compared with 2009 and a record high for the Group. Both airlines
achieved a strong increase in passenger load factors and yields compared to the
previous year. There was a significant increase in demand from premium class
travellers, particularly on routes originating in Hong Kong. This was the key
contributor to the 19.8% increase in yield to HK61.2 cents. The passenger load factor
for the period rose by 2.9 percentage points to a record 83.4% and revenue from
passenger services increased by 29.3% to HK$59,354 million.
Review of Operations PASSENGER SERVICES
Available seat kilometres (“ASK”), load factor and yield by region for
Cathay Pacific and Dragonair passenger services for 2010 were as follows:
ASK (million) Load factor (%) Yield
2010 2009 Change 2010 2009 Change Change
India, Middle East, Pakistan and
Sri Lanka 10,981 10,489 +4.7% 77.5 76.8 +0.7%pt +8.2%
Southeast Asia 14,312 13,892 +3.0% 82.8 78.3 +4.5%pt +15.0%
Southwest Pacific and South Africa 18,327 17,959 +2.0% 80.2 80.8 -0.6%pt +23.4%
Europe 20,993 20,222 +3.8% 85.9 85.3 +0.6%pt +18.8%
North Asia 24,316 23,343 +4.2% 79.7 72.2 +7.5%pt +18.5%
North America 26,819 25,262 +6.2% 89.9 86.7 +3.2%pt +23.3%
Overall 115,748 111,167 +4.1% 83.4 80.5 +2.9%pt +19.8%
%
40
50
60
70
80
90
%
0
20
40
60
80
100
HK cents
20
30
40
50
60
70
2006 2007 2008 2009 2010
Load factor by region*
North Asia Southwest
Pacific and
South Africa
Southeast
Asia
Europe North America
Passenger load factor and yield*
Yield Passenger load factor
*
Includes Dragonair from 1st October 2006.
2006 2007 2008 2009 2010 India,
Middle East,
Pakistan and
Sri Lanka
Cathay Pacific Airways Limited Annual Report 2010
17
Review of Operations PASSENGER SERVICES
Home market – Hong Kong and Pearl
River Delta
Demand on routes originating in Hong Kong was robust in
all classes of travel, reflecting recovery from the financial
crisis and the strength of Hong Kong’s economy.
Yields increased significantly in 2010, particularly in the
premium classes.
Demand on routes to Europe and North America was
particularly strong. All long-haul routes performed well in
all classes.
Demand in economy class on routes to regional
destinations was robust, and particularly so during
holiday peaks.
For much of the year, demand for premium travel on
regional routes remained below pre-financial crisis levels
as companies were slow to relax corporate travel
policies encouraging travel in economy class. However,
corporate sales still increased from 2009.
The holding of the World Expo in Shanghai in 2010
was reflected in a sharp increase in the numbers of
passengers flying to Shanghai.
Demand on Dragonair’s route to Guangzhou was
particularly strong during the April and October
Canton Fairs.
Demand from the Pearl River Delta region continued to
grow in 2010, assisted by 2009’s introduction of the
Guangzhou route and better flight connections from
various cities to Hong Kong.
India, Middle East, Pakistan and
Sri Lanka
The Colombo market improved following the financial
crisis, though business is still hampered by the difficulty
of obtaining visas for travel to and through Hong Kong.
This difficulty also affects traffic from Dhaka, Kathmandu
and Karachi. We linked the Dhaka and Kathmandu
routes in order to improve efficiency.
Our India routes performed satisfactorily, although there
was strong competition from Indian carriers on the
Mumbai and Delhi routes. Demand on the Chennai route
was strong. We increased the number of Dragonair
flights to Bengaluru from four to seven per week.
In the Middle East, the financial crisis in the United
Arab Emirates affected our Dubai route, as did
aggressive local competition. Demand on the Jeddah
service strengthened.











Southeast Asia
Demand within this region was generally strong. We
restored services to Singapore (back to seven flights a
day), and added flights to Jakarta, Surabaya, Kota
Kinabalu, Phuket and Hanoi.
Traffic to and from Singapore was high throughout the
year, despite strong competition on the route. The
Indonesia routes performed well, particularly over the
Lebaran holiday. We increased capacity to Denpasar
during the summer peak, although traffic on the route
has been affected by an increased number of direct
flights from Europe.
From late March 2011 we will strengthen services to
Indonesia, making Jakarta a triple-daily service and
adding one more flight a week to Surabaya to make it a
daily service.
The Malaysian routes performed satisfactorily, though
they were subject to strong competition. The Penang
service is to become a direct daily flight from late
March 2011.
Demand for flights to Bangkok was severely affected
by the anti-government protests, although there was
some recovery in leisure travel demand later in the
year. Demand for flights originating in Bangkok
remained reasonable.
The Philippines routes did not perform well. Demand
was weak and was particularly affected by the hostage
incident in August.
Southwest Pacific and South Africa
Demand and yield on the Southwest Pacific routes
returned to pre-downturn levels, assisted by an
increase in premium traffic. We restored some flights
to Sydney and added flights on the Brisbane/Cairns and
Perth routes.
Sales of tickets from Hong Kong to Southwest Pacific
destinations were strong. Connecting traffic from
Mainland China helped to keep load factors high.
Capacity on the Auckland was reduced, mainly in the
last four months of the year. This affected the
performance of the route.
The South Africa route performed strongly in the first
half of the year. Capacity was increased to cater for
travellers to the World Cup in June. Demand softened
towards the end of the year.










18
Europe
Demand for flights to Europe was generally strong in
all classes. Yields increased significantly. Demand for
flights from Europe was less strong, except from
London, in part due to the weakness of the euro.
Load factors and yield on the London route were high
in both directions. Demand in the premium classes
recovered much faster than on other European routes.
We launched a four-times-weekly service to Milan in
March. Performance to date is in line with expectations
and we will turn it into a daily service with effect from
July 2011.
A thrice-weekly service to Moscow was launched in
July. Loads have been satisfactory, but yield is
under pressure. Sales for flights out of Russia have
risen steadily.
We increased the number of flights to Paris from seven to
11 per week in response to growing demand and from
late March 2011 we will turn it into a double-daily service.
North Asia
Business on our Mainland China routes was strong,
especially from passengers flying to Hong Kong to
connect to our international network and on the trunk
routes to Beijing and Shanghai.
The World Expo in Shanghai resulted in strong demand
and high yield on the Shanghai route.
There was good growth in traffic to and from secondary
cities, including Fuzhou, Qingdao and Hangzhou.
Dragonair restored capacity on a number of Mainland
China routes including Xiamen, Nanjing, Chongqing,
Sanya and Chengdu.
The Taiwan routes had quite a strong year. We
restored capacity almost to pre-downturn levels on
the Taipei route. We benefited from being able to pick
up traffic that could not be accommodated by direct
cross-Straits flights. There was strong demand from
passengers flying to Hong Kong to connect to our
international network. The Kaohsiung route performed
well. We increased the number of flights on this route
from 28 to 32 a week in July.
Cathay Pacific will restore seven more flights a week
to Taipei from late March, bringing the total number of
flights to 108 per week.











There was a strong recovery in business on the Japan
routes. Demand for flights originating in Japan was
helped by the strength of the yen, but this also
affected leisure traffic into Japan.
We launched a twice daily service to Tokyo’s Haneda
International Airport in October. We now operate seven
flights a day to and from Tokyo’s two main airports.
There are now four flights a day to and from Osaka.
New codeshare arrangements with Japan Airlines were
announced. The Japan Airlines code will go on Cathay
Pacific flights between Hong Kong and five destinations
in Japan and the Cathay Pacific code will go on Japan
Airlines flights between Hong Kong, Tokyo and a further
10 destinations in Japan. The arrangements also extend
to Japan Airlines’ flights to Honolulu.
Dragonair resumed its services to Fukuoka and
Sendai, which were suspended during the financial
downturn, and started scheduled services to Okinawa
in November.
Our Korean routes showed some growth in 2010,
though we were subject to increasing competition.
Leisure traffic from Hong Kong to Korea was assisted
by the weakness of the Korean won.
We restored capacity on the Seoul route (which is now
back to five flights daily) and added one more flight a
week on Dragonair’s Busan route.
North America
The markets in the United States and Canada
recovered strongly. Premium class traffic has been
strong on all North America routes, but business class
sales of flights out of the United States were still
below pre-financial crisis levels. There was strong
growth in economy class demand and a corresponding
increase in yield.
The San Francisco and Los Angeles routes had good
years.
Daily flights to Chicago will start in September 2011.
We will add a daily flight to New York in the second
quarter of 2011, increasing services to four flights daily.
The Toronto route benefited from a strong recovery in
premium class travel. We increased the number of
flights from 10 to 12 per week in October. Toronto
will have a twice-daily service from the second
quarter of 2011.











Review of Operations PASSENGER SERVICES
Cathay Pacific Airways Limited Annual Report 2010
19
There was a significant increase in the demand for air cargo in 2010, with a strong
and sustained recovery in all major markets. The tonnage carried by Cathay Pacific
and Dragonair was 1.8 million tonnes, representing an increase of 18.1% compared
to 2009. The load factor increased by 4.9 percentage points to a record 75.7%. Yield
also increased 25.3% to HK$2.33. Cargo revenue rose 54.7% to HK$23,727 million.
Capacity reduced in response to the economic downturn was reinstated, with all
parked freighters being brought back from the desert. The fleet worked at high levels
of utilisation throughout the year.
Review of Operations
Available tonne kilometres (“ATK”), load factor and yield for Cathay Pacific and
Dragonair cargo services for 2010 were as follows:
ATK (million) Load factor (%) Yield
2010 2009 Change 2010 2009 Change Change
Cathay Pacific and Dragonair 13,443 11,666 +15.2% 75.7 70.8 +4.9%pt +25.3%
Capacity – cargo and mail ATK*
HK$ million
0
10,000
5,000
15,000
20,000
25,000
30,000
2006 2007 2008 2009 2010
Turnover*
Million tonne
kilometres
0
4,000
6,000
2,000
8,000
10,000
12,000
14,000
2006 2007 2008 2009 2010
*
Includes Dragonair from 1st October 2006.
CARGO SERVICES ASIA MILES
20
Despite some global economic uncertainty, demand
for airfreight services remained strong for the whole of
2010. Demand on the major trunk routes to North
America and Europe was consistently high, despite
significant capacity increases from competitors in the
second half of the year. The regional network in Asia
remained buoyant.
Demand for shipments originating from the key
markets of Hong Kong and Shanghai was consistently
strong. Loads carried by inbound flights were also
higher than expected, with luxury goods and other
products being shipped into Asia and in particular
Mainland China. This is encouraging for the longer
term future of our airfreight business.
The cargo business benefited from the expansion of
the passenger network, both long-haul and short-haul.
Load factors and utilisation in passenger aircraft bellies
were high.
The Pearl River Delta region continued to be our
principal source of growth. However, manufacturers
and customers are starting to move west to places like
Chengdu and Chongqing and outside Mainland China
to countries, such as Vietnam and Bangladesh, where
labour costs are lower than in Mainland China.
We focused on improving yields, which were at or near
record levels for many routes during the peak season
in the latter part of the year.
Demand on the North American and European routes
was consistently strong, assisted by new product
launches in the consumer sector and companies
starting to invest again in information technology and
other capital projects. Companies’ general wish to
keep inventory levels to a minimum and maintain
flexibility also helped to increase demand for
airfreight services.
Shipments to Japan were strong, assisted by the
strength of the yen and by Japan Airlines withdrawing
its freighter fleet from operations in October. Exports to
Australia were assisted by the strength of the
Australian dollar, especially in the latter part of the year.







All five of the Boeing 747-400BCF freighters which had
been parked in the desert during the downturn have
been brought back into service in response to the
improvement in demand.
We returned to a full freighter schedule from
September ahead of the seasonal peak in demand. We
operated additional services during the seasonal peak
to cater for strong market demand. The freighter fleet
operated at very high levels of utilisation throughout
the year.
Cargo capacity, measured in terms of ATKs, grew by
15.2% over 2009 and by 0.1% over 2008.
A round-the-world freighter service was launched in
July, flying eastwards to Chicago, and then on to
Amsterdam and Dubai before flying back Hong Kong.
The twice-weekly flight offers significant commercial
and operational benefits and has seen good demand.
This is the first time Cathay Pacific has operated
transatlantic flights.
We strengthened a number of scheduled freighter
services during the year in response to market demand.
The Miami/Houston service moved from three to four
flights a week in July, while Miami was served by
another weekly flight in its own right (two weekly
flights during the seasonal peak at the year end). We
moved from four flights to eight flights a week to India
and the Middle East. Shanghai went to 21 flights a
week (compared to 16 during the downturn).
Early in the year we added a third weekly frequency on
the triangular Dhaka/Hanoi route. Later in the year we
split the route into two in order to cater for
substantially increased exports of cargo from
Bangladesh and Vietnam.
During the seasonal peak in the latter part of the year,
we were operating 28 scheduled flights per week to
Europe and 40 scheduled flights per week to North
America. Earlier in the year the figures had been 22
and 25 respectively.







Review of Operations CARGO SERVICES ASIA MILES
Cathay Pacific Airways Limited Annual Report 2010
21
The authorities in Mainland China have given formal
approval for our cargo joint venture with Air China, and
the two airlines are now in the process of completing
the necessary paperwork to enable operations to
commence. An existing Air China subsidiary, Air China
Cargo, will be used as the platform for the joint
venture. Air China Cargo is based in Shanghai and is in
a good position to exploit the attractive air cargo
opportunities in the Yangtze River Delta region. We are
selling four Boeing 747-400BCF freighters and two
spare engines to the joint venture. One of these
aircraft has already been sold to Air China Cargo. The
other three are expected to be sold in 2011 and 2012.
One Boeing Converted Freighter is currently being
wet-leased to Air Hong Kong.
Deliveries of our fleet of new Boeing 747-8F freighters
have been delayed and are now scheduled to
commence in August 2011, with six expecting to enter
service before the end of 2011. We are managing our
capacity accordingly in the first half of 2011 and look
forward to having the new aircraft in service in time for
the 2011 air cargo peak.
Cathay Pacific is an active participant in IATA’s drive to
simplify the airfreight business. Cathay Pacific is
pioneering the move to e-AWB in Hong Kong. e-AWB
was implemented on a 100% basis in Hong Kong on
1st January 2011 and will be implemented in outports
during the next two years.
We recommenced work on our HK$5.5 billion cargo
terminal at Hong Kong International Airport. The state-
of-the-art facility, which will begin operations in early
2013, will provide more choice and competition in
Hong Kong’s airfreight industry. The construction of
the terminal and preparation for operations are
progressing well.
The building of our new terminal and the expansion of
our freighter fleet in 2011 highlight our commitment to
maintaining Hong Kong’s position as the world’s
leading international air cargo hub.
Dragonair sells space for cargo in the bellies of its
aircraft on all its routes. Its cargo tonnage increased
significantly in 2010, particularly on its Mainland
China routes.







Asia Miles
Asia Miles, our travel rewards programme, continued
to grow. At the end of 2010 it had more than three
million members. The number of members based in
Mainland China grew by 33% in 2010.
The number of Asia Miles partners increased to more
than 400 in nine categories, including airlines, hotels
and major financial institutions.
Redemptions of flights by Asia Miles members on our
20 partner airlines decreased by 1% in 2010. Almost
90% of Cathay Pacific flights carried passengers
redeeming frequent flyer miles.
Asia Miles offers over 800 non-flight redemption
products to members. There was a 7% increase on
non-flight redemptions in 2010.
In November 2010, American Express and Cathay
Pacific introduced a co-branded corporate card. The
new card offers rewards and savings to medium sized
and large companies in Hong Kong.
The Asia Miles Mobile Sites and iPhone apps were
introduced in 2010. Members can use mobile devices
to manage their accounts in English and in traditional
and simplified Chinese.
Antitrust investigations
Cathay Pacific remains the subject of antitrust
investigations and proceedings by competition authorities
in various jurisdictions and continues to cooperate with
these authorities and, where applicable, defend itself
vigorously. These investigations are ongoing and the
outcomes are subject to uncertainties. Cathay Pacific is
not in a position to assess the full potential liabilities but
makes provisions based on facts and circumstances in
line with accounting policy 19 set out on page 51.






Review of Operations CARGO SERVICES ASIA MILES
Our New
Products &
Services
The CX Mobile application
offers a wide range of services,
including bookings and check in,
for people on the move.
The Cabin, our latest
passenger lounge at Hong
Kong International Airport,
offers a new level of
comfort and convenience.
Our iPad app – one of
the world’s first customised
airline applications for the
device – puts passengers in
touch with a wide range of
Cathay Pacific online
services.
Our new long-haul Business
Class offers the things our
customers want – a combination
of privacy and openness,
and one of the longest, widest
full-flat beds in the sky.
21
The Cathay Pacific Group reported a record attributable profit of HK$14,048 million
in 2010 compared with a profit of HK$4,694 million in 2009. The record result
reflects a continued and significant recovery in its core business following the
extremely challenging conditions experienced for much of 2009 and a significantly
increased contribution from Air China. It also includes non-recurring items, that is
gains on the disposal of shares in Hong Kong Air Cargo Terminals Limited and
Hong Kong Aircraft Engineering Company Limited and on the deemed disposal of
shares in Air China.
Financial Review
Turnover
Group Cathay Pacific and Dragonair
2010
HK$M
2009
HK$M
2010
HK$M
2009
HK$M
Passenger services
#
59,354 45,920 59,354 45,920
Cargo services
#
25,901 17,255 23,727 15,341
Catering, recoveries and other services 4,269 3,803 3,572 3,128
Turnover 89,524 66,978 86,653 64,389
# Includes relevant surcharges.
Group turnover increased by 33.7% in 2010 compared with 2009. •
HK$ million
0
20,000
40,000
60,000
80,000
100,000
1H06 2H06 1H07 2H07 1H08 2H08 1H09 2H09 1H10 2H10
Turnover*
Passenger in ‘000
0
2,500
7,500
5,000
10,000
12,500
15,000
Cargo in ‘000 tonnes
400
500
600
700
900
800
1,000
Cathay Pacific and Dragonair:
passengers and cargo carried*
Cargo and mail carried Passengers carried Catering, recoveries and other services
Cargo services
Passenger services
*
Includes Dragonair from 1st October 2006.
2006 2007 2008 2009 2010
Cathay Pacific Airways Limited Annual Report 2010
25
Cathay Pacific and Dragonair
Passenger turnover increased significantly, by 29.3%
to HK$59,354 million, as a result of strong demand.
The number of passengers carried increased by 9.1%
to 26.8 million and revenue passenger kilometres
increased by 8.0%.
The passenger load factor increased by 2.9 percentage
points to a record 83.4% while available seat
kilometres increased by 4.1%.
Passenger yield increased by 19.8% to HK¢61.2.
First and business class revenues increased by 40.3%
and the premium class load factor increased from
58.5% to 66.7%. Economy class revenues increased
by 24.8% and the economy class load factor increased
from 84.3% to 86.4%.
Cargo turnover increased by 54.7% to HK$23,727
million, with a 15.2% increase in capacity. Demand for
exports from Mainland China routed through Hong
Kong remained strong.
Fuel surcharges increased by HK$3.6 billion as a
result of higher fuel prices and more passengers and
cargo carried.
The cargo load factor increased by 4.9 percentage
points. The cargo yield increased by 25.3% to HK$2.33.
The revenue load factor increased by 3.4 percentage
points to 81.1%. The breakeven load factor was 69.3%.








Financial Review
%
60
65
70
75
80
85
90
Cathay Pacific and Dragonair:
revenue and breakeven load factor*
Revenue load factor
Breakeven load factor
*
Includes Dragonair from 1st October 2006.
2006 2007 2008 2009 2010
The annualised impact on revenue arising from
changes in yield and load factor is set out below:
HK$M
+ 1 percentage point in passenger
load factor 709
+ 1 percentage point in cargo and
mail load factor 313
+ HK¢1 in passenger yield 966
+ HK¢1 in cargo and mail yield 102


Operating expenses
Group Cathay Pacific and Dragonair
2010
HK$M
2009
HK$M Change
2010
HK$M
2009
HK$M Change
Staff 13,850 12,618 +9.8% 12,655 11,515 +9.9%
Inflight service and passenger expenses 3,308 2,915 +13.5% 3,308 2,915 +13.5%
Landing, parking and route expenses 11,301 10,458 +8.1% 11,104 10,281 +8.0%
Fuel 28,276 17,349 +63.0% 27,705 16,937 +63.6%
Aircraft maintenance 7,072 6,567 +7.7% 6,921 6,411 +8.0%
Aircraft depreciation and operating leases 8,288 7,978 +3.9% 8,120 7,796 +4.2%
Other depreciation, amortisation
and operating leases 1,107 1,103 +0.4% 881 867 +1.6%
Commissions 736 571 +28.9% 736 571 +28.9%
Exchange gain (196) (344) -43.0% (214) (356) -39.9%
Others 4,729 3,284 +44.0% 5,080 3,628 +40.0%
Operating expenses 78,471 62,499 +25.6% 76,296 60,565 +26.0%
Net finance charges 978 847 +15.5% 933 781 +19.5%
Total operating expenses 79,449 63,346 +25.4% 77,229 61,346 +25.9%
Group total operating expenses increased by 25.4% to
HK$79,449 million.
• The combined cost per ATK of Cathay Pacific and
Dragonair increased from HK$2.76 to HK$3.16. This
principally reflected higher average fuel prices.

Financial Review
36%
Fuel
1%
Net
finance
charges
1%
Commissions
6%
Others
17%
Staff
4%
Inflight service and
passenger expenses
14%
Landing, parking
and route
expenses
9%
Aircraft
maintenance
12%
Depreciation
and operating
leases
Total operating expenses
US$ per barrel
(jet fuel)
40
60
80
120
140
160
Barrels
in million
0
10
20
40
50
60
Fuel price and consumption
100 30
Into wing price – before hedging
Into wing price – after hedging
2006 2007 2008 2009 2010
Uplifted volume
Cathay Pacific Airways Limited Annual Report 2010
27
Cathay Pacific and Dragonair operating results analysis
2010
HK$M
2009
HK$M
Airlines’ operating profit before fuel hedging, non-recurring items and tax 9,465 285
Profit on disposal of Hactl and HAECO shares 2,165 1,254
Gain on deemed disposal of Air China shares 868 –
Airlines’ profit before fuel hedging (losses)/gains and tax 12,498 1,539
Realised and unrealised fuel hedging (losses)/gains (41) 2,758
Tax charge (1,347) (170)
Airlines’ profit after tax 11,110 4,127
Share of profits from subsidiaries and associates 2,938 567
Profit attributable to owners of Cathay Pacific 14,048 4,694
The change in the airlines’ operating profit before fuel hedging, non-recurring items and tax can be analysed as follows:
HK$M
2009 airlines’ operating profit before fuel
hedging, non-recurring items and tax
285
Passenger and cargo turnover 21,820 Passenger
– Increased HK$1,885 million due to a 4.1% increase in capacity.
– A 2.9% points increase in load factor contributed to an increase of
HK$1,807 million.
– HK$9,742 million of the increase arose from a 19.8% increase in yield
partly due to an increase in fuel surcharges.
Cargo
– Increased HK$2,336 million due to a 15.2% increase in capacity.
– A 4.9% points increase in load factor contributed to an increase of
HK$1,231 million.
– HK$4,819 million of the increase arose from a 25.3% increase in yield
partly due to an increase in fuel surcharges.
Staff (1,140) – Increased due to provision for bonus and profit share scheme.
Fuel (7,969) – Fuel costs increased due to a 28.0% increase in the average into-
plane fuel price to US$94 per barrel and a 7.4% increase in
consumption to 37.9 million barrels.
Others (3,531)
2010 airlines’ operating profit before
fuel hedging, non-recurring items
and tax 9,465
Financial Review
28
Fuel expenditure and hedging
A breakdown of the Group’s fuel cost is shown below:
2010
HK$M
2009
HK$M
Gross fuel cost 28,235 20,107
Realised hedging losses/(gains) 78 (740)
Unrealised mark to market gains (37) (2,018)
Net fuel cost 28,276 17,349
Settlement and premium paid 746 3,180
The Group’s policy is to reduce exposure to fuel price
risk by hedging a percentage of its expected fuel
consumption. As the Group uses a combination of fuel
derivatives to achieve its desired hedging position, the
percentage of expected consumption hedged will vary
depending on the nature and combination of contracts
which generate payoffs in any particular range of fuel
prices. The chart indicates the estimated maximum
percentage of projected consumption by year covered by
hedging transactions at various settled Brent prices.
Financial Review
Percentage consumption subject to hedging contracts
0%
10%
20%
30%
40%
2011 2012
Maximum fuel hedging exposure
$60 $70 $80
Brent (US$/barrel)
$90 $100 $110 $120 $130
29%
Current assets
6%
Intangible assets
47%
Aircraft and related equipment
4%
Buildings and other equipment
14%
Long-term investments
Total assets
Taxation
The tax charge increased by HK$1,179 million to
HK$1,462 million, principally reflecting the higher
profit.
Dividends
Dividends proposed for the year are HK$4,367 million
representing a dividend cover of 3.2 times.
Dividends per share increased from HK¢10 to HK¢111.
Assets
Total assets as at 31st December 2010 were
HK$128,053 million.
During the year, additions to fixed assets were
HK$8,110 million, comprising HK$6,742 million for
aircraft and related equipment, HK$1,211 million for
buildings and HK$157 million for other equipment.





The Group’s maximum fuel hedging exposure as at 31st
December 2010 is set out below:
Cathay Pacific Airways Limited Annual Report 2010
29
Financial Review
HK$ million
0
10,000
20,000
40,000
50,000
60,000
Times
0.1
0.2
0.3
0.5
0.6
0.7
Net debt and equity
30,000 0.4
Funds attributable to owners of Cathay Pacific
Net borrowings
2006 2007 2008 2009 2010
Net debt/equity ratio
Borrowings before and after derivatives
HK$ million
0
5,000
10,000
20,000
25,000
30,000
15,000
EUR HKD JPY USD SGD Others
Before derivatives
After derivatives
Others include CAD, KRW, RMB and TWD.
Interest rate profile: borrowings
%
0
20
40
60
80
100
2006 2007 2008 2009 2010
Fixed
Floating
Borrowings and capital
Borrowings decreased by 7.1% to HK$39,629 million
from HK$42,642 million in 2009.
Borrowings are mainly denominated in US dollars,
Hong Kong dollars, Singapore dollars, Japanese yen
and Euros, and are fully repayable by 2023 with 59%
currently at fixed rates of interest after taking into
account derivative transactions.
Liquid funds, 73.7% of which are denominated in US
dollars, increased by 46.5% to HK$24,198 million.
Net borrowings decreased by 40.9% to HK$15,435
million.
Funds attributable to the owners of Cathay Pacific
increased by 28.5% to HK$54,274 million.
The net debt/equity ratio decreased from 0.62 times to
0.28 times.






Our
People
The popular
“Meet the Team”
function at our website
introduces you to the
diverse group of people
who make travelling on
Cathay Pacific a unique
experience.
On the ground, in the
air and behind the
scenes, our people
always go the
extra mile to make
you feel special.
32
Executive Directors
PRATT, Christopher Dale
#
, CBE, aged 54, has been
Chairman and a Director of the Company since February
2006. He is also Chairman of John Swire & Sons (H.K.)
Limited, Swire Pacific Limited, Hong Kong Aircraft
Engineering Company Limited and Swire Properties
Limited, and a Director of The Hongkong and Shanghai
Banking Corporation Limited and Air China Limited. He
joined the Swire group in 1978 and in addition to Hong
Kong has worked for the group in Australia and Papua
New Guinea.
BARRINGTON, William Edward James
#
, aged 51, has
been a Director of the Company since July 2010. He is
also a Director of Hong Kong Dragon Airlines Limited and
AHK Air Hong Kong Limited. He joined the Swire group in
1982 and has worked with the Company in Hong Kong,
Malaysia and Canada since 1983.
CHU, Kwok Leung Ivan, aged 49, has been appointed
Chief Operating Officer of the Company with effect from
31st March 2011. He joined the Company in 1984 and has
worked with the Company in Hong Kong, Mainland China,
Taiwan, Thailand and Australia. He was appointed Director
Service Delivery in September 2008 and is also Chairman
of Cathay Pacific Catering Services (H.K.) Limited.
HUGHES-HALLETT, James Edward
#
, aged 45, has been
Finance Director of the Company since March 2009. He is
also a Director of Hong Kong Dragon Airlines Limited. He
was previously Deputy Finance Director of Swire Pacific
Limited. He joined the Swire group in 1994.
SLOSAR, John Robert
#
, aged 54, has been a Director of
the Company since July 2007. He was appointed Chief
Operating Officer in July 2007. He has been appointed
Chief Executive of the Company with effect from 31st
March 2011. He is also a Director of John Swire & Sons
(H.K.) Limited, Swire Pacific Limited and Hong Kong
Dragon Airlines Limited, and Chairman of Swire
Beverages Limited. He joined the Swire group in 1980
and has worked for the group in Hong Kong, the United
States and Thailand.
TYLER, Antony Nigel
#
, aged 55, has been a Director of
the Company since December 1996. He was appointed
Director Corporate Development in December 1996,
Chief Operating Officer in January 2005 and Chief
Executive in July 2007. He is also a Director of John
Directors and Officers
Swire & Sons (H.K.) Limited and Swire Pacific Limited. He
is also Chairman of Hong Kong Dragon Airlines Limited.
He joined the Swire group in 1977 and in addition to Hong
Kong has worked for the group in Australia, the
Philippines, Canada, Japan, Italy and the United Kingdom.
He has resigned as Director and Chief Executive of the
Company with effect from 31st March 2011. His
resignation followed the recommendation of the Board of
Governors of the International Air Transport Association
(“IATA”) that he be appointed as Director General and
Chief Executive Officer of IATA with effect from 1st July
2011.
Non-Executive Directors
CAI, Jianjiang, aged 47, has been a Director of the
Company since November 2009. He is a Director and
President of Air China Limited.
FAN, Cheng*, aged 55, has been a Director of the
Company since November 2009. He is a Director, Vice
President and Chief Financial Officer of Air China Limited.
HUGHES-HALLETT, James Wyndham John
#+
, aged 61,
has been a Director of the Company since July 1998 and
served as Chairman of the Board from June 1999 to
December 2004. He is Chairman of John Swire & Sons
Limited and a Director of Swire Pacific Limited, Swire
Properties Limited and Steamships Trading Company
Limited. He is also a Director of HSBC Holdings plc. He
joined the Swire group in 1976 and has worked with the
group in Hong Kong, Taiwan, Japan, Australia and
London.
KILGOUR, Peter Alan
#
, aged 55, has been a Director of
the Company since May 2009. He is also Finance Director
of Swire Pacific Limited and a Director of John Swire &
Sons (H.K.) Limited and Swire Properties Limited. He
joined the Swire group in 1983.
KONG, Dong, aged 62, has been Deputy Chairman and a
Director of the Company since May 2008. He is General
Manager of China National Aviation Holding Company and
Chairman of Air China Limited.
SHIU, Ian Sai Cheung
#
, aged 56, has been a Director of
the Company since October 2008. He is also a Director of
John Swire & Sons (H.K.) Limited, Swire Pacific Limited,
Hong Kong Dragon Airlines Limited and Air China Limited.
He joined the Company in 1978 and has worked for the
Cathay Pacific Airways Limited Annual Report 2010
33
Company in Hong Kong, the Netherlands, Singapore and
the United Kingdom. He was appointed Director
Corporate Development in September 2008 and served
as an Executive Director of the Company from
1st October 2008 until 30th June 2010.
SWIRE, Merlin Bingham
#
, aged 37, has been a Director
of the Company since June 2010. He joined the Swire
group in 1997 and has worked with the group in Hong
Kong, Australia, Mainland China and London. He is a
Director and shareholder of John Swire & Sons Limited, a
Director of Swire Pacific Limited, Hong Kong Aircraft
Engineering Company Limited and Swire Properties
Limited and an Alternate Director of Steamships Trading
Company Limited.
ZHANG, Lan, aged 55, has been a Director of the
Company since October 2006. She was Vice President of
Air China Limited, Chairman of Air China Development
Corporation (Hong Kong) Limited and a Director of
Shandong Aviation Group Corporation until her retirement
from Air China Limited in February 2011.
Independent Non-Executive Directors
LEE, Irene Yun Lien
+
*, aged 57, has been a Director of
the Company since January 2010. She is Chairman of
Keybridge Capital Limited, a Non-Executive Director of
The Myer Family Company Pty Limited, QBE Insurance
Group Limited and ING Bank (Australia) Limited, and a
member of the Advisory Council of JP Morgan Australia.
She was a member of the Australian Government
Takeovers Panel from March 2001 until March 2010. She
is a Non-Executive Director of Hysan Development
Company Limited and will become its Non-Executive
Chairman on 9th May 2011.
SO, Chak Kwong Jack*, aged 65, has been a Director of
the Company since September 2002. He is Chairman of
Hong Kong Trade Development Council. He is also Vice
Chairman of Credit Suisse (Greater China) and a Non-
Executive Director of AIA Group Limited.
TUNG, Chee Chen
+
, aged 68, has been a Director of the
Company since September 2002. He is Chairman and
Chief Executive Officer of Orient Overseas (International)
Limited. He is also an Independent Non-Executive
Director of a number of listed companies, including
Zhejiang Expressway Company Limited, PetroChina
Company Limited, BOC Hong Kong (Holdings) Limited, U-
Ming Marine Transport Corp., Sing Tao News Corporation
Limited and Wing Hang Bank, Limited.
Directors and Officers
WONG, Tung Shun Peter*, aged 59, has been a Director
of the Company since May 2009. He is currently Chief
Executive of The Hongkong and Shanghai Banking
Corporation Limited, a Group Managing Director of HSBC
Holdings plc, Chairman and Non-Executive Director of
HSBC Bank Malaysia Berhad, Deputy Chairman and a
Non-Executive Director of HSBC Bank (China) Company
Limited, Vice Chairman and Non-Executive Director of
HSBC Bank (Vietnam) Limited, and a Non-Executive
Director of Hang Seng Bank Limited, Bank of
Communications Co., Ltd. and Ping An Insurance (Group)
Company of China, Ltd. He is also President of the Hong
Kong Institute of Bankers and was Chairman of the Hong
Kong Association of Banks in 2001, 2004, 2006 and 2009.
Executive Officers
CHAU, Siu Cheong William, aged 57, has been
Director Personnel since May 2000. He joined the
Company in 1973.
CHONG, Wai Yan Quince, aged 47, has been Director
Corporate Affairs since September 2008. She joined the
Company in 1998.
GIBBS, Christopher Patrick, aged 49, has been
Engineering Director since January 2007. He joined the
Company in 1992.
HALL, Richard John, aged 55, has been Director Flight
Operations since August 2010. He joined the Company
in 1988.
HOGG, Rupert Bruce Grantham Trower
#
, aged 49, has
been Director Sales and Marketing since August 2010. He
joined the Swire group in 1986.
RHODES, Nicholas Peter
#
, aged 52, has been Director
Cargo since August 2010. He joined the Swire group
in 1980.
SMACZNY, Tomasz, aged 48, has been Director
Information Management since August 2010. He joined
the Company in 2008.
Secretary
FU, Yat Hung David
#
, aged 47, has been Company
Secretary since January 2006. He joined the Swire group
in 1988.
# Employees of the John Swire & Sons Limited group
+ Member of the Remuneration Committee
* Member of the Audit Committee
31
We submit our report and the audited accounts for the
year ended 31st December 2010 which are on pages 48
to 97.
Activities
Cathay Pacific Airways Limited (the “Company”) is
managed and controlled in Hong Kong. As well as
operating scheduled airline services, the Company and its
subsidiaries (the “Group”) are engaged in other related
areas including airline catering, aircraft handling and
aircraft engineering. The airline operations are principally
to and from Hong Kong, which is where most of the
Group’s other activities are also carried out.
Details of principal subsidiaries, their main areas of
operation and particulars of their issued capital, and
details of principal associates are listed on pages 96
and 97.
Accounts
The profit of the Group for the year ended 31st December
2010 and the state of affairs of the Group and the
Company at that date are set out in the accounts on
pages 52 to 97.
Dividends
We recommend the payment of a final dividend of HK¢78
per share for the year ended 31st December 2010.
Together with the interim dividend of HK¢33 per share
paid on 4th October 2010, this makes a total dividend for
the year of HK¢111 per share. This represents a total
distribution for the year of HK$4,367 million. Subject to
shareholders’ approval of the final dividend at the annual
general meeting on 18th May 2011, payment of the final
dividend will be made on 1st June 2011 to shareholders
registered at the close of business on the record date,
18th May 2011.
The register of members will be closed from 13th May
2011 to 18th May 2011, both dates inclusive, during
which period no transfer of shares will be effected. In
order to qualify for the entitlement of the final dividend, all
transfer forms accompanied by the relevant share
Directors’ Report
certificates must be lodged with the Company’s share
registrars, Computershare Hong Kong Investor Services
Limited, 17th Floor, Hopewell Centre, 183 Queen’s Road
East, Hong Kong, for registration not later than 4:30 p.m.
on Thursday, 12th May 2011.
Reserves
Movements in the reserves of the Group and the
Company during the year are set out in the statement of
changes in equity on pages 56 and 57.
Accounting policies
The principal accounting policies are set out on pages 48
to 51.
Donations
During the year, the Company and its subsidiaries made
charitable donations amounting to HK$11 million in direct
payments and a further HK$5 million in the form of
discounts on airline travel.
Fixed assets
Movements of fixed assets are shown in note 12 to the
accounts. Details of aircraft acquisitions are set out on
page 11.
Bank and other borrowings
The net bank loans, overdrafts and other borrowings,
including obligations under finance leases, of the Group
and the Company are shown in notes 17 and 23 to the
accounts.
Share capital
During the year under review, the Group did not
purchase, sell or redeem any shares in the Company and
the Group has not adopted any share option scheme.
At 31st December 2010, 3,933,844,572 shares were in
issue (31st December 2009: 3,933,844,572 shares).
Details of the movement of share capital can be found in
note 24 to the accounts.
Cathay Pacific Airways Limited Annual Report 2010
35
Commitments and contingencies
The details of capital commitments and contingent
liabilities of the Group and the Company as at 31st
December 2010 are set out in note 31 to the accounts.
Agreement for services
The Company has an agreement for services with John
Swire & Sons (H.K.) Limited (“JSSHK”), the particulars of
which are set out in the section on continuing connected
transactions.
As directors and/or employees of the John Swire & Sons
Limited (“Swire”) group, Christopher Pratt, W.E. James
Barrington, James E. Hughes-Hallett, James W.J.
Hughes-Hallett, Peter Kilgour, Ian Shiu, John Slosar,
Merlin Swire and Tony Tyler are interested in the JSSHK
Services Agreement (as defined below). Philip Chen and
Robert Woods were interested as directors and/or
employees of the Swire group until their resignation with
effect from 1st July 2010 and 1st June 2010 respectively.
Merlin Swire is also interested as a shareholder of Swire.
Particulars of the fees paid and the expenses reimbursed
for the year ended 31st December 2010 are set out
below and also given in note 30 to the accounts.
Significant contracts
Contracts between the Group and HAECO and its
subsidiary TAECO for the maintenance and overhaul of
aircraft and related equipment accounted for
approximately 2% of the Group’s operating expenses in
2010. HAECO is a subsidiary of Swire Pacific; all contracts
have been concluded on normal commercial terms in the
ordinary course of the business of both parties.
Major transaction
Cathay Pacific Aircraft Services Limited (“CPAS”), a
wholly owned subsidiary of the Company, entered into an
agreement with Airbus S.A.S. on 16th September 2010
for the acquisition of 30 Airbus A350-900 aircraft. This
transaction constituted a major transaction under the
Listing Rules in respect of which an announcement dated
16th September 2010 was published and a circular dated
21st September 2010 was sent to shareholders.
Discloseable transaction
CPAS entered into an agreement with The Boeing
Company on 21st September 2010 for the acquisition of
six Boeing 777-300ER aircraft. This transaction
constituted a discloseable transaction under the Listing
Rules in respect of which an announcement dated 21st
September 2010 was published.
Connected transactions
(a) The Company and its wholly owned subsidiaries
Cathay Pacific China Cargo Holdings Limited (“Cathay
Pacific China Cargo Holdings”) and Dragonair entered
into a framework agreement with Air China Limited
(“Air China”) and its wholly owned subsidiaries Air
China Cargo Co., Ltd. (“Air China Cargo”) and Fine
Star Enterprises Corporation (“Fine Star”) on 25th
February 2010, which provided for the entry of
relevant ancillary agreements for the following
transactions (the “Joint Venture Transaction”) to take
place:
(i) Cathay Pacific China Cargo Holdings would
subscribe for a 25% equity interest in Air China
Cargo for a consideration of RMB851,621,140
(comprising RMB808,823,530 as contribution to
the registered capital and RMB42,797,610 as
premium contribution) and Fine Star would make a
further capital contribution of RMB238,453,919
(comprising RMB226,470,588 as contribution to
the registered capital and RMB11,983,331 as
premium contribution) in cash to Air China Cargo.
Following the completion of such equity
subscription and capital contribution, the equity
interests of Air China, Fine Star and Cathay Pacific
China Cargo Holdings in Air China Cargo would be
51%, 24% and 25% respectively (with premium
contribution credited as capital reserve fund of Air
China Cargo);
Directors’ Report

(ii) Advent Fortune Limited (“AFL”) would acquire the
entire issued share capital and shareholder’s loan
of Fine Star held by China National Aviation
Company Limited, a subsidiary of Air China with a
loan of approximately RMB817 million from the
Company. In return, AFL would pledge its equity
interest in Fine Star to the Company and the
Company’s returns on the loan would be equal to
the dividend returns on AFL’s 24% effective
shareholding in Air China Cargo;
(iii) Air China Cargo would purchase from the
Company and Dragonair four Boeing 747-400BCF
converted freighters powered by PW4056-3
engines and two spare engines for a consideration
of approximately RMB1,924 million; and
(iv) the Company would provide a guarantee in favour
of Air China in respect of Cathay Pacific China
Cargo Holdings’ obligations under the relevant
agreements and undertook to exercise its
contractual rights under the loan agreement with
respect to the loan referred to in (ii) above and
other related agreements to procure Fine Star to
perform its obligations under the joint venture
agreement of Air China Cargo.
As Air China is a substantial shareholder and therefore
a connected person of the Company, the Joint
Venture Transaction constituted a connected
transaction for the Company under the Listing Rules,
in respect of which an announcement dated 25th
February 2010 was published and a circular dated 8th
April 2010 was sent to shareholders. The completion
process of the Joint Venture Transaction has
commenced and is in progress.
(b) The Company, Swire Aviation Limited, Swire Finance
Limited, Swire Pacific, CITIC Pacific Limited (as
sellers) entered into a sale and purchase agreement
with Jardine, Matheson & Co., Limited, The Wharf
(Holdings) Limited, Mosgen Limited, Hutchison Port
Holdings Limited and China National Aviation
Corporation (Group) Limited (“CNACG”) (as
purchasers) on 25th May 2010 for the Company to sell
its entire 10% interests in Hong Kong Air Cargo
Terminals Limited (“Hactl”) and Hactl Investment
Holdings Limited (“HIHL”) for a consideration of
HK$640 million. The transaction enabled the Company
to realise cash from its investment in the 10%
interests in Hactl and HIHL.
CNACG is a connected person of the Company
because it is an associate of Air China Limited which
is a substantial shareholder of the Company. Swire
Pacific is a substantial shareholder and therefore a
connected person of the Company. As Swire Pacific is
a controlling shareholder of the Company and was
also a substantial shareholder of Hactl and HIHL, the
sale of the Company’s interests in Hactl and HIHL
constituted a connected transaction of the Company
under the Listing Rules, in respect of which an
announcement dated 25th May 2010 was published.
The transaction was completed on 31st May 2010.
(c) The Company entered into a sale and purchase
agreement with Swire Pacific on 7th June 2010 for
Swire Pacific to purchase and the Company to sell
24,948,728 ordinary shares of HK$1 each in HAECO
(representing approximately 15.00% shareholding in
HAECO) for a consideration of approximately
HK$2,620 million (equivalent to HK$105 per HAECO
share) (the “HAECO Share Transaction”). The HAECO
Share Transaction was driven by the strategic
priorities of the Company and would benefit its core
aviation business. It enabled the Company to apply
the proceeds from the transaction towards other
investments in the Company’s core aviation business,
including investments in new aircraft, in the new
cargo terminal being constructed at the Hong Kong
International Airport, in continuing enhancements in
products and services, as well as towards Cathay
Pacific’s general working capital requirements.
As Swire Pacific is a substantial shareholder and
therefore a connected person of the Company, the
HAECO Share Transaction constituted a connected
transaction for the Company under the Listing Rules,
in respect of which an announcement dated 7th June
2010 was published.
Following completion of the HAECO Share
Transaction on 14th June 2010, the Company’s
shareholding interest in HAECO decreased from
15.00% to nil and Swire Pacific’s shareholding interest
in HAECO increased from 45.96% to 60.96%.
Directors’ Report
Cathay Pacific Airways Limited Annual Report 2010
37
Continuing connected transactions
During the year ended 31st December 2010, the Group
had the following continuing connected transactions,
details of which are set out below:
(a) Pursuant to an agreement dated 17th October 2002
(the “DHL Services Agreement”) with DHL
International GmbH (formerly DHL International
Limited) (“DHL”), Air Hong Kong provides to DHL
services in respect of the sale of space on certain
cargo services operated by Air Hong Kong in the Asian
region for the carriage of DHL’s door to door air
express materials. Payment is made in cash by DHL
within 30 days from the date of receipt of Air Hong
Kong’s monthly invoices. The term of the DHL
Services Agreement is from 17th October 2002 to
31st December 2018.
DHL is a connected person of the Company because
its holding company Deutsche Post AG holds a 40%
attributable interest in the Company’s subsidiary Air
Hong Kong. The transactions under the DHL Services
Agreement were continuing connected transactions in
respect of which announcements dated 17th October
2002, 27th June 2005, 12th March 2007 and 9th
March 2011 were published and circulars dated 12th
July 2005 and 21st March 2007 were sent to
shareholders. Following amendments to the Listing
Rules effective 3rd June 2010, transactions under the
DHL Services Agreement constitute transactions with
persons connected at the level of subsidiaries of the
Company under Rule 14A.33(4) of the Listing Rules
with effect from 1st January 2011 and are therefore
exempt from the reporting, annual review,
announcement and independent shareholders’
approval requirements under the Listing Rules.
The fees payable by DHL to Air Hong Kong under the
DHL Services Agreement totalled HK$2,093 million for
the year ended 31st December 2010.
(b) Pursuant to an agreement (“JSSHK Services
Agreement”) dated 1st December 2004, as amended
and restated on 18th September 2008, with JSSHK,
JSSHK provides services to the Company and its
subsidiaries. The services comprise advice and
expertise of the directors and senior officers of the
Swire group including (but not limited to) assistance in
negotiating with regulatory and other governmental or
official bodies, full or part time services of members
of the staff of the Swire group, other administrative
and similar services and such other services as may
be agreed from time to time, and in procuring for the
Company and its subsidiary, jointly controlled and
associated companies the use of relevant trademarks
owned by the Swire group. No fee is payable in
consideration of such procuration obligation or
such use.
In return for these services, JSSHK receives annual
service fees calculated as 2.5% of the Company’s
consolidated profit before taxation and non-controlling
interests after certain adjustments. The fees for each
year are payable in cash in arrear in two instalments,
an interim payment by the end of October and a final
payment by the end of April of the following year,
adjusted to take account of the interim payment.
The Company also reimburses the Swire group at
cost for all the expenses incurred in the provision of
the services.
The current term of the JSSHK Services Agreement is
from 1st January 2011 to 31st December 2013 and it
is renewable for successive periods of three years
thereafter unless either party to it gives to the other
notice of termination of not less than three months
expiring on any 31st December.
Swire is the holding company of Swire Pacific which
owns approximately 42.97% of the issued capital of
the Company and JSSHK, a wholly-owned subsidiary
of Swire, is therefore a connected person of the
Company under the Listing Rules. The transactions
under the JSSHK Services Agreement are continuing
connected transactions in respect of which
announcements dated 1st December 2004, 1st
October 2007 and 1st October 2010 were published.
For the year ended 31st December 2010, JSSHK
waived its entitlement to fees under the JSSHK
Services Agreement in respect of that part of the
Company’s adjusted consolidated profit before
taxation and non-controlling interests which was
referable to the sale by the Company to Swire Pacific
of 24,948,728 shares in HAECO. After taking account
of that waiver, the fees payable by the Company to
JSSHK under the JSSHK Services Agreement totalled
HK$293 million and expenses of HK$139 million were
reimbursed at cost.
Directors’ Report
38
(c) Pursuant to an agreement dated 29th September
2008 (“PCCW Services Agreement”) between Cathay
Pacific Loyalty Programmes Limited (“CPLP”) with
PCCW Teleservices (Hong Kong) Limited
(“Teleservices”), Teleservices provides services to
CPLP. The services comprise the provision of a
service centre and handling of customer calls and
related administration for the Company’s frequent
flyer and customer loyalty programmes. Payment is
made in cash by CPLP within 45 days from the date of
receipt of Teleservices’ invoice. The term of the
PCCW Services Agreement is from 1st October 2008
to 30th September 2011.
Teleservices is an indirect wholly owned subsidiary of
PCCW Limited which indirectly holds a 37% equity
interest in the Company’s subsidiary Abacus
Distribution Systems (Hong Kong) Limited.
Teleservices is therefore a connected person of the
Company under the Listing Rules. The transactions
under the PCCW Services Agreement were continuing
connected transactions in respect of which
announcements dated 29th September 2008 and 29th
June 2010 were published. Following amendments to
the Listing Rules effective 3rd June 2010, transactions
under the PCCW Services Agreement constitute de
minimis transactions for the Company and are
therefore exempt from the reporting, annual review,
announcement and independent shareholders’
approval requirements under the Listing Rules.
The fees payable by CPLP to Teleservices under the
PCCW Services Agreement totalled HK$37 million for
the period from 1st January to 2nd June 2010.
(d) Pursuant to a framework agreement dated 21st May
2007 (“HAECO Framework Agreement”) with HAECO,
HAECO and its subsidiaries (“HAECO group”) provide
services to the Group’s aircraft fleets. The services
include line maintenance, base maintenance,
comprehensive stores and logistics support,
component and avionics overhaul, material supply,
engineering services and ancillary services at Hong
Kong International Airport, Xiamen or other airports.
Payment is made in cash by the Group to HAECO
group within 30 days upon receipt of the invoice. The
term of the HAECO Framework Agreement is for 10
years ending on 31st December 2016.
HAECO is a connected person of the Company by
virtue of it being an associate of the Company’s
substantial shareholder Swire Pacific. The transactions
under the HAECO Framework Agreement are
continuing connected transactions in respect of which
an announcement dated 21st May 2007 was
published and a circular dated 31st May 2007 was
sent to shareholders.
The fees payable by the Group to HAECO group under
the HAECO Framework Agreement totalled HK$1,818
million for the year ended 31st December 2010.
(e) The Company entered into a framework agreement
dated 26th June 2008 (“Air China Framework
Agreement”) with Air China Limited (“Air China”) in
respect of transactions between the Group on the
one hand and Air China and its subsidiaries (“Air
China Group”) on the other hand arising from joint
venture arrangements for the operation of
passenger air transportation, code sharing
arrangements, interline arrangements, aircraft
leasing, frequent flyer programmes, the provision of
airline catering, ground support and engineering
services and other services agreed to be provided
and other transactions agreed to be undertaken
under the Air China Framework Agreement.
The current term of the Air China Framework
Agreement is for 3 years ending on 31st December
2013 and is renewable for successive periods of three
years thereafter unless either party to it gives to the
other notice of termination of not less than three
months expiring on any 31st December.
Air China, by virtue of its 29.99% shareholding in
Cathay Pacific, is a substantial shareholder and
therefore a connected person of Cathay Pacific under
the Listing Rules. The transactions under the Air
China Framework Agreement are continuing
connected transactions in respect of which
announcements dated 26th June 2008 and 10th
September 2010 were published.
Directors’ Report
Cathay Pacific Airways Limited Annual Report 2010
39
For the year ended 31st December 2010 and under
the Air China Framework Agreement, the amounts
payable by the Group to Air China Group totalled
HK$403 million; and the amounts payable by Air China
Group to the Group totalled HK$219 million.
(f) Pursuant to a framework agreement dated 27th July
2010 (“HAESL Framework Agreement”) with Hong
Kong Aero Engine Services Limited (“HAESL”), HAESL
provides certain services to the Group in connection
with the overhaul and repair of aircraft engines and
components. Such services do not include
reimbursement of the cost of materials purchased by
HAESL from the engine supplier, Rolls-Royce plc (or
any of its group companies or affiliates) for the
Company. Payment is made in cash by the Group to
HAESL within 30 days upon receipt of the invoice.
The current term of the HAESL Framework
Agreement is for 3 years ending on 31st December
2012 and is renewable for successive periods of three
years thereafter unless either party to it gives to the
other notice of termination of not less than three
months expiring on any 31st December.
On 7th June 2010, HAECO, which holds a 45%
shareholding in HAESL, became a subsidiary of Swire
Pacific and as a result HAESL became an associate of
Swire Pacific under the Listing Rules. As Swire Pacific
is a substantial shareholder of the Company under the
Listing Rules, HAESL became a connected person of
the Company under the Listing Rules by becoming an
associate of a substantial shareholder of the
Company. As a result, the transactions under the
HAESL Framework Agreement became continuing
connected transactions in respect of which an
announcement dated 27th July 2010 was published.
The fees payable by the Group to HAESL under the
HAESL Framework Agreement totalled HK$228
million for period from 7th June 2010 to 31st
December 2010.
The independent non-executive Directors, who are not
interested in any connected transactions with the Group,
have reviewed and confirmed that the continuing
connected transactions as set out above have been
entered into by the Group:
(a) in the ordinary and usual course of business of
the Group;
(b) either on normal commercial terms or, if there are not
sufficient comparable transactions to judge whether
they are on normal commercial terms, on terms no
less favourable to the Group than terms available to or
from (as appropriate) independent third parties; and
(c) in accordance with the relevant agreement
governing them on terms that are fair and
reasonable and in the interests of the shareholders
of the Company as a whole.
The Auditors of the Company have also reviewed these
transactions and confirmed to the Board that:
(a) they have been approved by the Board of the
Company;
(b) they are in accordance with the pricing policies of the
Group (if the transactions involve provision of goods or
services by the Group);
(c) they have been entered into in accordance with the
relevant agreements governing the transactions; and
(d) they have not exceeded the relevant annual caps
disclosed in previous announcements.
Major customers and suppliers
6% of sales and 33% of purchases during the year were
attributable to the Group’s five largest customers and
suppliers respectively. 1% of sales were made to the
Group’s largest customer while 10% of purchases were
made from the Group’s largest supplier.
In respect of the Company’s purchases from PetroChina
International (Hong Kong) Corporation Limited, which was
among the Group’s five largest suppliers in 2010, Tung
Chee Chen is interested as a director of its holding
company, PetroChina Company Limited. Save as
disclosed in this paragraph, no Director, any of their
associates or any shareholder who, to the knowledge of
the Directors, owns more than 5% of the Company’s
issued share capital has an interest in the Group’s five
largest suppliers.
Directors’ Report
10
Directors
Ivan Chu, Irene Lee, Merlin Swire and W.E. James
Barrington were appointed as Directors with effect from
31st March 2011, 13th January 2010, 1st June 2010 and
1st July 2010 respectively. All the other present Directors
of the Company whose names are listed on pages 32 and
33 served throughout the year. Robert Woods, Philip
Chen and Tony Tyler served as Directors until their
resignation with effect from 1st June 2010, 1st July 2010
and 31st March 2011 respectively.
The Company has received from each of its independent
non-executive Directors an annual confirmation of his/her
independence pursuant to Listing Rule 3.13 and the
Company still considers all its independent non-executive
Directors to be independent.
Article 93 of the Company’s Articles of Association
provides for all the Directors to retire at the third annual
general meeting following their election by ordinary
resolution. In accordance therewith, James W.J. Hughes-
Hallett and John Slosar retire this year and, being eligible,
offer themselves for re-election.
W.E. James Barrington, Ivan Chu and Merlin Swire, having
been appointed as Directors of the Company under Article
91 since the last annual general meeting, also retire and,
being eligible, offer themselves for election.
Each of the Directors has entered into a letter of
appointment, which constitutes a service contract, with
the Company for a term of up to three years until his/
her retirement under Article 91 or Article 93 of the
Articles of Association of the Company, which will be
renewed for a term of three years upon each election/
re-election. None of the Directors has any existing or
proposed service contract with any member of the
Group which is not expiring or terminable by the Group
within one year without payment of compensation
(other than statutory compensation).
Directors’ fees paid to the independent non-executive
Directors during the year totalled HK$2.6 million; they
received no other emoluments from the Company or any
of its subsidiaries.
Directors’ interests
At 31st December 2010, the register maintained under
Section 352 of the Securities and Futures Ordinance
(“SFO”) showed that Directors held the following
interests in the shares of Cathay Pacific Airways Limited:
Capacity No. of shares
Percentage of
issued capital (%)
Ian Shiu Personal 1,000 0.00003
Tony Tyler Personal 5,000 0.00013
Other than as stated above, no Director or chief executive
of Cathay Pacific Airways Limited had any interest or
short position, whether beneficial or non-beneficial, in the
shares or underlying shares (including options) and
debentures of Cathay Pacific Airways Limited or any of its
associated corporations (within the meaning of Part XV of
the SFO).
Directors’ interests in competing
business
Pursuant to Rule 8.10 of the Listing Rules, Christopher
Pratt, Cai Jianjiang, Philip Chen, Fan Cheng, Kong Dong
and Ian Shiu had disclosed that they were directors of Air
China during the year. Air China competes or is likely to
compete, either directly or indirectly, with the businesses
of the Company as it operates airline services to certain
destinations which are also served by the Company.
Directors’ Report
Cathay Pacific Airways Limited Annual Report 2010
11
Substantial shareholders
The register of interests in shares and short positions maintained under Section 336 of the SFO shows that as at 31st
December 2010 the Company had been notified of the following interests in the shares of the Company held by
substantial shareholders and other persons:
No. of shares
Percentage of
issued capital (%) Type of interest (Note)
1. Air China Limited 2,870,107,351 72.96 Attributable interest (a)
2. China National Aviation Holding Company 2,870,107,351 72.96 Attributable interest (b)
3. Swire Pacific Limited 2,870,107,351 72.96 Attributable interest (a)
4. John Swire & Sons Limited 2,870,107,351 72.96 Attributable interest (c)
Note: At 31st December 2010:
(a) Under Section 317 of the SFO, each of Air China, China National Aviation Company Limited (“CNAC”) and Swire Pacific, being a party to the
Shareholders’ Agreement in relation to the Company dated 8th June 2006, was deemed to be interested in a total of 2,870,107,351 shares of the
Company, comprising:
(i) 1,690,347,364 shares directly held by Swire Pacific;
(ii) 1,179,759,987 shares indirectly held by Air China and its subsidiaries CNAC, Super Supreme Company Limited and Total Transform Group
Limited, comprising the following shares held by their wholly owned subsidiaries: 288,596,335 shares held by Angel Paradise Ltd.,
280,078,680 shares held by Custain Limited, 191,922,273 shares held by Easerich Investments Inc., 189,976,645 shares held by Grand Link
Investments Holdings Ltd., 207,376,655 shares held by Motive Link Holdings Inc. and 21,809,399 shares held by Perfect Match Assets
Holdings Ltd.
(b) China National Aviation Holding Company is deemed to be interested in a total of 2,870,107,351 shares of the Company, in which its subsidiary
Air China is deemed interested.
(c) Swire and its wholly owned subsidiary JSSHK are deemed to be interested in a total of 2,870,107,351 shares of the Company by virtue of the
Swire group’s interests in shares of Swire Pacific representing approximately 40.63% of the issued capital and approximately 57.62% of the
voting rights.
Public float
From information that is publicly available to the Company
and within the knowledge of its Directors as at the date
of this report, at least 25% of the Company’s total issued
share capital is held by the public.
Directors’ Report
Auditors
KPMG retire and, being eligible, offer themselves for re-
appointment. A resolution for the re-appointment of
KPMG as Auditors to the Company is to be proposed at
the forthcoming annual general meeting.
By order of the Board
Christopher Pratt
Chairman
Hong Kong, 9th March 2011
12
Cathay Pacific is committed to maintaining a high
standard of corporate governance and devotes
considerable effort to identifying and formalising best
practices of corporate governance. The Company has
complied throughout the year with all the code provisions
set out in the Code on Corporate Governance Practices
(the “CG Code”) contained in Appendix 14 of the Listing
Rules. The Company has also put in place corporate
governance practices to meet most of the recommended
best practices in the CG Code.
The Board of Directors
The Board is chaired by Christopher Pratt (the
“Chairman”). There are five executive Directors and 12
non-executive Directors, four of whom are independent.
Names and other details of the Directors are given on
pages 32 and 33 of this report. All Directors are able to
take independent professional advice in furtherance of
their duties if necessary. The independent non-executive
Directors are high calibre executives with diversified
industry expertise and serve the important function of
providing adequate checks and balances for
safeguarding the interests of shareholders and the
Company as a whole.
To ensure a balance of power and authority, the role of
the Chairman is separate from that of the Chief Executive
(“CE”). The CE, Tony Tyler will be succeeded by John
Slosar on 31st March 2011. The Board regularly reviews
its structure, size and composition to ensure its expertise
and independence are maintained. It also identifies and
nominates qualified individuals, who are expected to have
such expertise to make a positive contribution to the
performance of the Board, to be additional Directors or fill
Board vacancies as and when they arise. A Director
appointed by the Board to fill a casual vacancy is subject
to election of shareholders at the first general meeting
after his/her appointment and all Directors have to retire
at the third annual general meeting following their
election by ordinary resolution, but are eligible for
re-election.
Corporate Governance
All Directors disclose to the Board on their first
appointment their interests as director or otherwise in
other companies or organisations and such declarations
of interests are updated annually. When the Board
considers any proposal or transaction in which a Director
has a conflict of interest, he/she declares his/her interest
and is required to abstain from voting.
The Board is accountable to the shareholders for leading
the Company in a responsible and effective manner. It
determines the overall strategies, monitors and controls
operating and financial performance and sets appropriate
policies to manage risks in pursuit of the Company’s
strategic objectives. It is also responsible for presenting a
balanced, clear and understandable assessment of the
financial and other information contained in the
Company’s accounts, announcements and other
disclosures required under the Listing Rules or other
statutory requirements. Day-to-day management of the
Company’s business is delegated to the CE. Matters
reserved for the Board are those affecting the Company’s
overall strategic policies, finances and shareholders.
These include: financial statements, dividend policy,
significant changes in accounting policy, the annual
operating budgets, material contracts, major financing
arrangements, major investments, risk management
strategy and treasury policies. The functions of the Board
and the powers delegated to the CE are reviewed
periodically to ensure that they remain appropriate. The
Board has established the following committees: the
Board Safety Review Committee, the Executive
Committee, the Finance Committee, the Remuneration
Committee and the Audit Committee, the latter two with
the participation of independent non-executive Directors.
The Board of Directors held six meetings during 2010, the
attendance of which, taking into account dates of
appointment or resignation, was as follows:
Christopher Pratt (6/6), W.E. James Barrington (3/3), Cai
Jianjiang (1/6), Philip Chen (3/3), Fan Cheng (3/6), James
E. Hughes-Hallett (6/6), James W.J. Hughes-Hallett (5/6),
Peter Kilgour (6/6), Kong Dong (2/6), Irene Lee (6/6), Ian
Shiu (6/6), John Slosar (6/6), Jack So (6/6), Merlin Swire
(3/3), Tung Chee Chen (5/6), Tony Tyler (6/6), Peter Wong
(4/6), Robert Woods (3/3) and Zhang Lan (3/6).
Cathay Pacific Airways Limited Annual Report 2010
13
Securities Transactions
The Company has adopted codes of conduct regarding
securities transactions by Directors (the “Securities
Code”) and relevant employees (as defined in the CG
Code) on terms no less exacting than the required
standard set out in the Model Code for Securities
Transactions by Directors of Listed Issuers (the “Model
Code”) contained in Appendix 10 of the Listing Rules. A
copy of the Securities Code is sent to each Director of the
Company first on his/her appointment and thereafter
twice annually, at least 30 days and 60 days respectively
before the date of the board meeting to approve the
Company’s half-year result and annual result, with a
reminder that the Director cannot deal in the securities
and derivatives of the Company until after such results
have been published.
Under the Securities Code, Directors of the Company are
required to notify the Chairman and receive a dated
written acknowledgement before dealing in the securities
and derivatives of the Company and, in the case of the
Chairman himself, he must notify the Chairman of the
Audit Committee and receive a dated written
acknowledgement before any dealing.
On specific enquiries made, all Directors have confirmed
that they have complied with the required standard set
out in the Model Code throughout the year.
Directors’ interests as at 31st December 2010 in the
shares of the Company and its associated corporations
(within the meaning of Part XV of the SFO) are set out on
page 40.
Board Safety Review Committee
The Board Safety Review Committee reviews and reports
to the Board on safety issues. It meets three times a year
and comprises two executive Directors, the CE and John
Slosar, one independent non-executive Director, Jack So,
three executive officers, Ivan Chu, Christopher Gibbs and
Captain Richard Hall, the General Manager Flying, Captain
Henry Craig and the Head of Corporate Safety, Richard
Howell. It is chaired by a former Director Flight
Operations, Ken Barley.
Executive Committee
The Executive Committee is chaired by the CE and
comprises three executive Directors, W.E. James
Barrington, James E. Hughes-Hallett and John Slosar, and
five non-executive Directors, Cai Jianjiang, Fan Cheng,
Peter Kilgour, Kong Dong and Zhang Lan. It meets
monthly and is responsible to the Board for overseeing
and setting the strategic direction of the Company.
Management Committee
The Management Committee meets once a month and is
responsible to the Board for overseeing the day-to-day
operation of the Company. It is chaired by the CE and
comprises three executive Directors, W.E. James
Barrington, James E. Hughes-Hallett and John Slosar, and
all eight executive officers, William Chau, Quince Chong,
Ivan Chu, Christopher Gibbs, Captain Richard Hall, Rupert
Hogg, Nick Rhodes and Tomasz Smaczny.
Finance Committee
The Finance Committee meets monthly to review the
financial position of the Company and is responsible for
establishing the financial risk management policies. It is
chaired by the CE and comprises three executive
Directors, W.E. James Barrington, James E. Hughes-
Hallett and John Slosar, three non-executive Directors,
Fan Cheng, Peter Kilgour and Zhang Lan, the General
Manager Corporate Finance, Keith Fung, the Manager
Corporate Treasury, Andrew West, and an independent
representative from the financial community. Reports on
its decisions and recommendations are presented at
Board meetings.
Remuneration Committee
The Remuneration Committee comprises two
independent non-executive Directors, Irene Lee and Tung
Chee Chen, and is chaired by the Company’s past
Chairman, James W. J. Hughes-Hallett who is also a non-
executive Director.
Corporate Governance
11
Under the Services Agreement between the Company
and JSSHK, which has been considered in detail and
approved by the Directors of the Board who are not
connected with the Swire group, staff at various levels,
including executive Directors, are seconded to the
Company. Those staff report to and take instructions
from the Board of the Company but remain employees
of Swire.
In order to be able to attract and retain international staff
of suitable calibre, the Swire group provides a competitive
remuneration package. This comprises salary, housing,
provident fund, leave passage and education allowances
and, after three years’ service, a bonus related to the
profit of the overall Swire group. The provision of housing
affords ease of relocation either within Hong Kong or
elsewhere in accordance with the needs of the business
and as part of the training process whereby managers
gain practical experience in various businesses within the
Swire group, and payment of bonuses on a group-wide
basis enables postings to be made to group companies
with very different profitability profiles. Whilst bonuses
are calculated by reference to the profits of the Swire
group overall, a significant part of such profits are usually
derived from the Company.
Although the remuneration of these executives is not
entirely linked to the profits of the Company, it is
considered that, given the volatility of the aviation
business, this has contributed considerably to the
maintenance of a stable, motivated and high-calibre senior
management team in the Company. Furthermore, as a
substantial shareholder of the Company, it is in the best
interest of Swire to see that executives of high quality are
seconded to and retained within the Company.
A number of Directors and senior staff with specialist skills
are employed directly by the Company on similar terms.
This policy and the levels of remuneration paid to
executive Directors of the Company were reviewed by
the Remuneration Committee. At its meeting in
November, the Remuneration Committee considered a
report prepared for it by independent consultants, Mercer
Limited, which confirmed that the remuneration of the
Company’s executive Directors was in line with
comparators in peer group companies. The Committee
approved individual Directors’ remuneration packages to
be paid in respect of 2009.
No Director takes part in any discussion about his/her
own remuneration. The remuneration of independent non-
executive Directors is determined by the Board in
consideration of the complexity of the business and the
responsibility involved.
Annual fees of independent non-executive Directors in
2010 were as follows:
Director’s fee HK$500,000
Fee for serving as Audit
Committee chairman HK$200,000
Fee for serving as Audit
Committee member HK$150,000
Fee for serving as Remuneration
Committee chairman HK$65,000
Fee for serving as Remuneration
Committee member HK$50,000
The Remuneration Committee held two meetings during
2010, the attendance of which was as follows:
James W.J. Hughes-Hallett (2/2), Irene Lee (2/2) and Tung
Chee Chen (2/2).
Corporate Governance
Cathay Pacific Airways Limited Annual Report 2010
15
Audit Committee
The Audit Committee is responsible to the Board and
consists of four non-executive Directors, three of whom
are independent. The members currently are Fan Cheng,
Irene Lee and Peter Wong. It is chaired by an
independent non-executive Director, Jack So.
The Committee reviewed the completeness, accuracy
and fairness of the Company’s reports and accounts and
provided assurance to the Board that these comply with
accounting standards, stock exchange and legal
requirements. The Committee also reviewed the
adequacy and effectiveness of the internal control and
risk management systems, including the adequacy of the
resources, qualifications and experience of the staff of the
Company’s accounting and financial reporting function,
and their training programmes and budget. It reviewed
the work done by the internal and external auditors, the
relevant fees and terms, results of audits performed by
the external auditors and appropriate actions required on
significant control weaknesses. The external auditors, the
Finance Director and the Internal Audit Manager also
attended these meetings.
The Audit Committee held three meetings during 2010,
the attendance of which, taking into account dates of
appointment or resignation/cessation, was as follows:
Fan Cheng (1/3), Irene Lee (3/3), Jack So (3/3) and Peter
Wong (3/3).
Expenditure Control Committee
The Expenditure Control Committee meets monthly to
evaluate and approve capital expenditure. It is chaired by
one executive Director, John Slosar and includes two
other executive Directors, W.E. James Barrington and
James E. Hughes-Hallett.
Internal Control and Internal Audit
The internal control system has been designed to
safeguard corporate assets, maintain proper accounting
records and ensure transactions are executed in
accordance with management’s authorisation. The
system comprises a well-established organisational
structure and comprehensive policies and standards.
The Internal Audit Department provides an independent
review of the adequacy and effectiveness of the internal
control system. The audit plan, which is prepared based
on risk assessment methodology, is discussed and
agreed every year with the Audit Committee. In addition
to its agreed annual schedule of work, the Department
conducts other special reviews as required. The Internal
Audit Manager has direct access to the Audit Committee.
Audit reports are sent to the Chief Operating Officer, the
Finance Director, external auditors and the relevant
management of the auditee department. A summary of
major audit findings is reported quarterly to the Board and
reviewed by the Audit Committee. As a key criterion of
assessing the effectiveness of the internal control
system, the Board and the Committee actively monitor
the number and seriousness of findings raised by the
Internal Audit Department and also the corrective actions
taken by relevant departments.
Detailed control guidelines have been set and made
available to all employees of the Company regarding
handling and dissemination of corporate data which is
price sensitive.
Systems and procedures are in place to identify, control
and report on major risks, including business, safety,
legal, financial, environmental and reputational risks.
Exposures to these risks are monitored by the Board with
the assistance of various committees and senior
management.
The Board is responsible for the system of internal control
and for reviewing its effectiveness. For the year under
review, the Board considered that the Company’s internal
control system is adequate and effective and the
Company has complied with the code provisions on
internal control of the CG Code.
Corporate Governance

Corporate Governance
External Auditors
The external auditors are primarily responsible for auditing
and reporting on the annual accounts. In 2010 the total
remuneration paid to the external auditors was HK$26
million, being HK$10 million for audit, HK$13 million for tax
advice and HK$3 million for other professional services.
Airline Safety Review Committee
The Airline Safety Review Committee meets monthly to
review the Company’s exposure to operational risk. It
reviews the work of the Cabin Safety Review Committee,
the Operational Ramp Safety Committee and the
Engineering Mandatory Occurrence Report Meeting. It is
chaired by the Head of Corporate Safety and comprises
Directors and senior management of all operational
departments as well as senior management from the
ground handling company, HAS, and the aircraft
maintenance company, HAECO.
Investor Relations
The Company continues to enhance relationships and
communication with its investors. Extensive information
about the Company’s performance and activities is
provided in the Annual Report and the Interim Report
which are sent to shareholders. Regular dialogue with
institutional investors and analysts is in place to keep
them abreast of the Company’s development. Inquiries
from investors are dealt with in an informative and timely
manner. All shareholders are encouraged to attend the
annual general meeting to discuss matters relating to the
Company. Any inquiries from shareholders can be
addressed to the Corporate Communication Department
whose contact details are given on page 104.
In order to promote effective communication,
the Company maintains its website at
www.cathaypacific.com on which financial and other
information relating to the Company and its business is
disclosed.
Shareholders may request an extraordinary general
meeting to be convened in accordance with Section 113
of the Companies Ordinance.
Cathay Pacific Airways Limited Annual Report 2010
47
To the shareholders of Cathay Pacific Airways Limited
(Incorporated in Hong Kong with limited liability)
We have audited the consolidated financial statements of
Cathay Pacific Airways Limited (“the Company”) and its
subsidiaries (together “the Group”) set out on pages 48
to 97, which comprise the consolidated and company
statements of financial position as at 31st December
2010, the consolidated statement of comprehensive
income, the consolidated and company statements of
changes in equity and the consolidated cash flow
statement for the year then ended and a summary of
significant accounting policies and other explanatory
information.
Directors’ responsibility for the consolidated
financial statements
The directors of the Company are responsible for the
preparation of consolidated financial statements that give
a true and fair view in accordance with Hong Kong
Financial Reporting Standards issued by the Hong Kong
Institute of Certified Public Accountants and the Hong
Kong Companies Ordinance and for such internal control
as the directors determine is necessary to enable the
preparation of consolidated financial statements that are
free from material misstatement, whether due to fraud or
error.
Auditor’s responsibility
Our responsibility is to express an opinion on these
consolidated financial statements based on our audit. This
report is made solely to you, as a body, in accordance
with section 141 of the Hong Kong Companies
Ordinance, and for no other purpose. We do not assume
responsibility towards or accept liability to any other
person for the contents of this report.
We conducted our audit in accordance with Hong Kong
Standards on Auditing issued by the Hong Kong Institute
of Certified Public Accountants. Those standards require
that we comply with ethical requirements and plan and
perform the audit to obtain reasonable assurance about
whether the consolidated financial statements are free
from material misstatement.
Independent Auditor’s Report
An audit involves performing procedures to obtain audit
evidence about the amounts and disclosures in the
consolidated financial statements. The procedures
selected depend on the auditor’s judgement, including
the assessment of the risks of material misstatement of
the consolidated financial statements, whether due to
fraud or error. In making those risk assessments, the
auditor considers internal control relevant to the entity’s
preparation of the consolidated financial statements that
give a true and fair view in order to design audit
procedures that are appropriate in the circumstances, but
not for the purpose of expressing an opinion on the
effectiveness of the entity’s internal control. An audit also
includes evaluating the appropriateness of accounting
policies used and the reasonableness of accounting
estimates made by the directors, as well as evaluating the
overall presentation of the consolidated financial
statements. We believe that the audit evidence we have
obtained is sufficient and appropriate to provide a basis
for our audit opinion.
Opinion
In our opinion, the consolidated financial statements give
a true and fair view of the state of affairs of the Company
and of the Group as at 31st December 2010 and of the
Group’s profit and cash flows for the year then ended in
accordance with Hong Kong Financial Reporting
Standards and have been properly prepared in accordance
with the Hong Kong Companies Ordinance.
KPMG
Certified Public Accountants
8th Floor, Prince’s Building
10 Chater Road
Central, Hong Kong
9th March 2011
48
1. Basis of accounting
The accounts have been prepared in accordance with
all applicable Hong Kong Financial Reporting
Standards (“HKFRS”) (which include all applicable
Hong Kong Accounting Standards (“HKAS”), Hong
Kong Financial Reporting Standards and
Interpretations) issued by the Hong Kong Institute of
Certified Public Accountants (“HKICPA”). These
accounts also comply with the requirements of the
Hong Kong Companies Ordinance and the applicable
disclosure provisions of the Rules Governing the
Listing of Securities (the “Listing Rules”) of The
Stock Exchange of Hong Kong Limited (the “Stock
Exchange”).
The measurement basis used is historical cost
modified by the use of fair value for certain financial
assets and liabilities as explained in accounting
policies 8, 9, 10 and 12 below.
The preparation of the accounts in conformity with
HKFRS requires management to make certain
estimates and assumptions which affect the amounts
of fixed assets, intangible assets, long-term
investments, retirement benefit obligations and
taxation included in the accounts. These estimates
and assumptions are continually re-evaluated and are
based on management’s expectations of future
events which are considered to be reasonable.
2. Basis of consolidation
The consolidated accounts incorporate the accounts
of the Company and its subsidiaries made up to 31st
December together with the Group’s share of the
results and net assets of its associates. Subsidiaries
are entities controlled by the Group. Subsidiaries are
considered to be controlled if the Company has the
power, directly or indirectly, to govern the financial
and operating policies, so as to obtain benefits from
their activities.
The results of subsidiaries are included in the
consolidated statement of comprehensive income.
Where interests have been bought or sold during the
year, only those results relating to the period of
control are included in the accounts.
Goodwill represents the excess of the cost of
subsidiaries and associates over the fair value of the
Group’s share of the net assets at the date of
acquisition. Goodwill is recognised at cost less
accumulated impairment losses. Goodwill arising
from the acquisition of subsidiaries is allocated to
cash-generating units and is tested annually for
impairment.
Principal Accounting Policies
On disposal of a subsidiary or associate, goodwill is
included in the calculation of any gain or loss.
Non-controlling interests in the consolidated
statement of financial position comprise the outside
shareholders’ proportion of the net assets of
subsidiaries and are treated as a part of equity. In the
statement of comprehensive income, non-controlling
interests are disclosed as an allocation of the profit or
loss for the year.
In the Company’s statement of financial position,
investments in subsidiaries are stated at cost less any
impairment loss recognised. The results of
subsidiaries are accounted for by the Company on the
basis of dividends received and receivable.
3. Associates
Associates are those companies, not being
subsidiaries, in which the Group holds a substantial
long-term interest in the equity share capital and over
which the Group is in a position to exercise significant
influence.
The consolidated statement of comprehensive
income includes the Group’s share of results of
associates as reported in their accounts made up to
dates not earlier than three months prior to 31st
December. In the consolidated statement of financial
position investments in associates represent the
Group’s share of net assets, goodwill arising on
acquisition of the associates (less any impairment)
and loans to those companies.
In the Company’s statement of financial position,
investments in associates are stated at cost less any
impairment loss recognised and loans to those
companies.
4. Foreign currencies
Foreign currency transactions entered into during the
year are translated into Hong Kong dollars at the
market rates ruling at the relevant transaction dates
whilst the following items are translated at the rates
ruling at the reporting date:
(a) foreign currency denominated financial assets
and liabilities.
(b) assets and liabilities of foreign subsidiaries and
associates.
Exchange differences arising on the translation of foreign
currencies into Hong Kong dollars are reflected in profit
and loss except that:
Cathay Pacific Airways Limited Annual Report 2010
49
(a) unrealised exchange differences on foreign
currency denominated financial assets and
liabilities, as described in accounting policies 8, 9
and 10 below, that qualify as effective cash flow
hedge instruments under HKAS 39 “Financial
Instruments: Recognition and Measurement” are
recognised directly in equity via the Statement of
Changes in Equity. These exchange differences
are included in profit and loss as an adjustment
to revenue in the same period or periods during
which the hedged item affects profit and loss.
(b) unrealised differences on net investments in
foreign subsidiaries and associates (including
intra-Group balances of an equity nature) and
related long-term liabilities are taken directly to
equity.
5. Fixed assets and depreciation
Fixed assets are stated at cost less accumulated
depreciation and impairment.
Depreciation of fixed assets is calculated on a straight
line basis to write down cost over anticipated useful
lives to estimated residual value as follows:
Passenger aircraft over 20 years to residual value
of the lower of 10% of cost or
expected realisable value
Freighter aircraft over 20-27 years to residual
value of between 10% to 20%
of cost and over 10 years to nil
residual value for freighters
converted from passenger
aircraft
Aircraft product over 5-10 years to nil residual
value
Other equipment over 4 years to nil residual value
Buildings over the lease term of the
leasehold land to nil residual
value
Major modifications to aircraft and reconfiguration
costs are capitalised as part of aircraft cost and are
depreciated over periods of up to 10 years.
The depreciation policy and the carrying amount of
fixed assets are reviewed annually taking into
consideration factors such as changes in fleet
composition, current and forecast market values and
technical factors which affect the life expectancy of
the assets. Any impairment in value is recognised by
writing down the carrying amount to estimated
recoverable amount which is the higher of the value
in use (the present value of future cash flows) and
the fair value less costs to sell.
6. Leased assets
Fixed assets held under lease agreements that give
rights equivalent to ownership are treated as if they
had been purchased outright at fair market value and
the corresponding liabilities to the lessor, net of
interest charges, are included as obligations under
finance leases. Leases which do not give rights
equivalent to ownership are treated as operating
leases.
Amounts payable in respect of finance leases are
apportioned between interest charges and reductions
of obligations based on the interest rates implicit in
the leases.
Operating lease payments and income are charged
and credited respectively to profit and loss on a
straight line basis over the life of the related lease.
7. Intangible assets
Intangible assets comprise goodwill arising on
consolidation and expenditure on computer system
development. The accounting policy for goodwill is
outlined in accounting policy 2 on page 48.
Expenditure on computer system development which
gives rise to economic benefits is capitalised as part
of intangible assets and is amortised on a straight line
basis over its useful life not exceeding a period of
four years.
8. Financial assets
Other long-term receivables, bank and security
deposits, trade and other short-term receivables are
categorised as loans and receivables and are stated
at amortised cost less impairment loss.
Where long-term investments held by the Group are
designated as available-for-sale financial assets, these
investments are stated at fair value. Fair value is
based on quoted market prices at the end of the
reporting period without any deduction for transaction
costs. Fair values for the unquoted equity
investments are estimated using an appropriate
valuation model. Any change in fair value is
recognised in the investment revaluation reserve. On
disposal or if there is evidence that the investment is
impaired, the cumulative gain or loss on the
investment is reclassified from the investment
revaluation reserve to profit and loss.
Principal Accounting Policies
50
Principal Accounting Policies
Cash and cash equivalents comprise cash at bank and
on hand, demand deposits with banks and other
financial institutions, and short-term, highly liquid
investments that are readily convertible into known
amounts of cash and which are subject to an
insignificant risk of changes in value, having been
within three months of maturity at acquisition.
Funds with investment managers and other liquid
investments which are managed and evaluated on a
fair value basis are designated as at fair value through
profit and loss.
Impairment is recognised when the recoverability of
the debt is in doubt resulting from financial difficulty
of a customer or the debt in dispute.
The accounting policy for derivative financial assets is
outlined in accounting policy 10.
Financial assets are recognised or derecognised by
the Group on the date when the purchase or sale of
the assets occurs.
Interest income from financial assets is recognised as
it accrues while dividend income is recognised when
the right to receive payment is established.
9. Financial liabilities
Long-term loans, finance lease obligations and trade
and other payables are stated at amortised cost or
designated as at fair value through profit and loss.
Where long-term liabilities have been defeased by the
placement of security deposits, those liabilities and
deposits (and income and charge arising therefrom)
are netted off, in order to reflect the overall
commercial effect of the arrangements. Such netting
off occurs where there is a current legally enforceable
right to set off the liability and the deposit and the
Group intends either to settle on a net basis or to
realise the deposit and settle the liability
simultaneously. For transactions entered into before
2005, such netting off occurs where there is a right
to insist on net settlement of the liability and the
deposit including situations of default and where that
right is assured beyond doubt, thereby reflecting the
substance and economic reality of the transactions.
The accounting policy for derivative financial liabilities
is outlined in accounting policy 10.
Financial liabilities are recognised or derecognised
when the contracted obligations are incurred or
extinguished.
Interest expenses incurred under financial liabilities
are calculated and recognised using the effective
interest method.
10. Derivative financial instruments
Derivative financial instruments are used solely to
manage exposures to fluctuations in foreign
exchange rates, interest rates and jet fuel prices in
accordance with the Group’s risk management
policies. The Group does not hold or issue derivative
financial instruments for trading purposes.
All derivative financial instruments are recognised at
fair value in the statement of financial position.
Where derivative financial instruments are designated
as effective hedging instruments under HKAS 39
“Financial Instruments: Recognition and
Measurement” and hedge exposure to fluctuations in
foreign exchange rates, interest rates or jet fuel
prices, any fair value change is accounted for as
follows:
(a) the portion of the fair value change that is
determined to be an effective cash flow hedge is
recognised directly in equity via the statement of
changes in equity and is included in profit and
loss as an adjustment to revenue, net finance
charges or fuel expense in the same period or
periods during which the hedged transaction
affects profit and loss.
(b) the ineffective portion of the fair value change is
recognised in profit and loss immediately.
Derivatives which do not qualify as hedging
instruments under HKAS 39 “Financial Instruments:
Recognition and Measurement” are accounted for as
held for trading financial instruments and any fair
value change is recognised in profit and loss
immediately.
11. Fair value measurement
Fair value of financial assets and financial liabilities is
determined either by reference to quoted market
values or by discounting future cash flows using
market interest rates for similar instruments.
12. Retirement benefits
Arrangements for staff retirement benefits vary from
country to country and are made in accordance with
local regulations and customs.
Cathay Pacific Airways Limited Annual Report 2010
51
Principal Accounting Policies
The retirement benefit obligation in respect of
defined benefit retirement plans refers to the
obligation less the fair value of plan assets where the
obligation is calculated by estimating the present
value of the expected future payments required to
settle the benefit that employees have earned using
the projected unit credit method. Actuarial gains and
losses are not recognised unless their cumulative
amounts exceed either 10% of the present value of
the defined benefit obligation or 10% of the fair value
of plan assets whichever is greater. The amount
exceeding this corridor is recognised in profit and loss
on a straight line basis over the expected average
remaining working lives of the employees
participating in the plans.
13. Deferred taxation
Provision for deferred tax is made on all temporary
differences.
Deferred tax assets relating to unused tax losses and
deductible temporary differences are recognised to
the extent that it is probable that future taxable
profits will be available against which these unused
tax losses and deductible temporary differences can
be utilised.
In addition, where initial cash benefits have been
received in respect of certain lease arrangements,
provision is made for the future obligation to make
tax payments.
14. Stock
Stock held for consumption is valued either at cost or
weighted average cost less any applicable allowance
for obsolescence. Stock held for disposal is stated at
the lower of cost and net realisable value. Net
realisable value represents estimated resale price.
15. Revenue recognition
Passenger and cargo sales are recognised as revenue
when the transportation service is provided. The
value of unflown passenger and cargo sales is
recorded as unearned transportation revenue. Income
from catering and other services is recognised when
the services are rendered.
16. Maintenance and overhaul costs
Replacement spares and labour costs for
maintenance and overhaul of aircraft are charged to
profit and loss on consumption and as incurred
respectively.
17. Frequent-flyer programme
The Company operates a frequent-flyer programme
called Asia Miles (the “programme”). As members
accumulate miles by travelling on Cathay Pacific or
Dragonair flights, part of the revenue from the initial
sales transaction equal to the programme awards at
their fair value is deferred. The Company sells miles
to participating partners in the programme. The
revenue earned from miles sold is also deferred. The
deferred revenue and breakage revenue are
recognised when the awards are redeemed by
members. For redemption on the Group’s flights, this
is deemed to occur when the transportation service
is provided which represents the miles. The breakage
expectation is determined by a variety of
assumptions including historical experience, future
redemption pattern and programme design.
18. Related parties
Related parties are considered to be related to the
Group if the party has the ability, directly or indirectly,
to control the Group or exercise significant influence
over the Group in making financial and operating
decisions or where the Group and the party are
subject to common control. The Group’s associates,
joint ventures and key management personnel
(including close members of their families) are also
considered to be related parties of the Group.
19. Provisions and contingent liabilities
Provisions are recognised when the Group or the
Company has a legal or constructive obligation arising
as a result of a past event, it is probable that an
outflow of economic benefits will be required to
settle the obligation and a reliable estimate can be
made. Where it is not probable that an outflow of
economic benefits is required, or the amount cannot
be estimated reliably, the obligation is disclosed as a
contingent liability, unless the probability of outflow
of economic benefits is remote.
52
Note
2010
HK$M
2009
HK$M
2010
US$M
2009
US$M
Turnover
Passenger services 59,354 45,920 7,609 5,887
Cargo services 25,901 17,255 3,321 2,212
Catering, recoveries and other services 4,269 3,803 547 488
Total turnover 1 89,524 66,978 11,477 8,587
Expenses
Staff (13,850) (12,618) (1,776) (1,618)
Inflight service and passenger expenses (3,308) (2,915) (424) (374)
Landing, parking and route expenses (11,301) (10,458) (1,449) (1,341)
Fuel (28,276) (17,349) (3,625) (2,224)
Aircraft maintenance (7,072) (6,567) (907) (842)
Aircraft depreciation and operating leases (8,288) (7,978) (1,062) (1,023)
Other depreciation, amortisation and operating leases (1,107) (1,103) (142) (141)
Commissions (736) (571) (94) (73)
Others (4,533) (2,940) (581) (377)
Operating expenses (78,471) (62,499) (10,060) (8,013)
Operating profit before non-recurring items 11,053 4,479 1,417 574
Profit on disposal of investments 3 2,165 1,254 278 161
Gain on deemed disposal of an associate 4 868 – 111 –
Operating profit 5 14,086 5,733 1,806 735
Finance charges (1,655) (1,435) (212) (184)
Finance income 677 588 87 75
Net finance charges 6 (978) (847) (125) (109)
Share of profits of associates 15 2,587 261 331 33
Profit before tax 15,695 5,147 2,012 659
Taxation 7 (1,462) (283) (187) (36)
Profit for the year 14,233 4,864 1,825 623
Other comprehensive income
Cash flow hedges (488) 329 (62) 42
Revaluation (deficit)/surplus arising from available-for-sale
financial assets (15) 479 (2) 62
Share of other comprehensive income of associates (131) 11 (17) 1
Exchange differences on translation of foreign operations 313 8 40 1
Other comprehensive income for the year, net of tax 8 (321) 827 (41) 106
Total comprehensive income for the year 13,912 5,691 1,784 729
Profit attributable to
Owners of Cathay Pacific 9 14,048 4,694 1,801 601
Non-controlling interests 185 170 24 22
14,233 4,864 1,825 623
Total comprehensive income attributable to
Owners of Cathay Pacific 13,727 5,521 1,760 707
Non-controlling interests 185 170 24 22
13,912 5,691 1,784 729
Earnings per share (basic and diluted) 10 357.1¢ 119.3¢ 45.8¢ 15.3¢
The accounts are prepared and presented in HK$, the functional currency. The US$ figures are shown only as supplementary information and are translated
at HK$7.8.
The notes on pages 58 to 97 and the principal accounting policies on pages 48 to 51 form part of these accounts.
Consolidated Statement of Comprehensive Income
for the year ended 31st December 2010
Cathay Pacific Airways Limited Annual Report 2010
53
Note
2010
HK$M
2009
HK$M
2010
US$M
2009
US$M
ASSETS AND LIABILITIES
Non-current assets and liabilities
Fixed assets 12 66,112 65,495 8,476 8,397
Intangible assets 13 8,004 7,850 1,026 1,007
Investments in associates 15 12,926 9,042 1,657 1,159
Other long-term receivables and investments 16 4,359 5,307 559 680
91,401 87,694 11,718 11,243
Long-term liabilities (36,235) (40,416) (4,646) (5,182)
Related pledged security deposits 5,310 5,602 681 719
Net long-term liabilities 17 (30,925) (34,814) (3,965) (4,463)
Other long-term payables 18 (1,700) (1,059) (217) (136)
Deferred taxation 20 (5,815) (5,255) (746) (674)
(38,440) (41,128) (4,928) (5,273)
Net non-current assets 52,961 46,566 6,790 5,970
Current assets and liabilities
Stock 1,021 947 131 122
Trade, other receivables and other assets 21 11,433 8,161 1,466 1,046
Liquid funds 22 24,198 16,522 3,102 2,118
36,652 25,630 4,699 3,286
Current portion of long-term liabilities (9,249) (9,023) (1,186) (1,157)
Related pledged security deposits 545 1,195 70 153
Net current portion of long-term liabilities 17 (8,704) (7,828) (1,116) (1,004)
Trade and other payables 23 (15,773) (12,965) (2,022) (1,662)
Unearned transportation revenue (9,166) (8,075) (1,175) (1,035)
Taxation (1,541) (943) (198) (121)
(35,184) (29,811) (4,511) (3,822)
Net current assets/(liabilities) 1,468 (4,181) 188 (536)
Net assets 54,429 42,385 6,978 5,434
CAPITAL AND RESERVES
Share capital 24 787 787 101 101
Reserves 25 53,487 41,451 6,857 5,314
Funds attributable to owners of Cathay Pacific 54,274 42,238 6,958 5,415
Non-controlling interests 155 147 20 19
Total equity 54,429 42,385 6,978 5,434
The accounts are prepared and presented in HK$, the functional currency. The US$ figures are shown only as supplementary information and are translated
at HK$7.8.
The notes on pages 58 to 97 and the principal accounting policies on pages 48 to 51 form part of these accounts.
Christopher Pratt Jack So
Director Director
Hong Kong, 9th March 2011
Consolidated Statement of Financial Position
at 31st December 2010
54
Note
2010
HK$M
2009
HK$M
2010
US$M
2009
US$M
ASSETS AND LIABILITIES
Non-current assets and liabilities
Fixed assets 12 48,459 49,693 6,213 6,371
Intangible assets 13 336 182 43 23
Investments in subsidiaries 14 31,517 19,651 4,041 2,519
Investments in associates 15 8,703 7,602 1,116 975
Other long-term receivables and investments 16 2,538 3,524 325 452
91,553 80,652 11,738 10,340
Long-term liabilities (30,547) (34,860) (3,916) (4,469)
Related pledged security deposits 834 923 107 118
Net long-term liabilities 17 (29,713) (33,937) (3,809) (4,351)
Other long-term payables 18 (1,503) (963) (193) (123)
Deferred taxation 20 (4,550) (4,141) (583) (531)
(35,766) (39,041) (4,585) (5,005)
Net non-current assets 55,787 41,611 7,153 5,335
Current assets and liabilities
Stock 883 829 113 106
Trade, other receivables and other assets 21 9,164 6,209 1,175 796
Liquid funds 22 9,140 11,120 1,172 1,426
19,187 18,158 2,460 2,328
Current portion of long-term liabilities (9,315) (9,052) (1,194) (1,160)
Related pledged security deposits 126 728 16 93
Net current portion of long-term liabilities 17 (9,189) (8,324) (1,178) (1,067)
Trade and other payables 23 (12,920) (10,553) (1,657) (1,353)
Unearned transportation revenue (8,697) (7,666) (1,115) (983)
Taxation (986) (675) (127) (87)
(31,792) (27,218) (4,077) (3,490)
Net current liabilities (12,605) (9,060) (1,617) (1,162)
Net assets 43,182 32,551 5,536 4,173
CAPITAL AND RESERVES
Share capital 24 787 787 101 101
Reserves 25 42,395 31,764 5,435 4,072
Total equity 43,182 32,551 5,536 4,173
The accounts are prepared and presented in HK$, the functional currency. The US$ figures are shown only as supplementary information and are translated
at HK$7.8.
The notes on pages 58 to 97 and the principal accounting policies on pages 48 to 51 form part of these accounts.
Christopher Pratt Jack So
Director Director
Hong Kong, 9th March 2011
Company Statement of Financial Position
at 31st December 2010
Cathay Pacific Airways Limited Annual Report 2010
55
Note
2010
HK$M
2009
HK$M
2010
US$M
2009
US$M
Operating activities
Cash generated from operations 26 18,844 4,490 2,416 576
Dividends received from associates 15 100 174 13 22
Interest received 89 79 11 10
Net interest paid (624) (965) (80) (124)
Tax paid (810) (1,743) (104) (223)
Net cash inflow from operating activities 17,599 2,035 2,256 261
Investing activities
Net (increase)/decrease in liquid funds other than cash and
cash equivalents (9,370) 2,250 (1,201) 288
Disposal of investments 3,260 1,901 418 244
Sales of fixed assets 869 1,304 112 167
Net decrease in other long-term receivables
and investments 7 92 1 12
Loan repayment from an associate – 6 – 1
Payments for fixed and intangible assets (8,299) (6,776) (1,064) (869)
Payments to acquire additional shareholding in an associate (1,130) – (145) –
Net cash outflow from investing activities (14,663) (1,223) (1,879) (157)
Financing activities
New financing 5,815 6,169 746 790
Net cash benefit from financing arrangements 488 585 63 75
Shares repurchased and issued – 8 – 1
Loan and finance lease repayments (9,290) (4,362) (1,191) (559)
Security deposits placed (59) (117) (8) (15)
Dividends paid – to owners of Cathay Pacific
– to non-controlling interests
(1,691)
(177)

(143)
(217)
(23)

(18)
Net cash (outflow)/inflow from financing activities (4,914) 2,140 (630) 274
(Decrease)/increase in cash and cash equivalents (1,978) 2,952 (253) 378
Cash and cash equivalents at 1st January 10,094 7,045 1,294 903
Effect of exchange differences 156 97 20 13
Cash and cash equivalents at 31st December 27 8,272 10,094 1,061 1,294
The accounts are prepared and presented in HK$, the functional currency. The US$ figures are shown only as supplementary information and are translated
at HK$7.8.
The notes on pages 58 to 97 and the principal accounting policies on pages 48 to 51 form part of these accounts.
Consolidated Statement of Cash Flows
for the year ended 31st December 2010
56
Attributable to owners of Cathay Pacific
Non-
controlling
interests
Total
equity
Non-distributable
Share
capital
HK$M
Retained
profit
HK$M
Share
premium
HK$M
Investment
revaluation
reserve
HK$M
Cash flow
hedge
reserve
HK$M
Capital
redemption
reserve and
others
HK$M
Total
HK$M HK$M HK$M
At 1st January 2010 787 24,704 16,295 1,117 (1,383) 718 42,238 147 42,385
Total comprehensive
income for the year – 14,048 – (15) (488) 182 13,727 185 13,912
2009 final dividends – (393) – – – – (393) – (393)
2010 interim dividends – (1,298) – – – – (1,298) – (1,298)
Dividends paid to non-
controlling interests – – – – – – – (177) (177)
– 12,357 – (15) (488) 182 12,036 8 12,044
At 31st December 2010 787 37,061 16,295 1,102 (1,871) 900 54,274 155 54,429
At 1st January 2009 787 20,010 16,287 638 (1,712) 699 36,709 120 36,829
Total comprehensive
income for the year – 4,694 – 479 329 19 5,521 170 5,691
Dividends paid to non-
controlling interests – – – – – – – (143) (143)
Share options exercised – – 8 – – – 8 – 8
– 4,694 8 479 329 19 5,529 27 5,556
At 31st December 2009 787 24,704 16,295 1,117 (1,383) 718 42,238 147 42,385
The notes on pages 58 to 97 and the principal accounting policies on pages 48 to 51 form part of these accounts.
Consolidated Statement of Changes in Equity
for the year ended 31st December 2010
Cathay Pacific Airways Limited Annual Report 2010
57
Attributable to owners of Cathay Pacific
Non-distributable
Share
capital
HK$M
Retained
profit
HK$M
Share
premium
HK$M
Investment
revaluation
reserve
HK$M
Cash flow
hedge
reserve
HK$M
Capital
redemption
reserve and
others
HK$M
Total
HK$M
At 1st January 2010 787 15,685 16,295 1,005 (1,244) 23 32,551
Total comprehensive income for
the year – 12,875 – (77) (476) – 12,322
2009 final dividends – (393) – – – – (393)
2010 interim dividends – (1,298) – – – – (1,298)
– 11,184 – (77) (476) – 10,631
At 31st December 2010 787 26,869 16,295 928 (1,720) 23 43,182
At 1st January 2009 787 8,018 16,287 593 (1,666) 23 24,042
Total comprehensive income for
the year – 7,667 – 412 422 – 8,501
Share options exercised – – 8 – – – 8
– 7,667 8 412 422 – 8,509
At 31st December 2009 787 15,685 16,295 1,005 (1,244) 23 32,551
The notes on pages 58 to 97 and the principal accounting policies on pages 48 to 51 form part of these accounts.
Company Statement of Changes in Equity
for the year ended 31st December 2010
58
1. Turnover
Turnover comprises revenue and surcharges from transportation services, airline catering, recoveries and other
services provided to third parties.
2. Segment information
(a) Segment results
Airline business Non-airline business Unallocated Total
2010
HK$M
2009
HK$M
2010
HK$M
2009
HK$M
2010
HK$M
2009
HK$M
2010
HK$M
2009
HK$M
Profit or loss
Sales to external
customers 88,542 66,080 982 898 89,524 66,978
Inter-segment sales – – 1,343 1,252 1,343 1,252
Segment revenue 88,542 66,080 2,325 2,150 90,867 68,230
Segment results 13,962 5,638 124 95 14,086 5,733
Net finance charges (971) (839) (7) (8) (978) (847)
12,991 4,799 117 87 13,108 4,886
Share of profits of
associates 2,587 261 2,587 261
Profit before tax 15,695 5,147
Taxation (1,448) (269) (14) (14) (1,462) (283)
Profit for the year 14,233 4,864
Other segment
information
Depreciation and
amortisation 6,206 5,534 145 150 6,351 5,684
Purchase of fixed and
intangible assets 7,175 6,745 1,124 31 8,299 6,776
The Group’s two reportable segments are classified according to the nature of the business. The airline
business segment comprises the Group’s passenger and cargo operations. The non-airline business segment
includes mainly catering, ground handling and aircraft ramp handling services.
The major revenue earning asset is the aircraft fleet which is used both for passenger and cargo services.
Management considers that there is no suitable basis for allocating such assets and related operating costs
between the two segments. Accordingly, passenger and cargo services are not disclosed as separate business
segments.
Inter-segment sales are based on prices set on an arm’s length basis.
Notes to the Accounts STATEMENT OF COMPREHENSIVE INCOME
Cathay Pacific Airways Limited Annual Report 2010
59
Notes to the Accounts STATEMENT OF COMPREHENSIVE INCOME
2. Segment information (continued)
(b) Geographical information
2010
HK$M
2009
HK$M
Turnover by origin of sale:
North Asia
– Hong Kong and Mainland China 41,313 28,880
– Japan, Korea and Taiwan 11,409 8,413
India, Middle East, Pakistan and Sri Lanka 4,529 3,735
Southwest Pacific and South Africa 6,282 4,712
Europe 8,664 7,920
Southeast Asia 6,175 4,866
North America 11,152 8,452
89,524 66,978
In view of the growing significance of the Southeast Asia and Middle East region during the year under review,
the Management has decided to split it into two separate regions, the India, Middle East, Pakistan and Sri Lanka
region and the Southeast Asia region. The 2009 comparatives have been reclassified accordingly.
India, Middle East, Pakistan and Sri Lanka includes Indian sub-continent, Middle East, Pakistan, Sri Lanka and
Bangladesh. Southeast Asia includes Singapore, Indonesia, Malaysia, Thailand, the Philippines, Vietnam and
Cambodia. Southwest Pacific and South Africa includes Australia, New Zealand and Southern Africa. Europe
includes continental Europe, the United Kingdom, Scandinavia, Russia, Baltic and Turkey. North America
includes U.S.A., Canada and Latin America.
Analysis of net assets by geographical segment:
The major revenue earning asset is the aircraft fleet which is registered in Hong Kong and is employed across
its worldwide route network. Management considers that there is no suitable basis for allocating such assets
and related liabilities to geographical segments. Accordingly, segment assets, segment liabilities and other
segment information is not disclosed.
3. Profit on disposal of investments
2010
HK$M
2009
HK$M
Profit on disposal of an associate 1,837 1,254
Profit on disposal of a long-term investment 328 –
2,165 1,254
In June 2010, the Company sold its remaining 15% interest in HAECO to Swire Pacific for HK$2,620 million. The
disposal constitutes a related party transaction as the Company is an associate of Swire Pacific.
4. Gain on deemed disposal of an associate
On 24th November 2010, Air China completed the issuance of 483,592,400 A shares and 157,000,000 H shares. As
a consequence, Cathay Pacific’s shareholding in Air China has been diluted from 19.3% to 18.3% (further purchases
after the year end takes the current holding to 18.7%). A gain on this deemed disposal of HK$868 million was
recorded, principally reflecting the change in the Group’s share of net assets in Air China immediately before and
after the share issuance.
60
5. Operating profit
2010
HK$M
2009
HK$M
Operating profit has been arrived at after charging/(crediting):
Depreciation of fixed assets
– leased 1,932 1,932
– owned 4,384 3,720
Amortisation of intangible assets 35 32
Operating lease rentals
– land and buildings 675 668
– aircraft and related equipment 2,343 2,707
– others 26 22
Net (write back)/provision for impairment of aircraft and related equipment (98) 219
Cost of stock expensed 1,912 1,892
Exchange differences (196) (344)
Auditors’ remuneration 10 10
Net gain on financial assets and liabilities classified as held for trading (565) (3,082)
Net loss/(gain) on financial assets and liabilities designated as at fair value through
profit and loss 159 (58)
Income from unlisted investments (68) (170)
Income from listed investments (3) (5)
6. Net finance charges
2010
HK$M
2009
HK$M
Net interest charges comprise:
– obligations under finance leases stated at amortised cost 743 991
– interest income on related security deposits, notes and bonds (343) (417)
400 574
– bank loans and overdrafts 196 229
– other loans wholly repayable within five years 53 91
649 894
Income from liquid funds:
– funds with investment managers and other liquid investments (135) (43)
– bank deposits and other receivables (64) (62)
(199) (105)
Fair value change:
– obligations under finance leases designated as at fair value through profit and loss 159 (58)
– financial derivatives 369 116
528 58
978 847
Finance income and charges relating to defeasance arrangements have been netted off in the above figures.
Notes to the Accounts STATEMENT OF COMPREHENSIVE INCOME
Cathay Pacific Airways Limited Annual Report 2010
61
7. Taxation
2010
HK$M
2009
HK$M
Current tax expenses
– Hong Kong profits tax 100 36
– overseas tax 241 264
– under/(over) provisions for prior years 13 (259)
Deferred tax
– origination and reversal of temporary differences (note 20) 1,108 242
1,462 283
Hong Kong profits tax is calculated at 16.5% (2009: 16.5%) on the estimated assessable profits for the year.
Overseas tax is calculated at rates of tax applicable in countries in which the Group is assessable for tax. Tax
provisions are reviewed regularly to take into account changes in legislation, practice and status of negotiations
(see note 31(d) to the accounts).
A reconciliation between tax charge and accounting profit at applicable tax rates is as follows:
2010
HK$M
2009
HK$M
Consolidated profit before tax 15,695 5,147
Notional tax calculated at Hong Kong profits tax rate of 16.5% (2009: 16.5%) (2,590) (849)
Expenses not deductible for tax purposes (211) (229)
Tax (under)/over provisions arising from prior years (13) 259
Effect of different tax rates in overseas jurisdictions 892 320
Tax losses recognised/(tax losses not recognised) 79 (19)
Income not subject to tax 381 235
Tax charge (1,462) (283)
Further information on deferred tax is shown in note 20 to the accounts.
Notes to the Accounts STATEMENT OF COMPREHENSIVE INCOME
62
8. Other comprehensive income
2010
HK$M
2009
HK$M
Cash flow hedges
– recognised during the year (1,414) 6
– transferred to profit and loss 874 360
– deferred tax recognised 52 (37)
Revaluation of available-for-sale financial assets
– recognised during the year 263 479
– transferred to profit and loss (278) –
Share of other comprehensive income of associates
– recognised during the year (156) 11
– transferred to profit and loss 25 –
Exchange differences on translation of foreign operations
– recognised during the year 383 8
– transferred to profit and loss (70) –
Other comprehensive income for the year (321) 827
9. Profit attributable to owners of Cathay Pacific
Of the profit attributable to owners of Cathay Pacific, a profit of HK$12,875 million (2009: HK$7,667 million) has
been dealt with in the accounts of the Company.
10. Earnings per share (basic and diluted)
Earnings per share is calculated by dividing the profit attributable to owners of Cathay Pacific of HK$14,048 million
(2009: HK$4,694 million) by the daily weighted average number of shares in issue throughout the year of
3,934 million (2009: 3,934 million) shares.
11. Dividends
2010
HK$M
2009
HK$M
2010 interim dividend paid on 4th October 2010 of HK¢33 per share (2009: nil) 1,298 –
2010 final dividend proposed on 9th March 2011 of HK¢78 per share
(2009: HK¢10 per share) 3,069 393
4,367 393
Notes to the Accounts STATEMENT OF COMPREHENSIVE INCOME
Cathay Pacific Airways Limited Annual Report 2010
63
12. Fixed assets
Aircraft and
related equipment Other equipment Buildings
Owned
HK$M
Leased
HK$M
Owned
HK$M
Leased
HK$M
Owned
HK$M
Under
construction
HK$M
Total
HK$M
Group
Cost
At 1st January 2010 61,666 43,728 2,874 478 5,133 837 114,716
Additions 4,544 2,198 157 – 128 1,083 8,110
Disposals (1,333) – (89) – (4) – (1,426)
Reclassification to trade, other
receivables and other assets (552) – – – – – (552)
Transfers 3,073 (3,073) – – – – –
At 31st December 2010 67,398 42,853 2,942 478 5,257 1,920 120,848
At 1st January 2009 62,140 42,087 2,851 478 5,104 620 113,280
Exchange differences (13) – – – – – (13)
Additions 3,706 2,614 107 – 32 217 6,676
Disposals (5,140) – (84) – (3) – (5,227)
Transfers 973 (973) – – – – –
At 31st December 2009 61,666 43,728 2,874 478 5,133 837 114,716
Accumulated depreciation
At 1st January 2010 30,259 14,387 1,967 330 2,278 – 49,221
Charge for the year 4,033 1,912 182 20 169 – 6,316
Impairment (98) – – – – – (98)
Disposals (428) – (87) – (4) – (519)
Reclassification to trade, other
receivables and other assets (184) – – – – – (184)
Transfers 2,330 (2,330) – – – – –
At 31st December 2010 35,912 13,969 2,062 350 2,443 – 54,736
At 1st January 2009 29,395 13,567 1,856 309 2,114 – 47,241
Charge for the year 3,360 1,911 193 21 167 – 5,652
Impairment 219 – – – – – 219
Disposals (3,806) – (82) – (3) – (3,891)
Transfers 1,091 (1,091) – – – – –
At 31st December 2009 30,259 14,387 1,967 330 2,278 – 49,221
Net book value
At 31st December 2010 31,486 28,884 880 128 2,814 1,920 66,112
At 31st December 2009 31,407 29,341 907 148 2,855 837 65,495
Notes to the Accounts STATEMENT OF FINANCIAL POSITION
64
12. Fixed assets (continued)
Aircraft and
related equipment
Other
equipment Buildings
Owned
HK$M
Leased
HK$M
Owned
HK$M
Leased
HK$M
Owned
HK$M
Total
HK$M
Company
Cost
At 1st January 2010 47,080 42,138 1,031 478 436 91,163
Additions 800 3,724 103 – 128 4,755
Disposals (1,100) – (16) – – (1,116)
Transfers 4,289 (4,289) – – – –
At 31st December 2010 51,069 41,573 1,118 478 564 94,802
At 1st January 2009 45,965 39,711 1,018 478 408 87,580
Additions 2,786 3,854 69 – 28 6,737
Disposals (3,098) – (56) – – (3,154)
Transfers 1,427 (1,427) – – – –
At 31st December 2009 47,080 42,138 1,031 478 436 91,163
Accumulated depreciation
At 1st January 2010 26,012 14,044 713 328 373 41,470
Charge for the year 3,356 1,931 85 21 4 5,397
Impairment (98) – – – – (98)
Disposals (410) – (16) – – (426)
Transfers 2,576 (2,576) – – – –
At 31st December 2010 31,436 13,399 782 349 377 46,343
At 1st January 2009 25,000 12,849 677 308 372 39,206
Charge for the year 2,702 1,902 92 20 1 4,717
Impairment 219 – – – – 219
Disposals (2,616) – (56) – – (2,672)
Transfers 707 (707) – – – –
At 31st December 2009 26,012 14,044 713 328 373 41,470
Net book value
At 31st December 2010 19,633 28,174 336 129 187 48,459
At 31st December 2009 21,068 28,094 318 150 63 49,693
(a) Finance leased assets
Certain aircraft are subject to leases with purchase options to be exercised at the end of the respective leases.
The remaining lease terms range from 1 to 13 years. Some of the rent payments are on a floating basis which
are generally linked to market rates of interest. All leases permit subleasing rights subject to appropriate
consent from lessors. Early repayment penalties would be payable on some of the leases should they be
terminated prior to their specified expiry dates.
Notes to the Accounts STATEMENT OF FINANCIAL POSITION
Cathay Pacific Airways Limited Annual Report 2010
65
12. Fixed assets (continued)
(b) Operating leased assets
Certain aircraft, buildings and other equipment are under operating leases.
Under the operating lease arrangements for aircraft, the lease rentals are fixed and subleasing is not allowed. At
31st December 2010, fourteen Airbus A330-300s (2009: fifteen), four Airbus A340-300s (2009: four), five
Boeing 747-400s (2009: six), one Boeing 747-400BCF (2009: one), nine Boeing 777-300ERs (2009: eight), six
Airbus A320-200s (2009: four) and four Airbus A321-200s (2009: four) held under operating leases, most with
purchase options, were not capitalised. The estimated capitalised value of these leases being the present value
of the aggregate future lease payments is HK$12,572 million (2009: HK$11,687 million).
Operating leases for buildings and other equipment are normally set with fixed rental payments with options to
renew the leases upon expiry at new terms.
The future minimum lease payments payable under operating leases committed as at 31st December 2010 for
each of the following periods are as follows:
2010
HK$M
2009
HK$M
Aircraft and related equipment:
– within one year 2,686 2,707
– after one year but within two years 2,328 2,420
– after two years but within five years 5,925 5,470
– after five years 8,358 7,227
19,297 17,824
Buildings and other equipment:
– within one year 498 552
– after one year but within two years 315 384
– after two years but within five years 383 559
– after five years 66 35
1,262 1,530
20,559 19,354
(c) Advance payments are made to manufacturers for aircraft and related equipment to be delivered in future years.
As at the year end, advance payments included in owned aircraft and related equipment amounted to
HK$4,849 million (2009: HK$2,810 million) for the Group and HK$359 million (2009: HK$292 million) for the
Company. No depreciation is provided on these advance payments.
(d) Security, including charges over the assets concerned and relevant insurance policies, is provided to the leasing
companies or other parties that provide the underlying finance. Further information is provided under note 17 to
the accounts.
(e) The Group revised the estimated residual values of certain aircraft and as a result, the depreciation charge of
the Group increased by HK$549 million in 2010. This will also increase the depreciation charge for future
periods up to the year ending 31st December 2020 by HK$1,086 million.
(f) Parked aircraft with no existing plan for reactivation are recognised at the lower of their carrying value and fair
value less costs to sell. An impairment loss amounting to HK$153 million was recognised for these aircraft and
related equipment for the year ended 31st December 2010 (2009: HK$219 million). On the other hand, the
Group reversed an impairment loss of HK$251 million (2009: nil) for aircraft which have now been brought back
to service.
Notes to the Accounts STATEMENT OF FINANCIAL POSITION
66
13. Intangible assets
Group Company
Goodwill
HK$M
Computer
systems
HK$M
Total
HK$M
Computer
systems
HK$M
Cost
At 1st January 2010 7,666 792 8,458 764
Additions – 189 189 188
At 31st December 2010 7,666 981 8,647 952
At 1st January 2009 7,666 692 8,358 667
Additions – 100 100 97
At 31st December 2009 7,666 792 8,458 764
Accumulated amortisation
At 1st January 2010 – 608 608 582
Charge for the year – 35 35 34
At 31st December 2010 – 643 643 616
At 1st January 2009 – 576 576 551
Charge for the year – 32 32 31
At 31st December 2009 – 608 608 582
Net book value
At 31st December 2010 7,666 338 8,004 336
At 31st December 2009 7,666 184 7,850 182
The carrying amount of goodwill allocated to the airline operation is HK$7,627 million (2009: HK$7,627 million). In
accordance with HKAS 36 “Impairment of Assets” the Group completed its annual impairment test for goodwill
allocated to the Group’s various cash generating units (“CGUs”) by comparing their total recoverable amounts to
their total carrying amounts as at the reporting date. The recoverable amount of a CGU is determined based on
value-in-use calculations. These calculations use cash flow projections based on five-year financial budgets, with
reference to past performance and expectations for market development, approved by management. Cash flows
beyond the five-year period are extrapolated with an estimated general annual growth rate which does not exceed
the long-term average growth rate for the business in which the CGU operates. The discount rates used of
approximately 9% (2009: 10%) are pre-tax and reflect specific risk related to the relevant segments. Management
believes that any reasonably foreseeable change in any of the above key assumptions would not cause the carrying
amount of goodwill to exceed the recoverable amount.
Notes to the Accounts STATEMENT OF FINANCIAL POSITION
Cathay Pacific Airways Limited Annual Report 2010
67
14. Subsidiaries
Company
2010
HK$M
2009
HK$M
Unlisted shares at cost 246 246
Other investments at cost 14,983 6,640
Net amounts due from subsidiaries
– loan accounts 6,280 2,462
– current accounts 10,008 10,303
31,517 19,651
Principal subsidiaries are listed on page 96.
15. Associates
Group Company
2010
HK$M
2009
HK$M
2010
HK$M
2009
HK$M
Hong Kong listed shares at cost (Market value:
HK$20,611 million, 2009: HK$15,976 million) – – 8,695 7,594
Unlisted shares at cost – – 20 17
Share of net assets
– listed in Hong Kong 8,882 5,880 – –
– unlisted 373 367 – –
Goodwill 3,671 2,795 – –
12,926 9,042 8,715 7,611
Less: Impairment loss – – (12) (9)
12,926 9,042 8,703 7,602
Share of profits of associates
– listed 2,526 209 – –
– unlisted 61 52 – –
2,587 261 – –
Dividends received and receivable from associates 100 174 38 126
2010
HK$M
2009
HK$M
Summarised financial information of associates (100 percent):
Assets 177,273 127,391
Liabilities (137,394) (92,930)
Equity 39,879 34,461
Turnover 88,285 62,911
Net profit for the year 11,649 2,041
Notes to the Accounts STATEMENT OF FINANCIAL POSITION
68
15. Associates (continued)
In respect of the year ended 31st December 2010, Air China has been included in the consolidated accounts based
on the most recently available accounts drawn up to 30th September 2010 (2009: 30th September 2009). The
Group has taken advantage of the provision contained in HKAS 28 “Investments in Associates” whereby it is
permitted to include the attributable share of associates’ results based on accounts drawn up to a non-coterminous
period end where the difference must be no greater than three months.
Principal associates are listed on page 97.
16. Other long-term receivables and investments
Group Company
2010
HK$M
2009
HK$M
2010
HK$M
2009
HK$M
Investments at fair value
– listed in Hong Kong 183 175 – –
– unlisted 1,232 1,373 1,133 1,328
Leasehold land rental prepayments 1,514 1,557 – –
Loans and other receivables 101 311 95 305
Derivative financial assets – long-term portion 1,111 1,891 1,111 1,891
Retirement benefit assets (note 19) 218 – 199 –
4,359 5,307 2,538 3,524
Leasehold land is held under medium-term leases in Hong Kong with a total unamortised value of HK$1,557 million
(2009: HK$1,600 million).
17. Long-term liabilities
2010 2009
Note
Current
HK$M
Non-current
HK$M
Current
HK$M
Non-current
HK$M
Group
Long-term loans (a) 5,793 11,193 4,140 15,159
Obligations under finance leases (b) 2,911 19,732 3,688 19,655
8,704 30,925 7,828 34,814
Company
Long-term loans (a) 4,912 7,357 3,278 11,564
Obligations under finance leases (b) 4,277 22,356 5,046 22,373
9,189 29,713 8,324 33,937
Notes to the Accounts STATEMENT OF FINANCIAL POSITION
Cathay Pacific Airways Limited Annual Report 2010
69
17. Long-term liabilities (continued)
(a) Long-term loans
Group Company
2010
HK$M
2009
HK$M
2010
HK$M
2009
HK$M
Bank loans
– secured 8,274 8,831 3,676 4,709
– unsecured 6,292 6,958 6,173 6,623
Other loans
– secured – 52 – 52
– unsecured 2,420 3,458 2,420 3,458
16,986 19,299 12,269 14,842
Amount due within one year included under
current liabilities (5,793) (4,140) (4,912) (3,278)
11,193 15,159 7,357 11,564
Repayable as follows:
Bank loans
– within one year 3,373 2,843 2,492 1,981
– after one year but within two years 4,942 3,224 4,217 2,495
– after two years but within five years 4,575 7,285 2,725 5,616
– after five years 1,676 2,437 415 1,240
14,566 15,789 9,849 11,332
Other loans
– within one year 2,420 1,297 2,420 1,297
– after one year but within two years – 2,213 – 2,213
2,420 3,510 2,420 3,510
Amount due within one year included under
current liabilities (5,793) (4,140) (4,912) (3,278)
11,193 15,159 7,357 11,564
Borrowings other than bank loans are repayable on various dates up to 2011 at interest rates between 1.26%
and 3.82% per annum while bank loans are repayable up to 2020.
Long-term loans and other liabilities of the Group and the Company not wholly repayable within five years
amounted to HK$4,359 million and HK$1,581 million respectively (2009: HK$6,668 million and
HK$3,846 million).
As at 31st December 2010, the Group and the Company had long-term loans which were defeased by funds
and other investments totalling HK$20,319 million and HK$18,035 million respectively (2009: HK$22,290 million
and HK$19,226 million). Accordingly, these liabilities and the related funds, as well as related expenditure and
income, have been netted off in the accounts.
Notes to the Accounts STATEMENT OF FINANCIAL POSITION
70
17. Long-term liabilities (continued)
(b) Obligations under finance leases
The Group has commitments under finance lease agreements in respect of aircraft and related equipment
expiring during the years 2011 to 2023. The reconciliation of future lease payments and their carrying value
under these finance leases is as follows:
Group Company
2010
HK$M
2009
HK$M
2010
HK$M
2009
HK$M
Future payments 33,098 35,973 33,525 36,296
Interest charges relating to future periods (4,600) (5,833) (5,932) (7,226)
Present value of future payments 28,498 30,140 27,593 29,070
Security deposits, notes and zero coupon bonds (5,855) (6,797) (960) (1,651)
Amounts due within one year included under
current liabilities (2,911) (3,688) (4,277) (5,046)
19,732 19,655 22,356 22,373
The present value of future payments is repayable as follows:
Group Company
2010
HK$M
2009
HK$M
2010
HK$M
2009
HK$M
Within one year 3,456 4,883 4,403 5,774
After one year but within two years 4,317 3,200 3,251 4,059
After two years but within five years 9,747 10,588 8,515 7,581
After five years 10,978 11,469 11,424 11,656
28,498 30,140 27,593 29,070
The future lease payment profile is disclosed in note 32 to the accounts.
As at 31st December 2010, the Group and the Company had obligations under finance leases which were
defeased by funds and other investments amounting to HK$7,357 million and HK$1,083 million respectively
(2009: HK$8,033 million and HK$1,081 million). Accordingly these liabilities and the related funds, as well as
related expenditure and income, have been netted off in the accounts.
As at 31st December 2010, the Group and the Company had financial liabilities designated as at fair value
through profit and loss of HK$4,231 million (2009: HK$4,474 million) and HK$4,231 million
(2009: HK$4,474 million) respectively.
18. Other long-term payables
Group Company
2010
HK$M
2009
HK$M
2010
HK$M
2009
HK$M
Retirement benefit obligations (note 19) – 216 – 224
Deferred creditors 97 – – –
Derivative financial liabilities – long-term portion 1,603 843 1,503 739
1,700 1,059 1,503 963
Notes to the Accounts STATEMENT OF FINANCIAL POSITION
Cathay Pacific Airways Limited Annual Report 2010
71
19. Retirement benefits
The Group operates various defined benefit and defined contribution retirement schemes for its employees in Hong
Kong and in certain overseas locations. The assets of these schemes are held in funds administered by independent
trustees. The retirement schemes in Hong Kong are registered under and comply with the Occupational Retirement
Schemes Ordinance and the Mandatory Provident Fund Schemes Ordinance (“MPFSO”). Most of the employees
engaged outside Hong Kong are covered by appropriate local arrangements.
The Group operates the following principal schemes:
(a) Defined benefit retirement schemes
The Swire Group Retirement Benefit Scheme (“SGRBS”) in Hong Kong, in which the Company and Cathay
Pacific Catering Services (H.K.) Limited (“CPCS”) are participating employers, provides resignation and
retirement benefits to its members, which include the Company’s cabin attendants who joined before
September 1996 and other locally engaged employees who joined before June 1997, upon their cessation of
service. The Company and CPCS meet the full cost of all benefits due by SGRBS to their employee members
who are not required to contribute to the scheme.
Staff employed by the Company in Hong Kong on expatriate terms before April 1993 were eligible to join
another scheme, the Cathay Pacific Airways Limited Retirement Scheme (“CPALRS”). Both members and the
Company contribute to CPALRS.
The latest actuarial valuation of CPALRS and the portion of SGRBS funds specifically designated for the
Company’s employees were completed by a qualified actuary, Watson Wyatt Hong Kong Limited, as at 31st
December 2009 using the projected unit credit method. The figures for SGRBS and CPALRS disclosed as at
31st December 2010 were provided by Cannon Trustees Limited, the administration manager.
2010 2009
SGRBS CPALRS SGRBS CPALRS
The principal actuarial assumptions are:
Discount rate used 4.4% 4.4% 4.8% 4.8%
Expected return on plan assets 8.0% 6.5% 8.0% 6.5%
Future salary increases 2-5% 1-5% 2-5% 1-5%
The Group’s obligations are 106% (2009: 97%) covered by the plan assets held by the trustees as at
31st December 2010.
2010
HK$M
2009
HK$M
Net expenses recognised in the Group profit and loss:
Current service cost 324 316
Interest on obligations 311 342
Expected return on plan assets (518) (371)
Actuarial loss recognised 1 30
Total included in staff costs 118 317
Actual return on plan assets 820 1,578
Notes to the Accounts STATEMENT OF FINANCIAL POSITION
72
19. Retirement benefits (continued)
Group Company
2010
HK$M
2009
HK$M
2010
HK$M
2009
HK$M
Net (asset)/liability recognised in the statement of
financial position:
Present value of funded obligations 7,615 7,460 6,991 6,870
Fair value of plan assets (8,077) (7,217) (7,396) (6,583)
(462) 243 (405) 287
Net unrecognised actuarial gain/(losses) 244 (27) 206 (63)
(218) 216 (199) 224
Group Company
2010
HK$M
2009
HK$M
2010
HK$M
2009
HK$M
Movements in present value of funded obligations
comprise:
At 1st January 7,460 7,108 6,870 6,522
Movements for the year
– current service cost 324 316 293 284
– interest cost 311 342 285 314
– employee contributions 12 14 12 14
– benefits paid (524) (681) (483) (645)
– actuarial losses 32 361 14 381
At 31st December 7,615 7,460 6,991 6,870
Group Company
2010
HK$M
2009
HK$M
2010
HK$M
2009
HK$M
Movements in fair value of plan assets comprise:
At 1st January 7,217 5,924 6,583 5,426
Movements for the year
– expected return on plan assets 518 371 469 337
– employee contributions 12 14 12 14
– employer contributions 552 382 532 359
– benefits paid (524) (681) (483) (645)
– actuarial gains 302 1,207 283 1,092
At 31st December 8,077 7,217 7,396 6,583
Notes to the Accounts STATEMENT OF FINANCIAL POSITION
Cathay Pacific Airways Limited Annual Report 2010
73
19. Retirement benefits (continued)
Group Company
2010
HK$M
2009
HK$M
2010
HK$M
2009
HK$M
Fair value of plan assets comprises:
Equities 5,318 4,297 4,859 3,785
Debt instruments 1,919 1,725 1,712 1,607
Deposits and cash 840 526 825 522
Others – 669 – 669
8,077 7,217 7,396 6,583
The overall expected rate of return on plan assets is determined based on the average rate of return of major
categories of assets that constitute the total plan assets.
Group
2010
HK$M
2009
HK$M
2008
HK$M
2007
HK$M
2006
HK$M
Present value of funded obligations 7,615 7,460 7,108 8,223 7,844
Fair value of plan assets (8,077) (7,217) (5,924) (9,131) (8,065)
(Surplus)/deficit (462) 243 1,184 (908) (221)
Actuarial losses/(gains) arising on plan
liabilities 32 361 (1,324) 205 267
Actuarial (gains)/losses arising on plan
assets (302) (1,207) 3,368 (990) (529)
Company
2010
HK$M
2009
HK$M
2008
HK$M
2007
HK$M
2006
HK$M
Present value of funded obligations 6,991 6,870 6,522 7,549 7,196
Fair value of plan assets (7,396) (6,583) (5,426) (8,353) (7,369)
(Surplus)/deficit (405) 287 1,096 (804) (173)
Actuarial losses/(gains) arising on plan
liabilities 14 381 (1,210) 178 261
Actuarial (gains)/losses arising on plan
assets (283) (1,092) 3,070 (893) (495)
The difference between the fair value of the schemes’ assets and the present value of the accrued past
services liabilities at the date of an actuarial valuation is taken into consideration when determining future
funding levels in order to ensure that the schemes will be able to meet liabilities as they become due. The
contributions are calculated based upon funding recommendations arising from actuarial valuations. The Group
expects to make contributions of HK$378 million to the schemes in 2011.
Notes to the Accounts STATEMENT OF FINANCIAL POSITION
74
19. Retirement benefits (continued)
(b) Defined contribution retirement schemes
Staff employed by the Company in Hong Kong on expatriate terms are eligible to join a defined contribution
retirement scheme, the CPA Provident Fund 1993. All staff employed in Hong Kong are eligible to join the CPA
Provident Fund.
Under the terms of these schemes, other than the Company contribution, staff may elect to contribute from
0% to 10% of their monthly salary. During the year, the benefits forfeited in accordance with the schemes’
rules amounted to HK$18 million (2009: HK$19 million) which have been applied towards the contributions
payable by the Company.
A mandatory provident fund (“MPF”) scheme was established under the MPFSO in December 2000. Where
staff elect to join the MPF scheme, both the Company and staff are required to contribute 5% of the
employees’ relevant income (capped at HK$20,000). Staff may elect to contribute more than the minimum as a
voluntary contribution.
Contributions to defined contribution retirement schemes charged to the Group profit and loss are
HK$756 million (2009: HK$677 million).
20. Deferred taxation
Group Company
2010
HK$M
2009
HK$M
2010
HK$M
2009
HK$M
Deferred tax assets:
– provisions (161) (178) (112) (113)
– tax losses (1,136) (1,831) (926) (1,516)
– cash flow hedges (210) (158) (184) (135)
– customer loyalty programmes (41) (82) (41) (82)
Deferred tax liabilities:
– retirement benefits 8 13 7 11
– accelerated tax depreciation 2,182 2,047 1,501 1,380
– investment in associates 225 – – –
Provision in respect of certain lease arrangements 4,948 5,444 4,305 4,596
5,815 5,255 4,550 4,141
Notes to the Accounts STATEMENT OF FINANCIAL POSITION
Cathay Pacific Airways Limited Annual Report 2010
75
20. Deferred taxation (continued)
Group Company
2010
HK$M
2009
HK$M
2010
HK$M
2009
HK$M
Movements in deferred taxation comprise:
At 1st January 5,255 4,831 4,141 3,689
Movements for the year
– transferred from the profit and loss
– deferred tax expenses (note 7) 1,108 242 749 193
– operating expenses 70 76 52 56
– transferred to cash flow hedge reserve (52) 37 (49) 56
– initial cash benefit from lease arrangements 488 585 488 585
Current portion of provision in respect of certain lease
arrangements included under current liabilities –
taxation (1,054) (516) (831) (438)
At 31st December 5,815 5,255 4,550 4,141
The Group has certain tax losses which do not expire under current tax legislation and a deferred tax asset has been
recognised to the extent that recoverability is considered probable.
The provision in respect of certain lease arrangements equates to payments which are expected to be made during
the years 2012 to 2021 (2009: 2011 to 2020) as follows:
Group Company
2010
HK$M
2009
HK$M
2010
HK$M
2009
HK$M
After one year but within five years 1,792 2,598 1,406 2,018
After five years but within 10 years 2,772 2,376 2,515 2,108
After 10 years 384 470 384 470
4,948 5,444 4,305 4,596
21. Trade, other receivables and other assets
Group Company
2010
HK$M
2009
HK$M
2010
HK$M
2009
HK$M
Trade debtors 5,904 4,771 5,165 4,114
Derivative financial assets – current portion 2,349 746 2,349 733
Other receivables and prepayments 2,766 2,631 1,625 1,351
Due from associates 46 13 25 11
Aircraft held for sale 368 – – –
11,433 8,161 9,164 6,209
Notes to the Accounts STATEMENT OF FINANCIAL POSITION
76
21. Trade, other receivables and other assets (continued)
As at 31st December 2010, total derivative financial assets of the Group and the Company which did not qualify for
hedge accounting amounted to HK$842 million (2009: HK$1,123 million) and HK$842 million (2009: HK$1,123
million) respectively.
Group Company
2010
HK$M
2009
HK$M
2010
HK$M
2009
HK$M
Analysis of trade debtors by age:
Current 5,853 4,741 5,130 4,097
One to three months overdue 45 27 30 15
More than three months overdue 6 3 5 2
5,904 4,771 5,165 4,114
The movement in the provision for bad debt included in trade debtors during the year was as follows:
Group Company
2010
HK$M
2009
HK$M
2010
HK$M
2009
HK$M
At 1st January 163 169 128 135
Amounts written back – (8) – (7)
Impairment loss recognised 32 2 30 –
At 31st December 195 163 158 128
22. Liquid funds
Group Company
2010
HK$M
2009
HK$M
2010
HK$M
2009
HK$M
Short-term deposits and bank balances 8,276 10,105 5,827 7,872
Short-term deposits maturing beyond three months
when placed 551 407 551 402
Funds with investment managers
– debt securities listed outside Hong Kong 11,722 2,370 – –
– bank deposits 13 2 – –
Other liquid investments
– debt securities listed outside Hong Kong 1,632 1,388 1,372 1,146
– bank deposits 2,004 2,250 1,390 1,700
24,198 16,522 9,140 11,120
Included in other liquid investments are bank deposits of HK$1,856 million (2009: HK$1,085 million) and debt
securities of HK$1,632 million (2009: HK$1,388 million) which are pledged as part of long-term financing
arrangements. The arrangements provide that these deposits and debt securities must be maintained at specified
levels for the duration of the financing.
Notes to the Accounts STATEMENT OF FINANCIAL POSITION
Cathay Pacific Airways Limited Annual Report 2010
77
23. Trade and other payables
Group Company
2010
HK$M
2009
HK$M
2010
HK$M
2009
HK$M
Trade creditors 6,211 4,832 4,681 3,410
Derivative financial liabilities 1,391 1,884 1,361 1,845
Other payables 7,779 5,970 6,517 5,053
Due to associates 37 131 23 97
Due to other related companies 351 137 334 137
Bank overdrafts – unsecured (note 27) 4 11 4 11
15,773 12,965 12,920 10,553
As at 31st December 2010, total derivative financial liabilities of the Group and the Company which did not qualify
for hedge accounting amounted to HK$355 million (2009: HK$1,477 million) and HK$355 million
(2009: HK$1,471 million) respectively.
Group Company
2010
HK$M
2009
HK$M
2010
HK$M
2009
HK$M
Analysis of trade creditors by age:
Current 6,039 4,713 4,548 3,332
One to three months overdue 161 106 126 70
More than three months overdue 11 13 7 8
6,211 4,832 4,681 3,410
24. Share capital
2010 2009
Number of shares HK$M Number of shares HK$M
Authorised (HK$0.20 each) 5,000,000,000 1,000 5,000,000,000 1,000
Issued and fully paid (HK$0.20 each)
At 1st January 3,933,844,572 787 3,932,746,072 787
Shares repurchased during the year – – – –
Share options exercised – – 1,098,500 –
At 31st December 3,933,844,572 787 3,933,844,572 787
During the year, the Company did not purchase, sell or redeem any of its shares.
Notes to the Accounts STATEMENT OF FINANCIAL POSITION
78
25. Reserves
Group Company
2010
HK$M
2009
HK$M
2010
HK$M
2009
HK$M
Retained profit 37,061 24,704 26,869 15,685
Share premium 16,295 16,295 16,295 16,295
Investment revaluation reserve 1,102 1,117 928 1,005
Cash flow hedge reserve (1,871) (1,383) (1,720) (1,244)
Capital redemption reserve and others 900 718 23 23
53,487 41,451 42,395 31,764
Investment revaluation reserve relates to changes in the fair value of long-term investments.
Capital redemption reserve and others of the Group mainly include the capital redemption reserve of HK$24 million
(2009: HK$24 million), exchange differences arising from revaluation of foreign investments amounted to
HK$1,458 million (2009: HK$1,145 million) and share of associate’s other negative reserve of HK$605 million
(2009: HK$474 million).
The cash flow hedge reserve relates to the effective portion of the cumulative net change in fair values of hedging
instruments and exchange differences on borrowings and lease obligations which are arranged in foreign currencies
such that repayments can be met by anticipated operating cash flows.
The amount transferred from the cash flow hedge reserve to the following profit and loss items was as follows:
2010
HK$M
2009
HK$M
Turnover (243) (94)
Fuel (477) (192)
Others (14) (46)
Finance income (140) (28)
Net loss transferred to the profit and loss (874) (360)
The cash flow hedge reserve is expected to be charged to operating profit/loss as noted below when the hedged
transactions affect profit and loss.
Total
HK$M
2011 331
2012 488
2013 315
2014 184
2015 148
Beyond 2015 405
1,871
The actual amount ultimately recognised in operating profit/loss will depend upon the fair values of the hedging
instruments at the time that the hedged transactions affect profit and loss.
Notes to the Accounts STATEMENT OF FINANCIAL POSITION
Cathay Pacific Airways Limited Annual Report 2010
79
26. Reconciliation of operating profit to cash generated from operations
2010
HK$M
2009
HK$M
Operating profit 14,086 5,733
Depreciation 6,316 5,652
Amortisation of intangible assets 35 32
Loss on disposal of fixed assets and intangible assets 107 32
Profit on disposal of investments (2,165) (1,254)
Gain on deemed disposal of an associate (868) –
Currency adjustments and other items not involving cash flows 238 525
(Increase)/decrease in stock (74) 13
(Increase)/decrease in trade debtors, other receivables and prepayments and
long-term portion of derivative financial assets (2,091) 2,422
Increase in net amounts due to related companies and associates 87 94
Increase/(decrease) in trade creditors, other payables, long-term portion of derivative
financial liabilities and deferred creditors 3,552 (8,303)
Increase/(decrease) in unearned transportation revenue 1,091 (574)
Non-operating movements in debtors and creditors (1,470) 118
Cash generated from operations 18,844 4,490
27. Analysis of cash and cash equivalents
2010
HK$M
2009
HK$M
Short-term deposits and bank balances 8,276 10,105
Bank overdrafts (note 23) (4) (11)
8,272 10,094
Notes to the Accounts STATEMENT OF CASH FLOWS
80
28. Directors’ and executive officers’ remuneration
(a) Directors’ remuneration disclosed pursuant to the Listing Rules is as follows:
Cash Non-cash
Basic
salary/
Directors’
fee*
HK$’000
Bonus
HK$’000
Allowances
& benefits
HK$’000
Contributions
to retirement
schemes
HK$’000
Bonus
paid into
retirement
schemes
HK$’000
Housing
benefits
HK$’000
2010
Total
HK$’000
2009
Total
HK$’000
Executive Directors
Christopher Pratt 1,130 530 79 420 157 626 2,942 3,088
Robert Atkinson
(up to March 2009) – – – – – – – 4,160
W.E. James Barrington
(from July 2010) 824 – 1,072 395 – – 2,291 –
James E. Hughes-Hallett
(from March 2009) 1,980 684 2,217 736 313 1,629 7,559 4,798
Ian Shiu
(up to June 2010) 1,186 1,391 372 137 – – 3,086 3,194
John Slosar 3,449 2,033 290 1,282 686 1,926 9,666 11,125
Tony Tyler 4,428 2,300 55 1,646 775 2,271 11,475 12,109
Non-Executive Directors
Cai Jianjiang
(from November 2009) 500* – – – – – 500 48
Chang Zhenming
(from May 2009 to
November 2009) – – – – – – – 270
Philip Chen
(up to June 2010) – – – – – – – –
Martin Cubbon
(up to May 2009) – – – – – – – –
Fan Cheng
(from November 2009) 650* – – – – – 650 62
Henry Fan
(up to April 2009) – – – – – – – 134
James W.J.
Hughes-Hallett – – – – – – – –
Peter Kilgour
(from May 2009) – – – – – – – –
Kong Dong 500* – – – – – 500 500
Vernon Moore
(up to November 2009) – – – – – – – 466
Ian Shiu
(from July 2010) – – – – – – – –
Merlin Swire
(from June 2010) – – – – – – – –
Robert Woods
(up to May 2010) – – – – – – – –
Zhang Lan 500* – – – – – 500 621
Notes to the Accounts DIRECTORS AND EMPLOYEES
Cathay Pacific Airways Limited Annual Report 2010
81
28. Directors’ and executive officers’ remuneration (continued)
Cash Non-cash
Basic
salary/
Directors’
fee*
HK$’000
Bonus
HK$’000
Allowances
& benefits
HK$’000
Contributions
to retirement
schemes
HK$’000
Bonus
paid into
retirement
schemes
HK$’000
Housing
benefits
HK$’000
2010
Total
HK$’000
2009
Total
HK$’000
Independent Non-
Executive Directors
Irene Lee
(from January 2010) 677* – – – – – 677 –
Peter Lee
(up to October 2009) – – – – – – – 556
Raymond Or
(up to May 2009) – – – – – – – 255
Jack So 700* – – – – – 700 682
Tung Chee Chen 550* – – – – – 550 550
Peter Wong
(from May 2009) 650* – – – – – 650 379
2010 Total 17,724 6,938 4,085 4,616 1,931 6,452 41,746
2009 Total 17,139 3,447 1,537 14,278 – 6,596 42,997
For Directors employed by the Swire group, the remuneration disclosed represents the amount charged to the
Company. Bonus is related to services for 2009 but paid and charged to the Company in 2010.
(b) Executive Officers’ remuneration disclosed as recommended by the Listing Rules is as follows:
Cash Non-cash
Basic
salary
HK$’000
Bonus
HK$’000
Allowances
& benefits
HK$’000
Contributions
to retirement
schemes
HK$’000
Bonus
paid into
retirement
schemes
HK$’000
Housing
benefits
HK$’000
2010
Total
HK$’000
2009
Total
HK$’000
W.E. James Barrington
(up to June 2010) 824 1,168 1,233 218 – – 3,443 7,917
William Chau 1,749 1,420 601 257 – – 4,027 3,240
Quince Chong 1,681 1,366 613 168 – – 3,828 3,206
Ivan Chu 1,623 1,303 796 238 – – 3,960 3,056
Christopher Gibbs 1,994 1,621 311 335 – 522 4,783 3,897
Richard Hall
(from August 2010) 733 328 695 77 – 369 2,202 –
Rupert Hogg 1,537 652 1,251 571 387 2,167 6,565 7,607
Edward Nicol
(up to October 2010) 1,486 840 495 584 533 1,486 5,424 8,902
Nick Rhodes 1,808 793 457 672 482 2,550 6,762 8,515
Tomasz Smaczny
(from August 2010) 708 212 246 35 – – 1,201 –
2010 Total 14,143 9,703 6,698 3,155 1,402 7,094 42,195
2009 Total 12,448 8,511 7,959 9,082 2,741 5,599 46,340
Bonus related to services for 2009 was paid in 2010.
Notes to the Accounts DIRECTORS AND EMPLOYEES
82
29. Employee information
(a) The five highest paid individuals of the Company included three Directors (2009: two) and two Executive
Officers (2009: three), whose emoluments are set out in note 28 above.
(b) The table below sets out the number of individuals, including those who have retired or resigned during the
year, in each employment category whose total remuneration for the year fell into the following ranges:
2010 2009
HK$’000 Director Flight staff Other staff Director Flight staff Other staff
0 – 1,000 13 9,122 8,525 17 9,046 8,185
1,001 – 1,500 – 662 238 – 551 209
1,501 – 2,000 – 585 112 – 638 103
2,001 – 2,500 1 379 58 – 330 42
2,501 – 3,000 1 291 12 – 150 7
3,001 – 3,500 1 137 10 2 75 4
3,501 – 4,000 – 59 6 – 21 5
4,001 – 4,500 – 19 2 1 4 3
4,501 – 5,000 – 3 4 1 – 4
5,001 – 5,500 – 1 3 – – 1
5,501 – 6,000 – – 1 – – 2
6,001 – 6,500 – – 1 – – 1
6,501 – 7,000 – – 2 – – 2
7,001 – 7,500 – – – – – 1
7,501 – 8,000 1 – – – – 2
8,501 – 9,000 – – – – – 2
9,501 – 10,000 1 – – – – –
11,001 – 11,500 1 – – 1 – –
12,001 – 12,500 – – – 1 – –
19 11,258 8,974 23 10,815 8,573
Notes to the Accounts DIRECTORS AND EMPLOYEES
Cathay Pacific Airways Limited Annual Report 2010
83
30. Related party transactions
(a) Material transactions between the Group and associates and other related parties which were carried out in the
normal course of business on commercial terms are summarised below:
2010 2009
Associates
HK$M
Other related
parties
HK$M
Associates
HK$M
Other related
parties
HK$M
Turnover 219 8 161 –
Aircraft maintenance costs 666 1,152 1,891 –
Route operating costs 540 – 463 –
Dividends received (132) – (174) –
Fixed assets purchase 1 – 2 –
On 7th June 2010 the Company entered into a sale and purchase agreement to sell its entire 15% shareholding in
HAECO to Swire Pacific and HAECO has since become a subsidiary of Swire Pacific. HAECO, which was an
associate of the Company before completion of the transaction on 14th June 2010, has since been classified as an
“other related party”.
(b) Other transactions with related parties
(i) The Company had an agreement for services with JSSHK (“JSSHK Services Agreement”). Under the JSSHK
Services Agreement, the Company paid fees and reimbursed costs to JSSHK in exchange for services provided.
Service fees calculated at 2.5% of the Group’s profit before tax, results of associates, non-controlling interests,
and any profits and losses on disposal of fixed assets are paid annually. For the year ended 31st December
2010, service fees paid for the year ended 31st December 2010 totalled HK$293 million (2009: HK$95 million)
and expenses of HK$139 million (2009: HK$161 million) were reimbursed at cost; in addition, HK$57 million
(2009: HK$60 million) in respect of shared administrative services were reimbursed.
Transactions under the JSSHK Services Agreement are continuing connected transactions, in respect of which
the Company has complied with the disclosure requirements in accordance with Chapter 14A of the Listing
Rules. For definition of terms, please refer to Directors’ Report on page 37.
(ii) Under the HAECO Framework Agreement with HAECO, the Group paid fees to HAECO group in exchange for
maintenance services provided to the Group’s aircraft fleets. Service fees paid to HAECO group for the year
ended 31st December 2010 were HK$1,818 million (2009: HK$1,891 million).
Transactions under the HAECO Framework Agreement are continuing connected transactions, in respect of
which the Company has complied with the disclosure and shareholders’ approval requirements in accordance
with Chapter 14A of the Listing Rules. For definition of terms, please refer to Directors’ Report on page 38.
(iii) Under the Air China Framework Agreement with Air China dated 26th June 2008, the Group paid fees to, and
received fees from, Air China group in respect of transactions between the Group on the one hand and Air China
group on the other hand arising from joint venture arrangements for the operation of passenger air
transportation, code sharing arrangements, interline arrangements, aircraft leasing, frequent flyer programmes,
the provision of airline catering, ground support and engineering services and other services agreed to be
provided and other transactions agreed to be undertaken under the Air China Framework Agreement. The
amounts payable to Air China group for the year ended 31st December 2010 totalled HK$403 million
(2009: HK$305 million). The amounts receivable from Air China group for the year ended 31st December 2010
totalled HK$219 million (2009: HK$164 million).
Transactions under the Air China Framework Agreement are continuing connected transactions, in respect of
which the Company has complied with the disclosure requirements in accordance with Chapter 14A of the
Listing Rules. For definition of terms, please refer to Directors’ Report on pages 38 and 39.
(c) Amounts due from and due to associates and other related companies at 31st December 2010 are disclosed in
notes 21 and 23 to the accounts. These balances arising in the normal course of business are non-interest bearing
and have no fixed repayment terms.
(d) Guarantees given by the Company in respect of bank loan facilities of an associate at 31st December 2010 are
disclosed in note 31 to the accounts.
(e) There were no material transactions with Directors and Executive Officers except for those relating to
shareholdings (Directors’ Report and Corporate Governance). Remuneration of Directors and Executive
Officers is disclosed in note 28 to the accounts.
Notes to the Accounts RELATED PARTY TRANSACTIONS
84
31. Commitments and contingencies
(a) Outstanding commitments for capital expenditure authorised at the year end but not provided for in the
accounts:
Group Company
2010
HK$M
2009
HK$M
2010
HK$M
2009
HK$M
Authorised and contracted for 75,290 35,982 3,913 1,949
Authorised but not contracted for 11,958 4,458 8,987 605
87,248 40,440 12,900 2,554
Operating lease commitments are shown in note 12 to the accounts.
(b) Guarantees in respect of lease obligations, bank loans and other liabilities outstanding at the year end:
Group Company
2010
HK$M
2009
HK$M
2010
HK$M
2009
HK$M
Subsidiaries – – 4,235 4,421
Associates 62 62 62 62
Staff 200 200 200 200
262 262 4,497 4,683
(c) The Company has under certain circumstances undertaken to maintain specified rates of return within the
Group’s leasing arrangements. The Directors do not consider that an estimate of the potential financial effect of
these contingencies can practically be made.
(d) The Company operates in many jurisdictions and in certain of these there are disputes with the tax authorities.
Provisions have been made to cover the expected outcome of the disputes to the extent that outcomes are
likely and reliable estimates can be made. However, the final outcomes are subject to uncertainties and
resulting liabilities may exceed provisions.
(e) The Company is the subject of investigations and proceedings with regard to its air cargo operations by the
competition authorities of various jurisdictions, including the European Union, Canada, Australia, Switzerland,
Korea and New Zealand. The Company has been cooperating with the authorities in their investigations and,
where applicable, vigorously defending itself. The investigations and proceedings are focused on issues relating
to pricing and competition. The Company is represented by legal counsel in connection with these matters.
On 15th December 2008, the Company received a Statement of Claim from the New Zealand Commerce
Commission with regard to the Company’s air cargo operations. The Company, with the assistance of legal
counsel, has responded.
On 17th July 2009, the Company received an Amended Statement of Claim from the Australian Competition &
Consumer Commission with regard to the Company’s air cargo operations. The Company, with the assistance
of legal counsel, has responded.
On 27th May 2010, the Korean Fair Trade Commission (“KFTC”) announced it will fine several airlines, including
Cathay Pacific, for their air cargo pricing practices. On 29th November 2010, KFTC issued a written decision and
Cathay Pacific’s fine was KRW 5.35 billion which is approximately HK$36 million at the exchange rate current as
of the date of the announcement. Cathay Pacific has filed an appeal in the Seoul High Court challenging the
KFTC’s decision in December 2010.
Notes to the Accounts SUPPLEMENTARY INFORMATION
Cathay Pacific Airways Limited Annual Report 2010
85
31. Commitments and contingencies (continued)
On 9th November 2010, the European Commission announced that it has issued a decision in its Airfreight
investigation finding that, amongst other things, Cathay Pacific and a number of other international cargo
carriers agreed to cargo surcharge levels and that such agreements infringed European competition law. The
European Commission has imposed a fine of Euros 57,120,000 (equivalent to HK$618 million) on Cathay Pacific.
Cathay Pacific has filed an appeal with the General Court of the European Union in January 2011.
The Company has been named as a defendant in a number of civil complaints, including class litigation and third
party contribution claims, in a number of countries including the United States, Canada, Korea, United Kingdom
and Australia alleging violations of applicable competition laws arising from the Company’s conduct relating to
its air cargo operations. In addition, civil class action claims have been filed in the United States and Canada
alleging violations of applicable competition laws arising from the Company’s conduct relating to certain of its
passenger operations. The Company is represented by legal counsel and is defending those actions.
The investigations, proceedings and civil actions are ongoing and the outcomes are subject to uncertainties.
Cathay Pacific is not in a position to assess the full potential liabilities but makes provisions based on facts and
circumstances in line with accounting policy 19 set out on page 51.
32. Financial risk management
In the normal course of business, the Group is exposed to fluctuations in foreign exchange rates, interest rates and
jet fuel prices. These exposures are managed, sometimes with the use of derivative financial instruments, by the
Treasury Department of Cathay Pacific in accordance with the policies approved by the Finance Committee.
Derivative financial instruments are used solely for financial risk management purposes and the Group does not hold
or issue derivative financial instruments for proprietary trading purposes. Derivative financial instruments which
constitute a hedge do not expose the Group to market risk since any change in their market value will be offset by a
compensating change in the market value of the hedged items. Exposure to foreign exchange rates, interest rates
and jet fuel price movements are regularly reviewed and positions are amended in compliance with internal
guidelines and limits.
(a) Credit risk
Management has a credit policy in place and the exposure to credit risk is monitored on an ongoing basis. The
Group normally grants a credit term of 30 days to customers or follows the local industry standard with the debt
in certain circumstances being partially protected by bank guarantees or other monetary collateral.
Trade debtors mainly represented passenger and freight sales due from agents and amounts due from airlines
for interline services provided. The majority of the agents are connected to the settlement systems operated by
the International Air Transport Association (“IATA”) who is responsible for checking the credit worthiness of
such agents and collecting bank guarantees or other monetary collateral according to local industry practice. In
most cases amounts due from airlines are settled on net basis via an IATA clearing house. The credit risk with
regard to individual agents and airlines is relatively low.
To manage credit risk, derivative financial transactions, deposits and funds are only carried out with financial
institutions which have high credit ratings and all counterparties are subject to prescribed trading limits which
are regularly reviewed. Risk exposures are monitored regularly by reference to market values.
At the reporting date there was no significant concentration of credit risk. The maximum exposure to credit risk
is represented by the carrying amount of each financial asset, including derivative financial instruments, in the
statement of financial position and the amount of guarantees granted as disclosed in note 31 to the accounts.
Collateral and guarantees received in respect of credit terms granted as at 31st December 2010 is
HK$1,173 million (2009: HK$2,562 million).
The movement in the provision for bad debt in respect of trade debtors during the year is set out in note 21 to
the accounts.
Notes to the Accounts SUPPLEMENTARY INFORMATION
86
32. Financial risk management (continued)
(b) Liquidity risk
The Group’s policy is to monitor liquidity and compliance with lending covenants, so as to ensure sufficient
liquid funds and funding lines from financial institutions are available to meet liquidity requirements in both the
short and long term. The undiscounted payment profile of financial liabilities is outlined as follows:
2010
Within one
year
HK$M
After one
year but
within two
years
HK$M
After two
years but
within five
years
HK$M
After five
years
HK$M
Total
HK$M
Group
Bank and other loans (5,975) (5,039) (4,849) (1,796) (17,659)
Obligations under finance leases (3,671) (4,683) (11,367) (13,377) (33,098)
Trade and other payables (14,382) – – – (14,382)
Derivative financial liabilities (1,254) (679) (195) 99 (2,029)
Total (25,282) (10,401) (16,411) (15,074) (67,168)
2009
Within one
year
HK$M
After one
year but
within two
years
HK$M
After two
years but
within five
years
HK$M
After five
years
HK$M
Total
HK$M
Group
Bank and other loans (4,365) (5,729) (7,800) (2,667) (20,561)
Obligations under finance leases (5,225) (3,594) (12,587) (14,567) (35,973)
Trade and other payables (11,081) – – – (11,081)
Derivative financial liabilities (1,535) (578) (95) 24 (2,184)
Total (22,206) (9,901) (20,482) (17,210) (69,799)
Notes to the Accounts SUPPLEMENTARY INFORMATION
Cathay Pacific Airways Limited Annual Report 2010
87
Notes to the Accounts SUPPLEMENTARY INFORMATION
32. Financial risk management (continued)
2010
Within one
year
HK$M
After one
year but
within two
years
HK$M
After two
years but
within five
years
HK$M
After five
years
HK$M
Total
HK$M
Company
Bank and other loans (5,048) (4,273) (2,868) (441) (12,630)
Obligations under finance leases (4,595) (3,615) (10,459) (14,856) (33,525)
Trade and other payables (11,559) – – – (11,559)
Derivative financial liabilities (1,226) (655) (146) 99 (1,928)
Total (22,428) (8,543) (13,473) (15,198) (59,642)
2009
Within one
year
HK$M
After one
year but
within two
years
HK$M
After two
years but
within five
years
HK$M
After five
years
HK$M
Total
HK$M
Company
Bank and other loans (3,455) (4,946) (5,966) (1,375) (15,742)
Obligations under finance leases (6,093) (4,405) (9,418) (16,380) (36,296)
Trade and other payables (8,708) – – – (8,708)
Derivative financial liabilities (1,508) (562) (58) 30 (2,098)
Total (19,764) (9,913) (15,442) (17,725) (62,844)
88
32. Financial risk management (continued)
(c) Market risk
(i) Foreign currency risk
The Group’s revenue streams are denominated in a number of foreign currencies resulting in exposure to
foreign exchange rate fluctuations. In this respect, it is assumed that the pegged rate between the Hong
Kong dollar and the United States dollar would be materially unaffected by any changes in movement in
value of the United States dollar against other currencies. The currencies giving rise to this risk in 2010 are
primarily US dollars, Euros, New Taiwan dollars, Australian dollars, Renminbi and Japanese yen (2009: US
dollars, Euros, New Taiwan dollars, Singapore dollars, Renminbi and Japanese yen). Foreign currency risk is
measured by employing sensitivity analysis, taking into account current and anticipated exposures. To
manage this exposure assets are, where possible, financed in those foreign currencies in which net
operating surpluses are anticipated, thus establishing a natural hedge. In addition, the Group uses currency
derivatives to reduce anticipated foreign currency surpluses. The use of foreign currency borrowings and
currency derivatives to hedge future operating revenues is a key component of the financial risk
management process, as exchange differences realised on the repayment of financial commitments are
effectively matched by the change in value of the foreign currency earnings used to make those
repayments.
At the reporting date, the exposure to foreign currency risk was as follows:
2010
USD
HK$M
EUR
HK$M
TWD
HK$M
AUD
HK$M
RMB
HK$M
JPY
HK$M
Group
Trade and other receivables 5,998 521 336 215 404 497
Liquid funds 17,832 264 75 14 2,444 249
Long-term loans (6,340) – – – – (1,429)
Obligations under finance leases (19,391) (3,253) – – – –
Trade and other payables (3,225) (282) (81) (152) (564) (232)
Currency derivatives at notional value 36,285 (1,726) (6,072) (4,111) (10,449) (10,342)
Net exposure 31,159 (4,476) (5,742) (4,034) (8,165) (11,257)
2009
USD
HK$M
EUR
HK$M
TWD
HK$M
SGD
HK$M
RMB
HK$M
JPY
HK$M
Group
Trade and other receivables 4,536 440 291 37 385 398
Liquid funds 7,956 58 47 1,395 1,882 163
Long-term loans (6,702) (52) – (3,458) – (1,379)
Obligations under finance leases (19,281) (4,062) – – – –
Trade and other payables (4,168) (240) (71) (57) (372) (170)
Currency derivatives at notional value 15,585 370 (1,556) 1,235 (3,452) (6,681)
Net exposure (2,074) (3,486) (1,289) (848) (1,557) (7,669)
Notes to the Accounts SUPPLEMENTARY INFORMATION
Cathay Pacific Airways Limited Annual Report 2010
89
Notes to the Accounts SUPPLEMENTARY INFORMATION
32. Financial risk management (continued)
2010
USD
HK$M
EUR
HK$M
TWD
HK$M
AUD
HK$M
RMB
HK$M
JPY
HK$M
Company
Trade and other receivables 4,879 518 287 215 171 490
Liquid funds 4,623 145 72 14 1,325 246
Long-term loans (4,142) – – – – –
Obligations under finance leases (21,397) (3,807) – – – (1,429)
Trade and other payables (2,804) (275) (55) (152) (177) (210)
Currency derivatives at notional value 35,809 (1,726) (6,072) (4,111) (9,890) (10,342)
Net exposure 16,968 (5,145) (5,768) (4,034) (8,571) (11,245)
2009
USD
HK$M
EUR
HK$M
TWD
HK$M
SGD
HK$M
RMB
HK$M
JPY
HK$M
Company
Trade and other receivables 3,460 439 233 36 134 388
Liquid funds 4,300 59 45 1,395 971 158
Long-term loans (5,174) (52) – (3,458) – –
Obligations under finance leases (21,192) (4,848) – – – (1,379)
Trade and other payables (3,126) (232) (30) (54) (76) (148)
Currency derivatives at notional value 14,553 370 (1,556) 1,235 (2,356) (6,681)
Net exposure (7,179) (4,264) (1,308) (846) (1,327) (7,662)
In addition to the current exposure shown above, the Group is exposed to a currency risk on its future net
operating cash flow in foreign currencies primarily Euros, Japanese yen, New Taiwan dollars, Australian
dollars and Renminbi. The Group currently has operating surpluses in all these foreign currencies except the
US dollars.
Sensitivity analysis for foreign currency exposure
A five percent appreciation of the Hong Kong dollars against the following currencies at 31st December
2010 would have increased profit and loss and other equity components by the amounts shown below.
This represents the translation of financial assets and liabilities and the change in fair value of currency
derivatives at the reporting date. It assumes that all other variables, in particular interest rates, remain
constant. The analysis is performed on the same basis for 2009.
90
32. Financial risk management (continued)
2010
Profit
and loss
HK$M
Other equity
components
HK$M
US dollars 178 (1,452)
Euros (15) 216
New Taiwan dollars (16) 282
Australian dollars (3) 179
Renminbi (115) 482
Japanese yen (24) 541
Increase 5 248
2009
Profit
and loss
HK$M
Other equity
components
HK$M
US dollars 686 (438)
Euros 4 164
New Taiwan dollars (12) 73
Singapore dollars (30) 76
Renminbi (94) 160
Japanese yen (18) 316
Increase 536 351
(ii) Interest rate risk
The Group’s cash flow exposure to interest rate risk arises primarily from long-term borrowings at floating
rates. Interest rate swaps are used to manage the interest rate profile of interest-bearing financial liabilities
on a currency by currency basis to maintain an appropriate fixed rate and floating rate ratio. Interest rate risk
is measured by using sensitivity analysis on variable rate instruments.
At the reporting date the interest rate profile of the interest-bearing financial instruments was as below:
Group Company
2010
HK$M
2009
HK$M
2010
HK$M
2009
HK$M
Fixed rate instruments
Liquid funds – 1,164 – 1,164
Long-term loans (908) (2,075) (908) (2,075)
Obligations under finance leases (11,443) (13,198) (14,784) (17,421)
Interest rate and currency swaps (10,625) (8,099) (10,016) (7,407)
Net exposure (22,976) (22,208) (25,708) (25,739)
Notes to the Accounts SUPPLEMENTARY INFORMATION
Cathay Pacific Airways Limited Annual Report 2010
91
Notes to the Accounts SUPPLEMENTARY INFORMATION
32. Financial risk management (continued)
Group Company
2010
HK$M
2009
HK$M
2010
HK$M
2009
HK$M
Variable rate instruments
Liquid funds 24,198 15,358 9,140 9,956
Long-term loans (16,078) (17,224) (11,361) (12,767)
Obligations under finance leases (11,200) (10,145) (11,849) (9,998)
Interest rate and currency swaps 11,762 8,683 11,236 8,067
Bank overdrafts (4) (11) (4) (11)
Net exposure 8,678 (3,339) (2,838) (4,753)
Sensitivity analysis for interest rate exposure
An increase of 25 basis points in interest rates at the reporting date would have decreased profit and loss
and increased other equity components for the year by the amounts shown below. These amounts
represent the fair value change of interest rate swaps and financial liabilities designated as at fair value
through profit and loss at the reporting date and the increase in net finance charges. This analysis assumes
that all other variables, in particular foreign currency rates, remain constant. The analysis is performed on
the same basis for 2009.
2010 2009
Profit
and loss
HK$M
Other equity
components
HK$M
Profit
and loss
HK$M
Other equity
components
HK$M
Variable rate instruments (88) 167 (85) 106
(iii) Fuel price risk
Fuel accounted for 36% of the Group’s operating expenses (2009: 28%). Exposure to fluctuations in the
fuel price is managed by the use of fuel derivatives. The profit or loss generated from these fuel derivatives
is dependent on the nature and combination of contracts which generate payoffs in any particular range of
fuel prices. The Group’s policy is to reduce exposure by hedging at least 30% of its anticipated fuel
consumption for the next 12 months.
Sensitivity analysis for jet fuel price derivatives
A five percent change in the jet fuel price would have affected profit and loss and other equity components
by the amounts shown below, representing the change in fair value of fuel derivatives at the reporting date.
This assumes that all other variables remain constant.
2010 2009
Profit
and loss
HK$M
Other equity
components
HK$M
Profit
and loss
HK$M
Other equity
components
HK$M
Net increase in jet fuel price 13 453 204 142
Net decrease in jet fuel price (14) (444) (237) (157)
92
32. Financial risk management (continued)
(d) Hedge accounting
The carrying values of financial assets/(liabilities) designated as cash flow hedges as at 31st December 2010
were as follows:
2010
HK$M
2009
HK$M
Foreign currency risk
– long-term liabilities (natural hedge) (2,595) (4,680)
– cross currency swaps 110 164
– foreign currency forward contracts (1,211) 46
Interest rate risk
– interest rate swaps (176) 10
Fuel price risk
– fuel options 1,301 92
Others
– carbon offsets (45) (45)
(e) Fair values
The fair values of the following financial instruments differ from their carrying amounts shown in the statement
of financial position:
Carrying
amount
2010
HK$M
Fair value
2010
HK$M
Carrying
amount
2009
HK$M
Fair value
2009
HK$M
Group
Long-term loans (16,986) (17,236) (19,299) (19,639)
Obligations under finance leases (28,498) (29,846) (30,140) (31,420)
Pledged security deposits 5,855 6,577 6,797 7,606
Carrying
amount
2010
HK$M
Fair value
2010
HK$M
Carrying
amount
2009
HK$M
Fair value
2009
HK$M
Company
Long-term loans (12,269) (12,403) (14,842) (15,085)
Obligations under finance leases (27,593) (30,166) (29,070) (31,736)
Pledged security deposits 960 1,267 1,651 1,983
The carrying amounts of other financial assets and liabilities are considered to be reasonable approximations to
their fair values.
Notes to the Accounts SUPPLEMENTARY INFORMATION
Cathay Pacific Airways Limited Annual Report 2010
93
Notes to the Accounts SUPPLEMENTARY INFORMATION
32. Financial risk management (continued)
(f) Financial instruments carried at fair value
The following table presents the carrying value of financial instruments measured at fair value as at 31st
December 2010 across three levels of the fair value hierarchy defined in HKFRS 7 “Financial Instruments:
Disclosures” with the fair value of each financial instrument categorised in its entirety based on the lowest level
of input that is significant to that fair value measurement. Level 1 includes financial instruments with fair values
measured using quoted prices in active markets for identical assets or liabilities. Level 2 includes financial
instruments with fair values measured using quoted prices in active markets for similar assets or liabilities, or
using valuation techniques in which all significant input are based on observable market data. Level 3 includes
financial instruments with fair values measured using valuation techniques in which any significant input is not
based on observable market data.
Group Company
2010
Level 1
HK$M
2010
Level 2
HK$M
2010
Level 3
HK$M
2010
Total
HK$M
2010
Level 1
HK$M
2010
Level 2
HK$M
2010
Level 3
HK$M
2010
Total
HK$M
Assets
Investments at fair value
– listed 183 – – 183 – – – –
– unlisted – – 1,232 1,232 – 1,133 – 1,133
Liquid funds
– funds with investment
managers – 11,722 – 11,722 – – – –
– other liquid investments – 1,632 – 1,632 – 1,372 – 1,372
Derivative financial assets – 3,460 – 3,460 – 3,460 – 3,460
183 16,814 1,232 18,229 – 5,965 – 5,965
Liabilities
Obligations under finance
leases designated as at fair
value through profit or loss – (4,231) – (4,231) – (4,231) – (4,231)
Derivative financial liabilities – (2,994) – (2,994) – (2,864) – (2,864)
– (7,225) – (7,225) – (7,095) – (7,095)
94
32. Financial risk management (continued)
Group Company
2009
Level 1
HK$M
2009
Level 2
HK$M
2009
Level 3
HK$M
2009
Total
HK$M
2009
Level 1
HK$M
2009
Level 2
HK$M
2009
Level 3
HK$M
2009
Total
HK$M
Assets
Investments at fair value
– listed 175 – – 175 – – – –
– unlisted – – 1,373 1,373 – – 1,328 1,328
Liquid funds
– funds with investment
managers – 2,370 – 2,370 – – – –
– other liquid investments – 1,388 – 1,388 – 1,146 – 1,146
Derivative financial assets – 2,637 – 2,637 – 2,624 – 2,624
175 6,395 1,373 7,943 – 3,770 1,328 5,098
Liabilities
Obligations under finance
leases designated as at fair
value through profit or loss – (4,474) – (4,474) – (4,474) – (4,474)
Derivative financial liabilities – (2,727) – (2,727) – (2,584) – (2,584)
– (7,201) – (7,201) – (7,058) – (7,058)
The movement during the year in the balance of level 3 fair value measurements is as follows:
Group
HK$M
Company
HK$M
Investments at fair value – unlisted
At 1st January 2010 1,373 1,328
Disposals (396) (396)
Net unrealised gains or losses recognised in other comprehensive
income during the year 255 201
At 31st December 2010 1,232 1,133
Group
HK$M
Company
HK$M
Investments at fair value – unlisted
At 1st January 2009 992 916
Net unrealised gains or losses recognised in other comprehensive
income during the year 381 412
At 31st December 2009 1,373 1,328
Notes to the Accounts SUPPLEMENTARY INFORMATION
Cathay Pacific Airways Limited Annual Report 2010
95
Notes to the Accounts SUPPLEMENTARY INFORMATION
33. Capital risk management
The Group’s objectives when managing capital are to ensure a sufficient level of liquid funds and to establish an
optimal capital structure which maximises shareholders’ value.
The Group regards the net debt/equity ratio as the key measurement of capital risk management. The definition of
net debt/equity ratio is shown on page 103 and a ten year history is included on pages 98 to 99 of the annual report.
34. Impact of further new accounting standards
HKICPA has issued new and revised HKFRS which become effective for accounting periods beginning on or after
1st January 2011 and which are not adopted in the accounts. HKFRS 9 “Financial Instruments” is relevant to the
Group and becomes effective for accounting periods beginning on or after 1st January 2013. The standard requires
that financial assets are measured at either amortised cost or fair value. The Group is in the process of assessing
the impact of this new accounting standard on both the results and the financial position of the Group.
35. Event after the reporting period
In March 2011, agreements were entered into under which a wholly owned subsidiary of the Company agreed to
purchase 15 Airbus A330-300 aircraft and 10 Boeing 777-300ER aircraft. The catalogue price of these aircraft is
approximately HK$46,683 million. The actual purchase price of the aircraft, which was determined after arm’s length
negotiations between the parties, is lower than the catalogue price.
96
Subsidiaries
Place of
incorporation
and operation
Principal
activities
Percentage of
issued capital
owned
Issued and paid up share
capital and
debt securities
Abacus Distribution Systems
(Hong Kong) Limited
Hong Kong Computerised
reservation systems and
related services
53 15,600,000 shares of
HK$1
AHK Air Hong Kong Limited Hong Kong Cargo airline 60* 54,402,000 A shares of
HK$1
36,268,000 B shares of
HK$1
Airline Property Limited Hong Kong Property investment 100 2 shares of HK$10
Airline Stores Property Limited Hong Kong Property investment 100 2 shares of HK$10
Airline Training Property Limited Hong Kong Property investment 100 2 shares of HK$10
Cathay Holidays Limited Hong Kong Travel tour operator 100 40,000 shares of HK$100
Cathay Pacific Aero Limited Hong Kong Financial services 100 1 share of HK$10
Cathay Pacific Aircraft
Acquisition Limited
Isle of Man Aircraft acquisition
facilitator
100 2,000 shares of US$1
Cathay Pacific Aircraft Services
Limited
Isle of Man Aircraft acquisition
facilitator
100 10,000 shares of US$1
Cathay Pacific Catering Services
(H.K.) Limited
Hong Kong Airline catering 100 600 shares of HK$1,000
Cathay Pacific Loyalty
Programmes Limited
Hong Kong Travel reward
programme
100 2 shares of HK$1
Cathay Pacific Services Limited Hong Kong Cargo terminal 100 1 share of HK$1
Global Logistics System (H.K.)
Company Limited
Hong Kong Computer network for
interchange of air cargo
related information
95 100 shares of HK$10
Guangzhou Guo Tai Information
Processing Company Limited
People’s
Republic of
China
Information processing 100* Paid up registered capital
HK$8,000,000 (wholly
foreign equity enterprise)
Hong Kong Airport Services
Limited
Hong Kong Aircraft ramp handling 100 100 shares of HK$1
Hong Kong Aviation and Airport
Services Limited
Hong Kong Property investment 100* 2 ordinary shares of HK$1
Hong Kong Dragon Airlines
Limited
Hong Kong Airline 100* 500,000,000 shares of
HK$1
Snowdon Limited Isle of Man Financial services 100* 2 shares of GBP1
Troon Limited Bermuda Financial services 100 12,000 shares of US$1
Vogue Laundry Service Limited Hong Kong Laundry and dry cleaning 100 3,700 shares of HK$500
Principal subsidiaries and associates are those which materially affect the results or assets of the Group.
*
Shareholding held through subsidiaries.
Principal Subsidiaries and Associates
at 31st December 2010
Cathay Pacific Airways Limited Annual Report 2010
97
Associates
Place of
incorporation and
operation Principal activities
Percentage
of issued
capital owned
Air China Limited People’s
Republic of China
Airline 18
#
Cathay Kansai Terminal Services Company Limited Japan Ground handling 32
Cebu Pacific Catering Services Inc. Philippines Airline catering 40*
CLS Catering Services Limited Canada Airline catering 30*
Ground Support Engineering Limited Hong Kong Airport ground engineering
support and equipment
maintenance
50*
LSG Lufthansa Service Hong Kong Limited Hong Kong Airline catering 32*
VN/CX Catering Services Limited Vietnam Airline catering 40*
*
Shareholding held through subsidiaries.
#
The Group has significant influence by demonstrating the power to participate in its financial and operating policy decisions.
Principal Subsidiaries and Associates
98
2010 2009 2008 2007 2006 2005 2004 2003 2002 2001
Consolidated profit and loss summary HK$M
Passenger services 59,354 45,920 57,964 49,520 38,755 32,005 26,879 18,920 22,811 20,641
Cargo services 25,901 17,255 24,623 21,783 18,385 15,773 12,965 10,704 9,908 8,406
Catering, recoveries and other services 4,269 3,803 3,976 4,055 3,643 3,131 2,917 2,726 2,813 2,941
Turnover 89,524 66,978 86,563 75,358 60,783 50,909 42,761 32,350 35,532 31,988
Operating expenses (78,471) (62,499) (94,124) (67,619) (55,565) (46,766) (37,514) (30,125) (30,782) (31,156)
Operating profit/(loss) 11,053 4,479 (7,561) 7,739 5,218 4,143 5,247 2,225 4,750 832
Profit on disposal of investments 2,165 1,254 – – – – – – – 452
Gain on deemed disposal of an associate 868 – – – – – – – – –
Settlement of the United States Department of Justice cargo
investigations – – (468) – – – – – – –
Net finance charges (978) (847) (1,012) (787) (465) (444) (583) (620) (743) (571)
Share of profits/(losses) of associates 2,587 261 (764) 1,057 301 269 298 126 269 153
Profit/(loss) before tax 15,695 5,147 (9,805) 8,009 5,054 3,968 4,962 1,731 4,276 866
Taxation (1,462) (283) 1,333 (799) (782) (500) (446) (384) (273) (167)
Profit/(loss) for the year 14,233 4,864 (8,472) 7,210 4,272 3,468 4,516 1,347 4,003 699
Profit attributable to non-controlling interests (185) (170) (224) (187) (184) (170) (99) (44) (20) (42)
Profit/(loss) attributable to owners of Cathay Pacific 14,048 4,694 (8,696) 7,023 4,088 3,298 4,417 1,303 3,983 657
Dividends paid (1,691) – (2,438) (2,245) (2,992) (2,196) (2,189) (1,035) (701) (1,915)
Retained profit/(loss) for the year 12,357 4,694 (11,134) 4,778 1,096 1,102 2,228 268 3,282 (1,258)
Consolidated statement of financial position summary HK$M
Fixed and intangible assets 74,116 73,345 73,821 70,170 65,351 50,416 50,607 50,176 48,905 50,456
Long-term receivables and investments 17,285 14,349 14,530 15,015 12,232 7,184 7,332 4,473 4,783 4,787
Borrowings (39,629) (42,642) (40,280) (36,368) (31,943) (22,455) (22,631) (26,297) (22,810) (24,024)
Liquid funds less bank overdrafts 24,194 16,511 15,082 21,637 15,595 13,405 11,444 15,186 13,164 9,746
Net borrowings (15,435) (26,131) (25,198) (14,731) (16,348) (9,050) (11,187) (11,111) (9,646) (14,278)
Net current liabilities (excluding liquid funds and bank overdrafts) (14,022) (12,864) (16,887) (13,094) (9,019) (6,767) (6,381) (4,439) (3,896) (1,728)
Other long-term payables (1,700) (1,059) (4,606) (1,490) (170) (72) (102) (181) (346) –
Deferred taxation (5,815) (5,255) (4,831) (6,621) (6,508) (6,460) (7,280) (7,762) (7,614) (7,836)
Net assets 54,429 42,385 36,829 49,249 45,538 35,251 32,989 31,156 32,186 31,401
Financed by:
Funds attributable to owners of Cathay Pacific 54,274 42,238 36,709 49,071 45,386 34,968 32,855 31,052 32,115 31,308
Non-controlling interests 155 147 120 178 152 283 134 104 71 93
Total equity 54,429 42,385 36,829 49,249 45,538 35,251 32,989 31,156 32,186 31,401
Per share
Shareholders’ funds HK$ 13.80 10.74 9.33 12.45 11.53 10.34 9.75 9.29 9.63 9.40
EBITDA HK$ 5.85 2.97 (0.91) 3.46 2.78 2.49 2.79 1.86 2.69 1.63
Earnings/(loss) HK cents 357.1 119.3 (221.0) 178.3 115.9 97.7 131.4 39.0 119.5 19.7
Dividend HK cents 111.0 10.0 3.0 84.0 84.0 48.0 65.0 48.0 44.0 17.5
Ratios
Profit/(loss) margin % 15.7 7.0 (10.0) 9.3 6.7 6.5 10.3 4.0 11.2 2.1
Return on capital employed % 22.0 8.7 (11.8) 12.6 8.9 8.8 11.8 4.7 10.8 2.9
Dividend cover Times 3.2 11.9 (73.7) 2.1 1.2 2.0 2.0 0.8 2.7 1.1
Cash interest cover Times 35.2 5.1 3.7 14.2 15.1 17.1 14.6 7.2 10.1 4.2
Gross debt/equity ratio Times 0.73 1.01 1.10 0.74 0.70 0.64 0.69 0.85 0.71 0.77
Net debt/equity ratio Times 0.28 0.62 0.69 0.30 0.36 0.26 0.34 0.36 0.30 0.46
Statistics
Cathay Pacific Airways Limited Annual Report 2010
99
2010 2009 2008 2007 2006 2005 2004 2003 2002 2001
Consolidated profit and loss summary HK$M
Passenger services 59,354 45,920 57,964 49,520 38,755 32,005 26,879 18,920 22,811 20,641
Cargo services 25,901 17,255 24,623 21,783 18,385 15,773 12,965 10,704 9,908 8,406
Catering, recoveries and other services 4,269 3,803 3,976 4,055 3,643 3,131 2,917 2,726 2,813 2,941
Turnover 89,524 66,978 86,563 75,358 60,783 50,909 42,761 32,350 35,532 31,988
Operating expenses (78,471) (62,499) (94,124) (67,619) (55,565) (46,766) (37,514) (30,125) (30,782) (31,156)
Operating profit/(loss) 11,053 4,479 (7,561) 7,739 5,218 4,143 5,247 2,225 4,750 832
Profit on disposal of investments 2,165 1,254 – – – – – – – 452
Gain on deemed disposal of an associate 868 – – – – – – – – –
Settlement of the United States Department of Justice cargo
investigations – – (468) – – – – – – –
Net finance charges (978) (847) (1,012) (787) (465) (444) (583) (620) (743) (571)
Share of profits/(losses) of associates 2,587 261 (764) 1,057 301 269 298 126 269 153
Profit/(loss) before tax 15,695 5,147 (9,805) 8,009 5,054 3,968 4,962 1,731 4,276 866
Taxation (1,462) (283) 1,333 (799) (782) (500) (446) (384) (273) (167)
Profit/(loss) for the year 14,233 4,864 (8,472) 7,210 4,272 3,468 4,516 1,347 4,003 699
Profit attributable to non-controlling interests (185) (170) (224) (187) (184) (170) (99) (44) (20) (42)
Profit/(loss) attributable to owners of Cathay Pacific 14,048 4,694 (8,696) 7,023 4,088 3,298 4,417 1,303 3,983 657
Dividends paid (1,691) – (2,438) (2,245) (2,992) (2,196) (2,189) (1,035) (701) (1,915)
Retained profit/(loss) for the year 12,357 4,694 (11,134) 4,778 1,096 1,102 2,228 268 3,282 (1,258)
Consolidated statement of financial position summary HK$M
Fixed and intangible assets 74,116 73,345 73,821 70,170 65,351 50,416 50,607 50,176 48,905 50,456
Long-term receivables and investments 17,285 14,349 14,530 15,015 12,232 7,184 7,332 4,473 4,783 4,787
Borrowings (39,629) (42,642) (40,280) (36,368) (31,943) (22,455) (22,631) (26,297) (22,810) (24,024)
Liquid funds less bank overdrafts 24,194 16,511 15,082 21,637 15,595 13,405 11,444 15,186 13,164 9,746
Net borrowings (15,435) (26,131) (25,198) (14,731) (16,348) (9,050) (11,187) (11,111) (9,646) (14,278)
Net current liabilities (excluding liquid funds and bank overdrafts) (14,022) (12,864) (16,887) (13,094) (9,019) (6,767) (6,381) (4,439) (3,896) (1,728)
Other long-term payables (1,700) (1,059) (4,606) (1,490) (170) (72) (102) (181) (346) –
Deferred taxation (5,815) (5,255) (4,831) (6,621) (6,508) (6,460) (7,280) (7,762) (7,614) (7,836)
Net assets 54,429 42,385 36,829 49,249 45,538 35,251 32,989 31,156 32,186 31,401
Financed by:
Funds attributable to owners of Cathay Pacific 54,274 42,238 36,709 49,071 45,386 34,968 32,855 31,052 32,115 31,308
Non-controlling interests 155 147 120 178 152 283 134 104 71 93
Total equity 54,429 42,385 36,829 49,249 45,538 35,251 32,989 31,156 32,186 31,401
Per share
Shareholders’ funds HK$ 13.80 10.74 9.33 12.45 11.53 10.34 9.75 9.29 9.63 9.40
EBITDA HK$ 5.85 2.97 (0.91) 3.46 2.78 2.49 2.79 1.86 2.69 1.63
Earnings/(loss) HK cents 357.1 119.3 (221.0) 178.3 115.9 97.7 131.4 39.0 119.5 19.7
Dividend HK cents 111.0 10.0 3.0 84.0 84.0 48.0 65.0 48.0 44.0 17.5
Ratios
Profit/(loss) margin % 15.7 7.0 (10.0) 9.3 6.7 6.5 10.3 4.0 11.2 2.1
Return on capital employed % 22.0 8.7 (11.8) 12.6 8.9 8.8 11.8 4.7 10.8 2.9
Dividend cover Times 3.2 11.9 (73.7) 2.1 1.2 2.0 2.0 0.8 2.7 1.1
Cash interest cover Times 35.2 5.1 3.7 14.2 15.1 17.1 14.6 7.2 10.1 4.2
Gross debt/equity ratio Times 0.73 1.01 1.10 0.74 0.70 0.64 0.69 0.85 0.71 0.77
Net debt/equity ratio Times 0.28 0.62 0.69 0.30 0.36 0.26 0.34 0.36 0.30 0.46
Statistics
100
Statistics
2010 2009 2008 2007 2006 2005 2004 2003 2002 2001
Operating summary – Cathay Pacific and Dragonair*
Available tonne kilometres Million 24,461 22,249 24,410 23,077 19,684 17,751 15,794 13,355 12,820 11,827
Revenue tonne kilometres Million 19,373 16,775 17,499 16,680 14,452 12,813 11,459 9,371 9,522 8,201
Available seat kilometres Million 115,748 111,167 115,478 102,462 91,769 82,766 74,062 59,280 63,050 62,790
Revenue passengers carried ‘000 26,796 24,558 24,959 23,253 18,097 15,438 13,664 10,059 12,321 11,269
Revenue passenger kilometres Million 96,588 89,440 90,975 81,801 72,939 65,110 57,283 42,774 49,041 44,792
Revenue load factor % 81.1 77.7 75.1 75.6 76.2 75.2 74.8 71.1 75.9 70.4
Passenger load factor % 83.4 80.5 78.8 79.8 79.5 78.7 77.3 72.2 77.8 71.3
Cargo and mail carried ‘000 tonnes 1,804 1,528 1,645 1,672 1,334 1,139 990 889 862 713
Cargo and mail revenue tonne kilometres Million 10,175 8,256 8,842 8,900 7,514 6,618 6,007 5,299 4,854 3,938
Cargo and mail load factor % 75.7 70.8 65.9 66.7 68.6 67.0 68.7 68.7 71.2 67.3
Excess baggage carried Tonnes 4,053 3,883 2,963 2,310 2,218 2,489 2,530 2,190 2,401 2,270
Kilometres flown Million 464 431 460 422 357 317 285 238 237 224
Block hours ‘000 hours 652 605 649 598 489 431 386 322 322 307
Aircraft departures ‘000 138 130 138 131 98 84 77 65 68 65
Length of scheduled routes network ‘000 kilometres 535 481 453 442 457 403 386 377 374 341
Destinations at year end Number 146 122 124 129 125 92 90 87 62 51
Staff number at year end Number 21,592 20,907 21,309 19,840 18,992 15,806 15,054 14,673 14,649 14,473
ATK per staff ‘000 1,165 1,053 1,185 1,194 1,173 1,147 1,066 903 885 810
On-time performance*
Departure (within 15 minutes) % 80.9 86.8 81.4 83.9 85.2 86.1 90.3 91.0 90.7 82.9
Average aircraft utilisation* Hours per day
A320-200 8.2 8.0 8.4 8.5 8.2 – – – – –
A321-200 8.6 7.8 8.4 8.9 8.9 – – – – –
A330-300 11.6 10.8 10.9 10.7 11.2 10.8 10.1 9.2 10.1 9.4
A340-300 13.8 12.2 14.7 15.3 14.9 15.1 13.6 12.4 13.3 13.4
A340-600 – – 11.4 14.4 14.9 15.3 13.6 11.7 6.3 –
747-400 13.2 12.9 14.1 14.5 14.9 14.7 13.9 12.8 14.1 14.4
747-200F/300SF – 5.4 7.5 10.8 11.8 11.8 13.3 13.3 13.6 12.2
747-400F/BCF 14.4 13.2 13.1 14.0 15.3 16.1 16.3 16.4 15.4 14.3
777-200/300 8.0 8.1 8.7 8.4 9.0 9.1 8.8 8.7 9.4 9.6
777-300ER 15.3 15.8 14.3 10.7 – – – – – –
Fleet average 12.0 11.2 11.5 11.7 12.5 12.6 12.0 11.4 12.1 12.1
* Includes Dragonair’s operation from 1st October 2006.
Fleet profile
Aircraft operated by Cathay Pacific:
A330-300 32 32 32 29 27 26 23 23 20 20
A340-300 15 15 15 15 15 15 15 15 15 15
A340-600 – – – 3 3 3 3 3 2 –
747-400 22 23 23 24 22 22 21 19 19 19
747-200F – – 5 7 7 7 7 6 6 4
747-400F 6 6 6 6 6 6 5 5 5 5
747-400BCF 12 13 10 6 5 1 – – – –
747-400ERF 6 6 2 – – – – – – –
777-200 5 5 5 5 5 5 5 5 5 5
777-300 12 12 12 12 12 11 10 9 7 7
777-300ER 18 14 9 5 – – – – – –
Total 128 126 119 112 102 96 89 85 79 75
Aircraft operated by Dragonair:
A320-200 11 9 10 10 10 11 10 8 8 7
A321-200 6 6 6 6 6 6 6 6 4 3
A330-300 14 14 16 16 16 13 10 9 9 7
747-200F – – 1 1 1 1 1 – – –
747-300SF – – – 3 3 3 3 3 3 2
747-400BCF – – 2 3 1 – – – – –
Total 31 29 35 39 37 34 30 26 24 19
Cathay Pacific Airways Limited Annual Report 2010
101
Statistics
2010 2009 2008 2007 2006 2005 2004 2003 2002 2001
Operating summary – Cathay Pacific and Dragonair*
Available tonne kilometres Million 24,461 22,249 24,410 23,077 19,684 17,751 15,794 13,355 12,820 11,827
Revenue tonne kilometres Million 19,373 16,775 17,499 16,680 14,452 12,813 11,459 9,371 9,522 8,201
Available seat kilometres Million 115,748 111,167 115,478 102,462 91,769 82,766 74,062 59,280 63,050 62,790
Revenue passengers carried ‘000 26,796 24,558 24,959 23,253 18,097 15,438 13,664 10,059 12,321 11,269
Revenue passenger kilometres Million 96,588 89,440 90,975 81,801 72,939 65,110 57,283 42,774 49,041 44,792
Revenue load factor % 81.1 77.7 75.1 75.6 76.2 75.2 74.8 71.1 75.9 70.4
Passenger load factor % 83.4 80.5 78.8 79.8 79.5 78.7 77.3 72.2 77.8 71.3
Cargo and mail carried ‘000 tonnes 1,804 1,528 1,645 1,672 1,334 1,139 990 889 862 713
Cargo and mail revenue tonne kilometres Million 10,175 8,256 8,842 8,900 7,514 6,618 6,007 5,299 4,854 3,938
Cargo and mail load factor % 75.7 70.8 65.9 66.7 68.6 67.0 68.7 68.7 71.2 67.3
Excess baggage carried Tonnes 4,053 3,883 2,963 2,310 2,218 2,489 2,530 2,190 2,401 2,270
Kilometres flown Million 464 431 460 422 357 317 285 238 237 224
Block hours ‘000 hours 652 605 649 598 489 431 386 322 322 307
Aircraft departures ‘000 138 130 138 131 98 84 77 65 68 65
Length of scheduled routes network ‘000 kilometres 535 481 453 442 457 403 386 377 374 341
Destinations at year end Number 146 122 124 129 125 92 90 87 62 51
Staff number at year end Number 21,592 20,907 21,309 19,840 18,992 15,806 15,054 14,673 14,649 14,473
ATK per staff ‘000 1,165 1,053 1,185 1,194 1,173 1,147 1,066 903 885 810
On-time performance*
Departure (within 15 minutes) % 80.9 86.8 81.4 83.9 85.2 86.1 90.3 91.0 90.7 82.9
Average aircraft utilisation* Hours per day
A320-200 8.2 8.0 8.4 8.5 8.2 – – – – –
A321-200 8.6 7.8 8.4 8.9 8.9 – – – – –
A330-300 11.6 10.8 10.9 10.7 11.2 10.8 10.1 9.2 10.1 9.4
A340-300 13.8 12.2 14.7 15.3 14.9 15.1 13.6 12.4 13.3 13.4
A340-600 – – 11.4 14.4 14.9 15.3 13.6 11.7 6.3 –
747-400 13.2 12.9 14.1 14.5 14.9 14.7 13.9 12.8 14.1 14.4
747-200F/300SF – 5.4 7.5 10.8 11.8 11.8 13.3 13.3 13.6 12.2
747-400F/BCF 14.4 13.2 13.1 14.0 15.3 16.1 16.3 16.4 15.4 14.3
777-200/300 8.0 8.1 8.7 8.4 9.0 9.1 8.8 8.7 9.4 9.6
777-300ER 15.3 15.8 14.3 10.7 – – – – – –
Fleet average 12.0 11.2 11.5 11.7 12.5 12.6 12.0 11.4 12.1 12.1
* Includes Dragonair’s operation from 1st October 2006.
Fleet profile
Aircraft operated by Cathay Pacific:
A330-300 32 32 32 29 27 26 23 23 20 20
A340-300 15 15 15 15 15 15 15 15 15 15
A340-600 – – – 3 3 3 3 3 2 –
747-400 22 23 23 24 22 22 21 19 19 19
747-200F – – 5 7 7 7 7 6 6 4
747-400F 6 6 6 6 6 6 5 5 5 5
747-400BCF 12 13 10 6 5 1 – – – –
747-400ERF 6 6 2 – – – – – – –
777-200 5 5 5 5 5 5 5 5 5 5
777-300 12 12 12 12 12 11 10 9 7 7
777-300ER 18 14 9 5 – – – – – –
Total 128 126 119 112 102 96 89 85 79 75
Aircraft operated by Dragonair:
A320-200 11 9 10 10 10 11 10 8 8 7
A321-200 6 6 6 6 6 6 6 6 4 3
A330-300 14 14 16 16 16 13 10 9 9 7
747-200F – – 1 1 1 1 1 – – –
747-300SF – – – 3 3 3 3 3 3 2
747-400BCF – – 2 3 1 – – – – –
Total 31 29 35 39 37 34 30 26 24 19
102
Statistics
2010 2009 2008 2007 2006 2005 2004 2003 2002 2001
Productivity*
Cost per ATK HK$ 3.16 2.76 3.80 2.87 2.75 2.56 2.31 2.21 2.33 2.50
ATK per HK$’000
staff cost Unit 1,933 1,932 2,160 2,105 2,197 2,183 1,978 1,825 1,798 1,725
Aircraft utilisation Hours per day 12.0 11.2 11.5 11.7 12.5 12.6 12.0 11.4 12.1 12.1
Share prices HK$
High 24.1 14.7 20.3 23.1 19.5 15.1 16.4 15.5 13.6 14.3
Low 12.8 7.0 7.1 18.3 12.7 12.0 12.5 8.4 9.9 6.1
Year-end 21.5 14.5 8.8 20.4 19.2 13.6 14.7 14.8 10.7 10.0
Price ratios (Note) Times
Price/earnings 6.0 12.2 (4.0) 11.4 16.5 13.9 11.2 37.9 9.0 50.8
Market
capitalisation/
funds attributable
to owners of
Cathay Pacific 1.6 1.4 0.9 1.6 1.7 1.3 1.5 1.6 1.1 1.1
Price/cash flows 4.5 12.7 8.9 5.0 6.1 5.3 4.5 7.8 3.8 7.2
Note: Based on year end share price, where applicable.
* Includes Dragonair results from 1st October 2006.
ATK per HK$’000 staff cost Cost per ATK
HK$
Aircraft utilisation
Hours per day
Share price
Average share price in HK$ Average HSI
Hang Seng Index (HSI) Cathay Pacific share price
2002 2004 2009 2010 2008 2007 2006 2005 2003 2001
600
1,600
1,400
1,200
1,800
2,000
2,400
2,200
800
1,000
2002 2004 2009 2010 2008 2007 2006 2005 2003 2001
2002 2004 2009 2010 2008 2007 2006 2005 2003 2001
0
8
6
4
2
10
12
14
2.5
1.5
1.0
0.5
3.5
4.0
3.0
2.0
0
2002 2004 2009 2010 2008 2007 2006 2005 2003 2001
0
8
4
24
12
20
16
0
8,000
4,000
12,000
24,000
20,000
16,000
Cathay Pacific Airways Limited Annual Report 2010
103
Glossary
Terms
Borrowings Total borrowings (loans and lease
obligations) less security deposits, notes and zero
coupon bonds.
Net borrowings Borrowings and bank overdrafts less
liquid funds.
Available tonne kilometres (“ATK”) Overall capacity,
measured in tonnes available for the carriage of
passengers, excess baggage, cargo and mail on each
sector multiplied by the sector distance.
Available seat kilometres (“ASK”) Passenger seat
capacity, measured in seats available for the carriage of
passengers on each sector multiplied by the sector
distance.
Revenue passenger kilometres (“RPK”) Number of
passengers carried on each sector multiplied by the
sector distance.
Revenue tonne kilometres (“RTK”) Traffic volume,
measured in load tonnes from the carriage of passengers,
excess baggage, cargo and mail on each sector multiplied
by the sector distance.
On-time performance Departure within 15 minutes of
scheduled departure time.
EBITDA Earnings before interest, tax, depreciation and
amortisation.
Recoveries Cost recoveries from incidental activities.
Ratios
Earnings/(loss)
per share
=
Profit/(loss) attributable to
owners of Cathay Pacific
Weighted average number
of shares (by days) in issue
for the year
Profit/(loss) margin =
Profit/(loss) attributable to
owners of Cathay Pacific
Turnover
Shareholders’ funds
per share
=
Funds attributable to
owners of Cathay Pacific
Total issued and fully paid shares
at end of the year
Return on capital
employed
=
Operating profit and share of
profits of associates less taxation
Average of total equity and
net borrowings
Dividend cover =
Profit/(loss) attributable to
owners of Cathay Pacific
Dividends
Cash interest cover =
Cash generated from operations
Net interest paid
Gross debt/
equity ratio
=
Borrowings
Funds attributable to
owners of Cathay Pacific
Net debt/
equity ratio
=
Net borrowings
Funds attributable to
owners of Cathay Pacific
Passenger/Cargo and
mail load factor
=
Revenue passenger kilometres/
Cargo and mail revenue
tonne kilometres
Available seat kilometres/
Available cargo and mail
tonne kilometres
Revenue load factor =
Total passenger, cargo and mail
traffic revenue
Maximum possible revenue
at current yields and capacity
Breakeven load
factor
=
A theoretical revenue load factor
at which the traffic revenue
equates to the net operating
expenses.
Passenger/Cargo and
mail yield
=
Passenger turnover/
Cargo and mail turnover
Revenue passenger kilometres/
Cargo and mail revenue
tonne kilometres
Cost per ATK =
Total operating
expenses of Cathay Pacific
and Dragonair
ATK of Cathay Pacific
and Dragonair
104
Registered office
33rd Floor, One Pacific Place
88 Queensway
Hong Kong
Depositary
The Bank of New York Mellon
BNY Mellon Shareowner Services
P.O. Box 358516
Pittsburgh, PA 15252-8516
U.S.A.
Domestic toll free hotline: 1(888) BNY ADRS
International hotline: 1(201) 680 6825
Email: shrrelations@bnymellon.com
Website: www.bnymellon.com/shareowner
Stock codes
Hong Kong Stock Exchange 00293
ADR CPCAY
Registrars
Computershare Hong Kong Investor Services Limited
Rooms 1806-1807
18th Floor, Hopewell Centre
183 Queen’s Road East
Hong Kong
Auditors
KPMG
8th Floor, Prince’s Building
10 Chater Road
Hong Kong
Financial calendar
Year ended 31st December 2010
Annual report available to shareholders 6th April 2011
Annual General Meeting 18th May 2011
Six months ending 30th June 2011
Interim results announcement August 2011
Interim dividend payable October 2011
Cathay Pacific Airways Limited is incorporated in Hong Kong with limited liability.
Investor relations
For further information about Cathay Pacific Airways Limited, please contact:
Corporate Communication Department
Cathay Pacific Airways Limited
7th Floor, North Tower
Cathay Pacific City
Hong Kong International Airport
Hong Kong
Tel: (852) 2747 5210
Fax: (852) 2810 6563
Cathay Pacific’s main Internet address is www.cathaypacific.com
Corporate and Shareholder Information
DESIGN:
FORMAT LIMITED
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Printed in Hong Kong
C M Y K varnish
www.cathaypacific.com
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Cathay Pacific Airways Limited
Stock code: 00293
Annual Report 2010

Hong Kong

Cathay Pacific is an international airline registered and based in Hong Kong, offering scheduled passenger and cargo services to 141 destinations in 39 countries and territories around the world. The Company was founded in Hong Kong in 1946 and remains deeply committed to its home base, making substantial investments to develop Hong Kong as one of the world’s leading global transportation hubs. In addition to its fleet of 127 wide-bodied aircraft, these investments include catering and ground-handling companies and the corporate headquarters at Hong

Kong International Airport. Cathay Pacific is also building its own state-of-the-art cargo terminal at the airport, which will open in early 2013. Hong Kong Dragon Airlines (“Dragonair”) is a wholly owned subsidiary of Cathay Pacific. Dragonair is an Asian regional airline, registered and based in Hong Kong, which offers scheduled passenger and cargo services to 33 destinations in 14 countries and territories with a fleet of 31 aircraft. Cathay Pacific also owns 18.7% of Air China Limited (“Air China”), the national flag carrier and a leading provider of

Contents
2 3 5 16 24 32 34 42 47 48 52 53 54 55 56 57 58 96 98
Cathay Pacific Cathay Pacific Freighter Dragonair Air Hong Kong

Financial and Operating Highlights Chairman’s Letter 2010 in Review Review of Operations Financial Review Directors and Officers Directors’ Report Corporate Governance Independent Auditor’s Report Principal Accounting Policies Consolidated Statement of Comprehensive Income Consolidated Statement of Financial Position Company Statement of Financial Position Consolidated Statement of Cash Flows Consolidated Statement of Changes in Equity Company Statement of Changes in Equity Notes to the Accounts Principal Subsidiaries and Associates Statistics Glossary Corporate and Shareholder Information

103 104

passenger, cargo and other airline-related services in Mainland China, and is the major shareholder in AHK Air Hong Kong Limited (“Air Hong Kong”), an allcargo carrier offering scheduled services in the Asian region. Cathay Pacific and its subsidiaries employ some 27,500 people worldwide (more than 20,000 people in Hong Kong). Cathay Pacific is listed on The Stock Exchange of Hong Kong Limited, as are its substantial shareholders Swire Pacific Limited (“Swire Pacific”) and Air China.

Cathay Pacific is a founding member of the oneworld global alliance, whose combined network serves more than 750 destinations worldwide. Dragonair is an affiliate member of oneworld.

A Chinese translation of this Annual Report is available upon request from the Company’s Registrars.

本年報中文譯本,於本公司之股份登記處備索。

0 80.4 61.2 86.86 2.1% +4.9% +29.62 +28.524 14.558 80.249 24.528 70.28 42.2 1.7% +199.435 13.3% +199.5% +1.7 2.34 times Operating Statistics – Cathay Pacific and Dragonair 2010 2009 Change Available tonne kilometres (“ATK”) Passengers carried Passenger load factor Passenger yield Cargo and mail carried Cargo and mail load factor Cargo and mail yield Cost per ATK Cost per ATK without fuel Aircraft utilisation On-time performance Million ‘000 % HK cents ‘000 tonnes % HK$ HK$ HK$ Hours per day % 24.1% -5.76 2.1 111.0% +8.131 10.796 83.9%pt +19.0 +33.1 1.5 51.3 10.7 66.3% +1.010.978 4.33 3.9%pt  .8 0.Financial and Operating Highlights Group Financial Statistics 2010 2009 Change Results Turnover Profit attributable to owners of Cathay Pacific Earnings per share Dividend per share Profit margin HK$ million HK$ million HK cents HK cents % 89.804 75.7%pt Financial Position Funds attributable to owners of Cathay Pacific Net borrowings Shareholders’ funds per share Net debt/equity ratio HK$ million HK$ million HK$ Times 54.0 15.048 357.8% +18.9%pt +25.5% -40.1% +2.8 +9.02 12.16 2.274 15.9 22.0 7.8 1.238 26.00 11.9% +9.7 0.0% -0.3% +14.694 119.0% +7.461 26.

In March 2011. This enables us (while continuing our policy of maintaining a conservative balance sheet) to increase the size of the airline and so further strengthen Hong Kong’s position as a leading international aviation hub.3% to HK$59.0% higher on average than in 2009.354 million.2 cents. Cargo capacity increased by 15.482 million to the 2010 result). there was a marked pick-up in premium travel and seat revenue was managed astutely. This was reflected in yield increasing by 25. Despite this substantial increase in capacity. depending on intervening movements in the price of oil. Freight carried by Cathay Pacific and Dragonair increased by 18. Demand was strong in most markets. and especially so in the peak season of October and November.524 million. representing an increase of 9.048 million for 2010. The Group’s cargo revenue increased by 50. Yield increased by 19. Demand in all key markets was strong.8 million tonnes. Air China (which contributed HK$2. As business conditions improved. We continue to invest in a modern. This reflected a superb and sustained effort on the part of our staff. Our passenger and cargo businesses both performed well with consistently strong loads and significant increases in revenues.9 percentage points to 75. increased by 40. will be released to the profit and loss account in 2011 and 2012 as the underlying contracts mature.  .694 million for 2009. will result in the acquisition of 14 further aircraft. This result. a record for the Group. while unrealised mark-to-market gains of approximately HK$1 billion have been recognised in reserves. Passenger capacity increased by 4. an issue in which we were unable to participate. In December. The fuel price increased during the year and was 28. compares to an attributable profit of HK$4. if successfully concluded. of 30 Airbus A350-900s (to be delivered between 2016 and 2019) and of six more Boeing 777-300ERs. Cathay Pacific is also in discussions which. with the first now scheduled to arrive in August 2011.9 percentage points as a result of consistently strong demand for economy class seats and a steady increase in demand for premium class seats. reflecting both the higher price and increased operations. In 2010 we took delivery of seven new aircraft. The improved business conditions helped us to rebuild our balance sheet.1% to 1. we restored capacity.1% over 2009’s figure. Our total fuel costs for 2010 (disregarding the effect of fuel hedging). In August 2010 we announced our biggest-ever aircraft order. Passenger revenue for the year increased by 29. reinstated services and added new destinations.1 cents.2%. The load factor increased by 2.3% to HK357. there will be a delay in the delivery of our new-generation Boeing 747-8F freighters. The Group’s business began to recover from the global economic downturn in the latter part of 2009. Fuel remains our largest single cost.8% to HK61. fuel-efficient fleet. Managing the risk associated with fuel price changes is a key challenge.1% to HK$25.4%.Cathay Pacific Airways Limited Annual Report 2010 Chairman’s Letter The Cathay Pacific Group recorded an attributable profit of HK$14. representing 35.7% to HK$89. We were able to thank those who took voluntary unpaid leave in 2009 by making an ex gratia payment to them.33. Turnover for the year rose by 33. a further two Airbus A350-900s were ordered. Cathay Pacific and Dragonair between them carried a total of 26. the strength of demand was such that our load factor increased by 4. The deemed disposal occurred because Air China issued some new shares. from the aggregate profit of HK$2. These gains.3% to HK$2. Staff will also receive a 2010 profit share greater than five weeks’ salary.8 million passengers in 2010.7%. Our financial position is strong. Cathay Pacific announced the acquisition of 15 new Airbus A330-300 aircraft and 10 new Boeing 777-300ER aircraft. The Group’s fuel hedging activities resulted in a reported loss of HK$41 million in 2010. as we brought back into service freighters which had been parked in the desert during the downturn.901 million.6% of the Group’s total operating costs. We also benefited from the strong profits earned by our associated company.165 million from the disposal of our interests in Hong Kong Air Cargo Terminals Limited (“Hactl”) and Hong Kong Aircraft Engineering Company Limited (“HAECO”) and from the profit of HK$868 million from the deemed disposal of part of our interest in Air China. The momentum was sustained throughout 2010. Earnings per share rose by 199.1% as we restored services which had been reduced or suspended during the downturn and added new destinations. Unfortunately.

some at a faster rate than revenue. called The Cabin. With regard specifically to fuel. and the two airlines are now in the process of completing the necessary paperwork to enable operations to commence. The Commission issued a decision finding that Cathay Pacific and a number of other international air cargo carriers agreed on cargo surcharge levels and that such agreements infringed European competition law. restored services to Fukuoka and Sendai in Japan and added Okinawa to its network. Air China Cargo. I am confident that these. We cannot afford to be complacent. one of the world’s great international aviation hubs and a key gateway to Mainland China. The construction of our own cargo terminal at Hong Kong International Airport is progressing on schedule. It also added 22 destinations to its network through codeshare arrangements with airlines in Central and Latin America. revenues will increase in line with capacity. increased oil prices can be expected to have a significant adverse effect on profitability if they are not recovered through higher tariffs or fuel surcharges or if the effect of their being so recovered is to reduce demand significantly. have made full provision for the fine in our accounts for 2010. Canada and Japan. and very quickly so. Cathay Pacific remains the subject of antitrust investigations and proceedings in various jurisdictions and will continue to cooperate with the relevant authorities and. will help to ensure the continued success of the Group. our strong relationship with Air China and our position in Hong Kong. Capacity will increase with the introduction of new destinations and increased frequencies. Air China Cargo is based in Shanghai and is in a good position to exploit the attractive air cargo opportunities in the Yangtze River Delta region. Dragonair added a new service to Hongqiao in Shanghai. Demand is at present expected to remain strong in 2011. An existing Air China subsidiary. In November 2010. a superb international network. will be used as the platform for the joint venture.Chairman’s Letter Cathay Pacific launched services to two new destinations in 2010. We remain committed to our longstanding policy of full compliance with the law and reaffirms our support for full and fair competition among air carriers. Milan and Moscow. Christopher Pratt Chairman Hong Kong. the European Commission imposed a fine equivalent to HK$618 million on Cathay Pacific. 2011 will see significant expenditure on aircraft interiors and airport lounges (undertaken with a view to enhancing the quality of service) and on information technology. Other operating costs are expected to increase. added services to Haneda and has announced the commencement of passenger services to Abu Dhabi commencing in June 2011 and to Chicago commencing in September 2011. The rapid turnround in our business from the lows of 2008 and much of 2009 to the record highs of 2010 is very welcome. the quality of our product and services. During the year we opened a new first and business class lounge in London and a fourth first and business class lounge in Hong Kong. but this expectation could be undermined if the current (or any higher) level of oil prices were to reduce global economic activity. The airline industry is challenging and unpredictable. We also began to renovate our signature lounge in Hong Kong. The Wing. We will continue to manage our finances prudently and will strive to keep costs firmly under control. consistent with accounting standards. In December 2010 Cathay Pacific announced the introduction of a new long-haul flat-bed business class seat. If our expectation as to demand is met. When the facility opens in early 2013 it will be one of the biggest and most advanced of its kind in the world. The Group is selling four Boeing 747400BCF freighters and two spare engines to the joint venture. Fuel costs are now higher than was expected at the beginning of 2011. The authorities in Mainland China have given formal approval for our cargo joint venture with Air China. One of these aircraft has already been sold to Air China Cargo. We are appealing this decision but. The other three are expected to be sold in 2011 and 2012. defend itself vigorously. Our results would be adversely affected. Our commitment to Hong Kong as an international air cargo hub remains unwavering. 9th March 2011  . the United States. where applicable. It is also indicative of the volatile nature of our business. by a return to recessionary economic conditions. together with our core strengths of a capable and committed team. Many good things happened in 2010.

We expect to complete the renovation in the third quarter of 2012. • Cathay Pacific won a number of prestigious awards in 2010. • After opening The Cabin. This new facility offers passengers using our busiest long-haul route a new level of pre-flight comfort and service. • The new business class seats will be installed on all new long-haul aircraft and will be progressively retrofitted on existing long-haul aircraft. add new destinations and announce important improvements in customer service. there were special inflight menus developed in conjunction with renowned restaurants in Hong Kong. The new seats are expected to be installed in all long-haul aircraft by February 2013. • Dragonair received a number of honours in 2010. The Cabin. The seat is both wider and. top company in Hong Kong in the “Asia’s Most Admired Companies” poll run by Wall Street Journal Asia.Cathay Pacific Airways Limited Annual Report 2010 2010 in Review Cathay Pacific and Dragonair enjoyed a strong and sustained improvement in their businesses in 2010. its employees and the environment. The more stable operating environment enabled the airlines to reinstate services that were cut back during the downturn. including being named World’s Best Regional Airline in the annual Skytrax World Airline Awards. which recognised the airline’s commitment to caring for the well-being of the community. a passenger-led move to improve comfort. To mark the anniversary. longer than its predecessor. Hong Kong.  . All controls are within easy reach. The work will take place in phases in order to minimise the impact on our premium class passengers. Best Regional Airline in the TTG Asia Travel Awards and Best Airline Economy Class in a Business Traveller China reader survey. being named Cargo Airline of the Year at the 2010 Centre for Asia Pacific Aviation Awards (when it was praised for responding astutely to the downturn and laying an “exceptional platform” to benefit from China’s economic and trade boom) and being named Carrier of the Year in the Canadian International Freight Forwarder Association awards in October. Cathay Pacific launched its new business class seat. including the Total Caring Award (part of the Caring Company Scheme organised by the Hong Kong Council of Social Service). The Arrival.339 square metre facility follows that of our current lounges. for the fifth year in a row. Shanghai and Taiwan. • Other honours for Cathay Pacific in 2010 included being named. four departure lounges and one arrival lounge. An anniversary website and commemorative brochure were produced featuring milestones in the airline’s development and there were fare promotions. Beijing. In October we opened our latest departure lounge. we started to renovate our signature lounge. Award winning products and services • In December. It maximises space and affords both privacy and freedom of movement. The design of this 1. • We operate five lounges at Hong Kong International Airport. • Dragonair celebrated its 25th anniversary in 2010. versatility and functions. The Wing. • Our arrival lounge at Hong Kong International Airport. when fully flat. • We opened a new first and business class lounge in Terminal 3 at London’s Heathrow International Airport in July. but with new features like The Deli and the Cathay Solus Chair. The new seat has been designed with passengers’ needs firmly in mind. won the Best New Lounge award from the US edition of Travel + Leisure magazine. The Group remained focused on further developing its home city. as one of the world’s leading international aviation hubs and reinforced its commitment to sustainable development. one of its Airbus A330 aircraft was painted in a special anniversary livery.

Services on some routes were increased from their pre-downturn levels. During the year we restored freighter services which had been suspended during the downturn and added capacity on a number of routes. It will operate as a triangular route with flights returning to Hong Kong via Jeddah.  . The new uniform will be introduced throughout the network later in 2011. By September we were operating our full freighter schedule and had added extra services where necessary to meet demand. Milan will move to a daily flight from July. The airline also increased the number of flights to Denpasar and Sapporo in response to seasonal demand. seven more flights per week will be reinstated to Taipei. In September a daily service to Chicago will commence. the passenger and cargo capacity of Cathay Pacific and Dragonair had increased by 4. • We launched our first round-the-world freighter service in July. Canada and Japan. we restored passenger services and added new destinations. Paris will move to a double-daily service. • We are continuing to enhance services in 2011. added four flights per week to Kaohsiung and increased services to Phuket and Kota Kinabalu. increased services to Chengdu. • We are committed to maintaining Hong Kong as the world’s leading international air cargo hub. • Dragonair restored services to Xiamen.2% respectively compared with 2009. A four-times-weekly service to Abu Dhabi in the Middle East will commence in June. Hub development • As business conditions improved. the United States. seven flights per week to Seoul. A new twice daily service to Haneda International Airport in Tokyo was launched in October.1% and 15. • Cathay Pacific added two new destinations to its passenger network in 2010. This is the first time Cathay Pacific has operated transatlantic flights. • Dragonair’s flights to Dhaka and Kathmandu were combined (in order to improve efficiency) and their number was increased from five to six per week. The airline added 22 destinations to its network through codeshare arrangements with airlines in Central and Latin America. added three flights per week to Busan. three flights per week to Los Angeles. The airline also restored daily services to Bengaluru. This will be the airline’s fourth passenger destination in the United States. • Cathay Pacific will add two destinations to its network in 2011. • Dragonair restored its daily service to Fukuoka in October. Jakarta will become a thrice-daily service and Surabaya will get one extra flight a week to make it a daily service. extra flights to Australia and four flights per week to Paris. and converted its charter services to Okinawa into a scheduled service in November. so reaffirming our commitment to the continued development of the Hong Kong hub. We will also boost our Penang operation by making all daily flights non-stop. flying twice-weekly to Chicago and then on to Amsterdam and Dubai before flying back to Hong Kong. designed by Hong Kong’s renowned fashion designer Eddie Lau. three flights per week to Jeddah. Chongqing and Nanjing in the summer period and increased services to Changsha and Wuhan on a year-round basis. From late March. • Dragonair began a new daily service to Shanghai’s Hongqiao International Airport in September and now has 14 daily flights (including those to Pudong) to Shanghai. 21 flights per week to Taipei. • By the end of the year. A four-times-weekly service to Milan commenced in March and a threetimes-weekly service to Moscow commenced in July. • Cathay Pacific’s flight restorations and increases in 2010 included the addition of five flights per week to Toronto.2010 in Review • Cathay Pacific introduced a new uniform for its cabin crew and for its airport and reservations staff in December. Frequencies were restored on most routes where they had been cut back and destinations which had been temporarily removed from the network were reinstated. seven flights per week to Singapore. • Capacity was increased on the Shanghai route in order to accommodate the increase in demand caused by the World Expo. resumed seasonal services to Sendai in December.

e-AWB will reduce costs and improve efficiency. In late 2010 this service was extended to flights departing from Singapore and Australia. • By using an interactive map on the Cathay Pacific website. The service will be available in Hong Kong from March. Cathay Pacific is also in discussions which. In December. which will begin operations in early 2013. will result in the acquisition of 14 further aircraft. six Boeing 777-300ERs and six Boeing 747-8F freighters. • A Boeing 747-400BCF freighter was sold to Air China Cargo in November and another three such freighters will be sold in 2011 and 2012. These will in due course be returned to their lessors.Cathay Pacific Airways Limited Annual Report 2010 2010 in Review • We recommenced work on our HK$5. e-AWB was implemented for all airway bills in Hong Kong on 1st January 2011 and will be implemented in outports during the next two years. Pioneer in technology • Cathay Pacific expects to launch a new broadband service for its aircraft in early 2012. they are now scheduled to commence in August. update their personal information. passengers can review their bookings. • Passengers can buy online travel insurance when booking flights departing from Hong Kong. • Cathay Pacific is scheduled to take delivery of 15 new aircraft in 2011. The stateof-the-art facility. • Cathay Pacific took delivery of five new aircraft in 2010. of 30 Airbus A350-900s (to be delivered between 2016 and 2019) and of six more Boeing 777300ERs. The airline still has four Airbus A340-300s in the desert. The service was launched in the North American market and was introduced for a number of other destinations in early 2011. The service will also be available on the Dragonair fleet. Cathay Pacific announced the acquisition of 15 new Airbus A330-300 aircraft and 10 new Boeing 777300ER aircraft. • One of Cathay Pacific’s two Boeing 747-400 passenger aircraft parked in the desert was brought back into service in December to increase capacity during a period of peak seasonal demand.5 billion cargo terminal at Hong Kong International Airport. • Cathay Pacific is pioneering the move to electronic airway bills (e-AWB) in Hong Kong. Cathay Pacific had brought back into service all five of its Boeing 747-400BCF freighters which had been parked in the desert during the downturn. These aircraft were in addition to the 29 aircraft already on order. • Dragonair took delivery of two new Airbus A320s in 2010. will provide more choice and competition in Hong Kong’s airfreight industry. • By July. In March 2011. if successfully concluded. comprising four new Boeing 777-300ERs and one new Airbus A330-300. The system enables passengers to be contacted when services are disrupted.  . The app enables passengers to book tickets on their iPads. It also dry-leased two Airbus A330-300s from Cathay Pacific to replace two of its own Airbus A330s when they were returned to their lessors. a further two Airbus A350-900s were ordered. specifically for the iPad. or app. select special meals and make advance seat reservations. • One of Cathay Pacific’s Boeing 747-400BCFs was wetleased to Air Hong Kong. The construction of the terminal and preparation for operations are progressing well. Cathay Pacific became the first Asian airline to introduce an online ticket change function. Deliveries of the freighters were due to commence in January. • We plan to start introducing a new website based reservations and check in systems for Cathay Pacific and Dragonair in quarter one of 2012. • Cathay Pacific was one of the first airlines to introduce an application. As a result of production problems at Boeing. This will enable passengers to use their mobile devices on board the aircraft and will provide an inflight entertainment portal. • In June 2010. Fleet development • In August Cathay Pacific announced its biggest-ever aircraft order. The other parked Boeing 747-400 has been retired from the fleet. three Airbus A330-300s.

bringing three destinations in Central and Latin America – Santiago. Air China Cargo is based in Shanghai and is in a good position to exploit the attractive air cargo opportunities in the Yangtze River Delta region. • Our environmental efforts were recognised in May when Cathay Pacific collected a Silver Award (Sectoral Awards – Transport and Logistics) in the 2009 Hong Kong Awards for Environmental Excellence. following an extensive review of its alliance strategy. Lima and Mexico City – into its network. • Russian carrier S7 became the 12th full member of oneworld when it formally began offering the full range of alliance benefits and services from November. we participated in the World Wildlife Fund for Nature’s (WWF) Earth Hour. Air China Cargo. will become an affiliate member. The other three are expected to be sold in 2011 and 2012. will be used as the platform for the joint venture. oneworld serves more than 750 destinations around the world. One of these aircraft has already been sold to Air China Cargo. Cathay Pacific launched codeshare services with WestJet and Alaska Airlines and added eight destinations to its existing codeshare network in North America. • Our staff participated in a number of environmental activities. and the two airlines are now in the process of completing the necessary paperwork to enable operations to commence. • Several new codeshare arrangements in North America and Japan were announced towards the end of 2010. • We made presentations on climate change at the Corporate Social Responsibility (CSR) Asia Summit 2010 in September. It was given a top A+ rating under the Global Reporting Initiative Guidelines. • The oneworld alliance and its member airlines offered support to LAN after its operations were affected by February’s major earthquake in Chile. The arrangements also extend to Japan Airlines’ flights to Honolulu. We switched off all nonessential lighting in our buildings and on our billboards. • In March. has agreed to become a full member of oneworld. • Kingfisher Airlines. Events were arranged with WWF including a dolphin boat trip in June and a visit to the Mai Po bird sanctuary in Hong Kong in August. • Cathay Pacific published its first Sustainable Development Report in April. • Japan Airlines has reaffirmed its commitment to oneworld. • Germany’s second largest carrier. • With the addition of S7. part of the Air Berlin group.  . has agreed to join oneworld and is expected to begin flying as part of the alliance in 2011.2010 in Review Partnerships • The authorities in Mainland China have given formal approval for our cargo joint venture with Air China. The report demonstrates our intention to embed sustainable development processes and principles in our operations. An existing Air China subsidiary. India’s only five-star airline. the Association of Asia Pacific Airlines conference in October and the Climate Leaders Group in Japan in December. The Japan Airlines code is now on Cathay Pacific flights between Hong Kong and five destinations in Japan and the Cathay Pacific code has gone on Japan Airlines flights between Hong Kong. • Cathay Pacific launched codeshare arrangements with oneworld partners LAN. NIKI. Environment • Cathay Pacific continues to work with international organisations such as the United Nations Framework Convention on Climate Change and the International Civil Aviation Organization to ensure that the voice of airlines is heard with regard to climate change. The Group is selling four Boeing 747-400BCF freighters and two spare engines to the joint venture. • In August we had a fruitful session sharing environmental best practice experiences with Air China. LAN Peru and Mexicana Airlines. Tokyo and a further 10 destinations in Japan. Air Berlin. • In August Cathay Pacific was named as one of the top airline picks in CLSA’s “Sustainable Airlines Thrifty Flyers” report.

000 Tung Chung school students to improve their conversational English.Cathay Pacific Airways Limited Annual Report 2010 2010 in Review • Our FLY greener carbon offset scheme allows Cathay Pacific and Dragonair passengers to offset the environmental impact of their travel. Other volunteering projects included a beach cleanup. businesses and university students. Toulouse. • Cathay Pacific produced a leaflet for corporate clients in August aimed at encouraging more businesses to participate in the FLY greener scheme. • The “CX Volunteers” continued to help the local community. These involved younger staff members. to help alleviate poverty and to develop sustainable economic alternatives for the local population. pilots. taking the opportunity to promote our FLY greener scheme. a number of stakeholder engagement exercises. • In November we received the Green Supply Chain Award from the Supply & Demand Chain Executive magazine in recognition of our efforts to make sustainability a core part of our supply chain strategy. • Cathay Pacific continued to support UNICEF through its Change for Good inflight fundraising programme in the programme’s 20th anniversary year. helped by the Swire Group Charitable Trust. • Cathay Pacific and Dragonair. we purchased offsets from two hydropower projects and one wind turbine project in Mainland China. Money contributed by staff and passengers was matched by the airlines. In October. To date. for the purpose of compiling our next Sustainable Development Report. its employees and the environment. donated HK$5 million to support UNICEF’s relief work following the earthquake in the Qinghai province of western China. to protect watershed areas.  . help for the elderly in remote Lantau villages and collecting Christmas gifts for needy children. consultants were appointed to assist in the setting of emissions targets. The students participated in a six-month series of activities designed to increase their knowledge of aviation and to foster commitment to the community through self-designed social service projects. which recognised the airline’s commitment to caring for the well-being of the community. • Cathay Pacific continues its preparation for the introduction of the European Union’s Emissions Trading System (ETS) and put a system in place to comply with regulations under the ETS. • A new Change for Good donation envelope and a new inflight video. • Dragonair participates in the “Change for Conservation” inflight charity fundraising programme. The programme raises awareness of the importance of nature conservation. • Staff from Cathay Pacific joined trips organised by UNICEF to Kenya and Ethiopia to see at first hand how funds from Change for Good are put to good use in helping to improve people’s lives. Contribution to the community • In March. the airline’s passengers have contributed more than HK$100 million to help improve the lives of disadvantaged children around the world. • One-hundred students joined the fourth Cathay Pacific “I Can Fly” programme in February. • In September we undertook. Their English on Air programme has helped more than 1. sustainability experts. Overseas trips were arranged to Seattle. Funds raised on Dragonair flights (which aggregated over HK$7. a sale of donated items to help the underprivileged.9 million at the end of 2010) are used in Yunnan province in Mainland China. Tianjin and Adelaide. • In December we renewed our annual Indoor Air Quality Certification for Cathay Pacific City and ISO 14001 Certification for Cathay Pacific City and Dragonair House. In 2010. were launched in September to coincide with the 20th anniversary of the programme. featuring UNICEF ambassadors Leon Lai and Miriam Yeung. Cathay Pacific won the Total Caring Award (part of the Caring Company Scheme organised by the Hong Kong Council of Social Service). • In November we participated in the Eco Asia Expo 2010 event. environmental and social NGOs.

000 more cabin crew in 2011. • In November. More than 12. • For the fifth consecutive year. 10 . with another 61 cadets graduating from the programme in 2010. with 57 former cadets now working as Captains with the airline.5 million was given to UNICEF to support its relief efforts. We also added more cabin crew in our overseas bases in San Francisco. when the Group’s full year results are published in March. • Staff from the two airlines continue to support handicapped children in Hong Kong through the work of the Sunnyside Club. Dragonair was named a “Caring Company” by the Hong Kong Council of Social Service. 359 cadets have graduated and work as pilots at Cathay Pacific. Bangkok and Singapore. Some now have careers in aviation. of their profit shares for 2010.000 staff participated.000 applications were received. • Cathay Pacific ran an internal campaign for staff to create their own advertisements and confirm their commitment to helping to take our standards of service to new heights. which is jointly organised with the Hong Kong Air Cadet Corps. in March it co-sponsored the Hong Kong Sevens rugby event. • In August. in June it co-sponsored the Hong Kong Squash Open (for the 25th consecutive year) and in December it sponsored the Cathay Pacific Hong Kong International Races. More staff were featured in the second wave of the campaign that was launched in September. To date. sponsoring its summer festival and tour. • Cathay Pacific and Dragonair confirmed their commitment to their home city by putting the updated Brand Hong Kong logo on their aircraft. it was announced that a full 13th-month discretionary bonus would be paid to eligible staff at the end of the year and that. More than 5. in amounts equivalent to two weeks’ salary. In February the airline sponsored the International Chinese New Year Night Parade. We recruited principally in Hong Kong. industry practice. 50 cadets have graduated from the programme in the five years of its existence. London. • The sixth annual Betsy Awards ceremony was held in June to honour Cathay Pacific and Dragonair service staff who went beyond the call of duty to assist passengers in need or to further the excellence of the two airlines’ service. eligible staff could expect a profit share for 2010 equivalent to at least three weeks’ salary in addition to the advance payment of profit share made in August. • We regularly review our human resource and remuneration policies in the light of local legislation. • Cathay Pacific recruited almost 900 cabin crew in Hong Kong in 2010. following the improvement in business. The airline has supported the orchestra since its formation in 1990. • In August. The money raised was matched by the airline and a total of HK$1. the Group made an ex gratia payment to all staff who took part in the 2009 Special Leave Scheme (which was introduced in 2009 to help the Company reduce costs during the global economic downturn). In May we announced a new three-year profit sharing scheme that will enable staff of both Cathay Pacific and Dragonair to share in our success. market conditions and the performance of individuals and the Group. 16 cadets graduated from Dragonair’s Aviation Certificate Programme. • In December. Cathay Pacific launched an appeal among staff to help those affected by the flooding in Pakistan and the landslides in Gansu. • Cathay Pacific launched a marketing campaign in March which focused on members of our staff who create the airline’s special brand of service. in recognition of its good corporate citizenship. but also in Korea and Taiwan. Advertisements which highlight the professional and personal qualities of customer-facing staff have been backed up by a unique “Meet the Team” website. The programme will be opened to the Hong Kong public for the first time in 2011. We intend to recruit 800 to 1. Commitment to staff • In March.2010 in Review • Cathay Pacific continued its support for the Asian Youth Orchestra. staff received an advance payment. • The Cathay Pacific Cadet Pilot Programme continues to produce the next generation of local pilots. • Cathay Pacific continued to support major events in Hong Kong.

• Cathay Pacific achieved its best-ever result in the biennial IATA Operational Safety Audit (IOSA) in June. Fleet profile* Number as at 31st December 2010 Leased Aircraft type Firm orders ’13 and ‘12 beyond Total ‘11 Expiry of operating leases ‘12 ‘13 ‘14 ‘15 ’16 and Purchase beyond Options rights Owned Finance Operating Total ‘11 Aircraft operated by Cathay Pacific: A330-300 A340-300 A350-900 747-400 747-400F 747-400BCF 747-400ERF 747-8F 777-200 777-300 777-300ER Total A320-200 A321-200 A330-300 Total A300-600F Grand total 4 3 2 52 5 2 4 11 2 65 1 1 6 54 1 9 7 47 9 5 12 18 6 15 5 13 7 39 18 67 4 2 3 1 4 9 15 6 4 1 1 3 3 3 3 2 12 10 20(c) 20 29 128 6 4 9 19 11 6 14 31 8 48 167 15 13 39 67 5 5 6 1 4 27 10 20 17 3 6 3 1 6 5 5 22 6 12 6 6 4 10 3 1 1 11 6 15 5 6 4 32 15 32 (a) 3 4 7 4 32 2 2 4 10(b) 2 1 Aircraft operated by Dragonair: Aircraft operated by Air Hong Kong: * Includes parked aircraft.412 at the end of the previous year. IOSA is an internationally recognised system which measures how safely and effectively an airline operates. • About 140 cabin crew were recruited by Dragonair in Hong Kong in 2010. • Dragonair employed 2.cathaypacific. This profile does not reflect aircraft movements after year end. • Dragonair continues to run its own cadet pilot scheme. 12 new cadets were recruited in 2010. 11 .Cathay Pacific Airways Limited Annual Report 2010 2010 in Review • Cathay Pacific launched its CARE Team in September.467 staff at the end of 2010. This is a special group of volunteers drawn from all sections of the workforce who will be deployed to provide support in the event of a serious incident. • Cathay Pacific organised 25 service leadership forums for its cabin crew managers and airport managers. to be exercised no later than 2016 for A350 family aircraft.com. Our complete Sustainable Development Report is available online at www. The aim was to generate a better understanding of the airline’s services and to help the managers to deliver more focused services to passengers. (a) Including two aircraft on 12-year operating leases. The airline intends to recruit another 300 cabin crew in 2011. compared to 2. (c) Purchase rights for aircraft delivered by 2017. (b) Options.

Business volume increased by 10% from 2009. is the principal flight kitchen in Hong Kong. which was slightly below the target of 95%. is an integrated ground handling operator offering both ramp and passenger handling services in Hong Kong.2010 in Review Review of other subsidiaries and associates The results recorded by our other subsidiaries and our associates were overall satisfactory. Below is a review of their performance and operations. Nagoya. • Compared with 2009. However. It was not possible to pass on increased costs to customers. Seoul. the Canadian operations showed a deficit in 2010. capacity increased by 7%. • Operating costs were affected by a tight labour market and increased rates of sickness among staff. • In a highly competitive market. a wholly owned subsidiary.326 million to HK$2. the number of customers for passenger handling dropped to 13 from 17 in 2010. including Cathay Pacific and Dragonair. Shanghai. • The airline operates a fleet of eight owned Airbus A300-600F freighters and three wet-leased aircraft. • Air Hong Kong operates six flights per week to Bangkok.9 million meals in 2010 and this accounts for 65% of the airline catering market in Hong Kong. • Business volume and profits at the flight kitchens in Asia (outside Hong Kong) improved over 2009. reflecting the recovery in aviation traffic. Manila. Cathay Pacific Catering Services (H. • HAS had 49. Some new customers were gained despite the overall loss of customers. particularly of labour. • On-time performance was 94%. AHK Air Hong Kong Limited (“Air Hong Kong”) • Air Hong Kong is the only all-cargo airline in Hong Kong and is 60% owned by Cathay Pacific. Its core business is to operate express cargo services for DHL Express. coupled with effective control of operating costs. The load factor and yield improved by 3 percentage points and 2% respectively.) Limited (“CPCS”) and overseas kitchens • CPCS. a wholly owned subsidiary. Hong Kong Airport Services Limited (“HAS”) • HAS.4% market shares in ramp and passenger handling businesses respectively at Hong Kong International Airport. The share of profits from associates increased by HK$2. Osaka and Penang (via Bangkok). • The increase in the volume of sales.587 million mainly as a result of Air China’s strong results. One of the wet-leased aircraft is a Boeing 747-400BCF freighter leased from Cathay Pacific. resulted in an improved profit margin. • Air Hong Kong achieved a moderate increase in profit for 2010 compared with 2009.K. were high and margins contracted. Operating costs. The 2010 results of HAS were disappointing. • CPCS produced 22.5% and 24. Taipei and Tokyo and five flights per week to Beijing. It provides ground services to 37 airlines. Singapore. 1 .

• In an announcement made on 13th January 2011 about its expected results for 2010. is the national flag carrier and leading provider of passenger. we increased our shareholding in Shenzhen Airlines Company Limited becoming its controlling shareholder. the synergy created by which also contributed to the improvement of the annual results of the Company. Air China made the following statement. It enabled us to apply the proceeds from the transaction towards other investments in Cathay Pacific’s core aviation business. including new aircraft. The longstanding operational relationship between Cathay Pacific and HAECO will remain unchanged.Cathay Pacific Airways Limited Annual Report 2010 2010 in Review Air China Limited (“Air China”) • Air China. HAECO has always been our main provider of overhaul and maintenance services and we are HAECO’s biggest customer airline. • As at 31st December 2010. The transaction was driven by our strategic priorities and will benefit our core aviation business. benefiting from the rapid growth of the macro-economy of China and the steady recovery of the global economy. in which Cathay Pacific owns 18. Cathay Pacific announced that it had agreed to sell its remaining 15% shareholding in HAECO to Swire Pacific Limited. and towards Cathay Pacific’s general working capital requirements. the airline’s scheduled flights reached 32 countries and regions. including 47 international cities. • The Group has two representatives on the Board of Directors of Air China and equity accounts for its share of Air China’s profit. • Cathay Pacific’s share of HAECO’s profits up to the date of sale in 2010 was HK$44 million. 1 . • The Group’s share of Air China’s profit is based on accounts drawn up three months in arrear and consequently the 2010 annual results include Air China’s results for the 12 months ended 30th September 2010. In addition. cargo and other airline related services in Mainland China. effective marketing and further exploration of its cost potential. in our new cargo terminal and enhancements in products and services.” Hong Kong Aircraft Engineering Company Limited (“HAECO”) • On 7th June 2010. “In 2010. compared with a share of HAECO’s profits for the whole of 2009 of HK$188 million.7%. the Company was able to seize the market opportunity of a strong demand for both passenger and cargo transportation services. The Company achieved a substantial increase in its operating profit for the year of 2010 through active production organisation. 91 domestic cities and three regions.

Milan and Haneda – launched in 2010. and Abu Dhabi and Chicago already set to launch in 2011. 3 new routes – Moscow. .30 new Airbus A350-900s ordered in August 2010 – our biggest-ever single aircraft purchase.

Investing in Our Future The HK$5. Hong Kong.5 billion Cathay Pacific Cargo Terminal will open in 2013. underlining the airline’s commitment to developing Hong Kong as a global airfreight hub.15 new Airbus A330-300s and 10 new Boeing 777-300ERs ordered in March 2011. . underscoring our commitment to our home city. A total of 91 new aircraft on firm orders.

Middle East. particularly on routes originating in Hong Kong.9 79.262 111.993 24.9%pt +8.222 23. There was a significant increase in demand from premium class travellers.5%pt +3.9 percentage points to a record 83.4 76.4% and revenue from passenger services increased by 29.343 25.748 10.7 80.4% +18.2% +4.2% +6. Load factor by region* % Passenger load factor and yield* % HK cents 90 80 70 60 50 40 India.2 85.3% +19.489 13.981 14.0% +2.8 80.1% compared with 2009 and a record high for the Group.327 20. Middle East.7% +3.7 89.354 million.5%pt -0. The passenger load factor for the period rose by 2. an increase of 9.9 83. Both airlines achieved a strong increase in passenger load factors and yields compared to the previous year.8% 1 .3% to HK$59.2%pt +2.8 78.7%pt +4. Pakistan and Sri Lanka Southeast Asia Southwest Pacific and South Africa Europe North Asia North America Overall 10.8 million passengers in 2010.3 72.5% +23. Pakistan and Sri Lanka 2006 Southeast Asia 2007 Southwest Pacific and South Africa 2008 Europe North Asia North America 100 80 60 40 20 0 2006 2007 2008 2009 2010 70 60 50 40 30 20 2009 2010 Passenger load factor Yield * Includes Dragonair from 1st October 2006. Available seat kilometres (“ASK”).5 +0.2% +15.892 17.8% increase in yield to HK61.5 82.6%pt +7. This was the key contributor to the 19.316 26.8% +4.8% +18. load factor and yield by region for Cathay Pacific and Dragonair passenger services for 2010 were as follows: ASK (million) 2010 2009 Change 2010 Load factor (%) 2009 Change Yield Change India.167 +4.Review of Operations PASSENGER SERVICES Cathay Pacific and Dragonair carried a total of 26.2 cents.3 80.959 20.0% +23.2 86.0% +3.1% 77.6%pt +0.819 115.8 85.312 18.

However. • Demand in economy class on routes to regional destinations was robust. and particularly so during holiday peaks. although there was strong competition from Indian carriers on the Mumbai and Delhi routes. and added flights to Jakarta. • For much of the year. making Jakarta a triple-daily service and adding one more flight a week to Surabaya to make it a daily service. This difficulty also affects traffic from Dhaka. Demand on the Jeddah service strengthened. • Demand from the Pearl River Delta region continued to grow in 2010. assisted by 2009’s introduction of the Guangzhou route and better flight connections from various cities to Hong Kong. This affected the performance of the route. • Sales of tickets from Hong Kong to Southwest Pacific destinations were strong. • Demand on routes to Europe and North America was particularly strong. Connecting traffic from Mainland China helped to keep load factors high. Surabaya. demand for premium travel on regional routes remained below pre-financial crisis levels as companies were slow to relax corporate travel policies encouraging travel in economy class. Demand was weak and was particularly affected by the hostage incident in August. • Demand on Dragonair’s route to Guangzhou was particularly strong during the April and October Canton Fairs. All long-haul routes performed well in all classes. the financial crisis in the United Arab Emirates affected our Dubai route. • The holding of the World Expo in Shanghai in 2010 was reflected in a sharp increase in the numbers of passengers flying to Shanghai. mainly in the last four months of the year. The Indonesia routes performed well. as did aggressive local competition. • Yields increased significantly in 2010. • The Malaysian routes performed satisfactorily. The Penang service is to become a direct daily flight from late March 2011. • The South Africa route performed strongly in the first half of the year. • In the Middle East. India. We restored services to Singapore (back to seven flights a day). Demand softened towards the end of the year. We restored some flights to Sydney and added flights on the Brisbane/Cairns and Perth routes. • Traffic to and from Singapore was high throughout the year. particularly over the Lebaran holiday. We increased capacity to Denpasar during the summer peak. • Our India routes performed satisfactorily. We increased the number of Dragonair flights to Bengaluru from four to seven per week. • Capacity on the Auckland was reduced. though they were subject to strong competition. Capacity was increased to cater for travellers to the World Cup in June. although traffic on the route has been affected by an increased number of direct flights from Europe. Phuket and Hanoi. 1 . • The Philippines routes did not perform well. Southwest Pacific and South Africa • Demand and yield on the Southwest Pacific routes returned to pre-downturn levels. despite strong competition on the route. Middle East. • Demand for flights to Bangkok was severely affected by the anti-government protests. Kathmandu and Karachi. particularly in the premium classes. Demand on the Chennai route was strong. Kota Kinabalu. although there was some recovery in leisure travel demand later in the year. Pakistan and Sri Lanka • The Colombo market improved following the financial crisis. Southeast Asia • Demand within this region was generally strong. though business is still hampered by the difficulty of obtaining visas for travel to and through Hong Kong. assisted by an increase in premium traffic. We linked the Dhaka and Kathmandu routes in order to improve efficiency. • From late March 2011 we will strengthen services to Indonesia. Demand for flights originating in Bangkok remained reasonable. corporate sales still increased from 2009.Cathay Pacific Airways Limited Annual Report 2010 Review of Operations PASSENGER SERVICES Home market – Hong Kong and Pearl River Delta • Demand on routes originating in Hong Kong was robust in all classes of travel. reflecting recovery from the financial crisis and the strength of Hong Kong’s economy.

Sales for flights out of Russia have risen steadily. • We launched a four-times-weekly service to Milan in March. • Load factors and yield on the London route were high in both directions. • There was a strong recovery in business on the Japan routes. • Dragonair resumed its services to Fukuoka and Sendai. • We restored capacity on the Seoul route (which is now back to five flights daily) and added one more flight a week on Dragonair’s Busan route. • The World Expo in Shanghai resulted in strong demand and high yield on the Shanghai route. in part due to the weakness of the euro. Loads have been satisfactory. We increased the number of flights from 10 to 12 per week in October. • The Taiwan routes had quite a strong year. We now operate seven flights a day to and from Tokyo’s two main airports. Nanjing. North America • The markets in the United States and Canada recovered strongly. We increased the number of flights on this route from 28 to 32 a week in July. Chongqing. • We increased the number of flights to Paris from seven to 11 per week in response to growing demand and from late March 2011 we will turn it into a double-daily service. Performance to date is in line with expectations and we will turn it into a daily service with effect from July 2011. including Fuzhou. • New codeshare arrangements with Japan Airlines were announced.Review of Operations PASSENGER SERVICES Europe • Demand for flights to Europe was generally strong in all classes. • Dragonair restored capacity on a number of Mainland China routes including Xiamen. bringing the total number of flights to 108 per week. The Kaohsiung route performed well. There was strong growth in economy class demand and a corresponding increase in yield. though we were subject to increasing competition. which were suspended during the financial downturn. • Daily flights to Chicago will start in September 2011. Demand for flights from Europe was less strong. Demand in the premium classes recovered much faster than on other European routes. Leisure traffic from Hong Kong to Korea was assisted by the weakness of the Korean won. but business class sales of flights out of the United States were still below pre-financial crisis levels. but yield is under pressure. Yields increased significantly. and started scheduled services to Okinawa in November. • There was good growth in traffic to and from secondary cities. Premium class traffic has been strong on all North America routes. • The San Francisco and Los Angeles routes had good years. There was strong demand from passengers flying to Hong Kong to connect to our international network. The arrangements also extend to Japan Airlines’ flights to Honolulu. • There are now four flights a day to and from Osaka. Demand for flights originating in Japan was helped by the strength of the yen. • Cathay Pacific will restore seven more flights a week to Taipei from late March. 1 . • We launched a twice daily service to Tokyo’s Haneda International Airport in October. • Our Korean routes showed some growth in 2010. Sanya and Chengdu. especially from passengers flying to Hong Kong to connect to our international network and on the trunk routes to Beijing and Shanghai. Qingdao and Hangzhou. increasing services to four flights daily. We will add a daily flight to New York in the second quarter of 2011. North Asia • Business on our Mainland China routes was strong. We restored capacity almost to pre-downturn levels on the Taipei route. but this also affected leisure traffic into Japan. • The Toronto route benefited from a strong recovery in premium class travel. Tokyo and a further 10 destinations in Japan. The Japan Airlines code will go on Cathay Pacific flights between Hong Kong and five destinations in Japan and the Cathay Pacific code will go on Japan Airlines flights between Hong Kong. We benefited from being able to pick up traffic that could not be accommodated by direct cross-Straits flights. Toronto will have a twice-daily service from the second quarter of 2011. except from London. • A thrice-weekly service to Moscow was launched in July.

The load factor increased by 4.000 6.7 70.727 million. The tonnage carried by Cathay Pacific and Dragonair was 1.000 20.000 14.443 11.000 8.000 25.3% 1 .000 12. Capacity reduced in response to the economic downturn was reinstated. Available tonne kilometres (“ATK”).3% to HK$2.000 0 2006 2007 2008 2009 2010 4.33. The fleet worked at high levels of utilisation throughout the year. with all parked freighters being brought back from the desert.000 5.666 +15. Cargo revenue rose 54.1% compared to 2009. Yield also increased 25. representing an increase of 18.9 percentage points to a record 75. Turnover* HK$ million Capacity – cargo and mail ATK* Million tonne kilometres 30.000 2. with a strong and sustained recovery in all major markets.8 +4.000 10.000 15.000 10.Cathay Pacific Airways Limited Annual Report 2010 Review of Operations CARGO SERVICES ASIA MILES There was a significant increase in the demand for air cargo in 2010.7%.2% 75.000 0 2006 2007 2008 2009 2010 * Includes Dragonair from 1st October 2006.7% to HK$23.9%pt +25.8 million tonnes. load factor and yield for Cathay Pacific and Dragonair cargo services for 2010 were as follows: ATK (million) 2010 2009 Change 2010 Load factor (%) 2009 Change Yield Change Cathay Pacific and Dragonair 13.

• We returned to a full freighter schedule from September ahead of the seasonal peak in demand. Demand on the major trunk routes to North America and Europe was consistently high. The Miami/Houston service moved from three to four flights a week in July. • Demand for shipments originating from the key markets of Hong Kong and Shanghai was consistently strong. while Miami was served by another weekly flight in its own right (two weekly flights during the seasonal peak at the year end). The regional network in Asia remained buoyant. assisted by new product launches in the consumer sector and companies starting to invest again in information technology and other capital projects. • We strengthened a number of scheduled freighter services during the year in response to market demand. Loads carried by inbound flights were also higher than expected. measured in terms of ATKs. demand for airfreight services remained strong for the whole of 2010. such as Vietnam and Bangladesh. • All five of the Boeing 747-400BCF freighters which had been parked in the desert during the downturn have been brought back into service in response to the improvement in demand. Companies’ general wish to keep inventory levels to a minimum and maintain flexibility also helped to increase demand for airfreight services. Later in the year we split the route into two in order to cater for substantially increased exports of cargo from Bangladesh and Vietnam. with luxury goods and other products being shipped into Asia and in particular Mainland China. • Demand on the North American and European routes was consistently strong.Review of Operations CARGO SERVICES ASIA MILES • Despite some global economic uncertainty. both long-haul and short-haul. which were at or near record levels for many routes during the peak season in the latter part of the year. • A round-the-world freighter service was launched in July.1% over 2008. We moved from four flights to eight flights a week to India and the Middle East. assisted by the strength of the yen and by Japan Airlines withdrawing its freighter fleet from operations in October. Shanghai went to 21 flights a week (compared to 16 during the downturn). • During the seasonal peak in the latter part of the year. Exports to Australia were assisted by the strength of the Australian dollar. especially in the latter part of the year. • Cargo capacity. We operated additional services during the seasonal peak to cater for strong market demand. • We focused on improving yields. flying eastwards to Chicago. • The cargo business benefited from the expansion of the passenger network. • The Pearl River Delta region continued to be our principal source of growth. manufacturers and customers are starting to move west to places like Chengdu and Chongqing and outside Mainland China to countries. The twice-weekly flight offers significant commercial and operational benefits and has seen good demand. • Early in the year we added a third weekly frequency on the triangular Dhaka/Hanoi route. and then on to Amsterdam and Dubai before flying back Hong Kong. The freighter fleet operated at very high levels of utilisation throughout the year. This is the first time Cathay Pacific has operated transatlantic flights.2% over 2009 and by 0. despite significant capacity increases from competitors in the second half of the year. we were operating 28 scheduled flights per week to Europe and 40 scheduled flights per week to North America. • Shipments to Japan were strong. Earlier in the year the figures had been 22 and 25 respectively. Load factors and utilisation in passenger aircraft bellies were high. This is encouraging for the longer term future of our airfreight business. 0 . grew by 15. where labour costs are lower than in Mainland China. However.

Members can use mobile devices to manage their accounts in English and in traditional and simplified Chinese. • The building of our new terminal and the expansion of our freighter fleet in 2011 highlight our commitment to maintaining Hong Kong’s position as the world’s leading international air cargo hub. Air China Cargo is based in Shanghai and is in a good position to exploit the attractive air cargo opportunities in the Yangtze River Delta region. • Deliveries of our fleet of new Boeing 747-8F freighters have been delayed and are now scheduled to commence in August 2011. • One Boeing Converted Freighter is currently being wet-leased to Air Hong Kong. Antitrust investigations Cathay Pacific remains the subject of antitrust investigations and proceedings by competition authorities in various jurisdictions and continues to cooperate with these authorities and. defend itself vigorously. The other three are expected to be sold in 2011 and 2012. The construction of the terminal and preparation for operations are progressing well. Asia Miles • Asia Miles. The stateof-the-art facility. Cathay Pacific is not in a position to assess the full potential liabilities but makes provisions based on facts and circumstances in line with accounting policy 19 set out on page 51. will provide more choice and competition in Hong Kong’s airfreight industry. • The number of Asia Miles partners increased to more than 400 in nine categories. • Asia Miles offers over 800 non-flight redemption products to members. which will begin operations in early 2013. • Dragonair sells space for cargo in the bellies of its aircraft on all its routes. • Redemptions of flights by Asia Miles members on our 20 partner airlines decreased by 1% in 2010. Its cargo tonnage increased significantly in 2010. There was a 7% increase on non-flight redemptions in 2010. where applicable.5 billion cargo terminal at Hong Kong International Airport. • Cathay Pacific is an active participant in IATA’s drive to simplify the airfreight business. e-AWB was implemented on a 100% basis in Hong Kong on 1st January 2011 and will be implemented in outports during the next two years. Air China Cargo. American Express and Cathay Pacific introduced a co-branded corporate card. including airlines. particularly on its Mainland China routes. At the end of 2010 it had more than three million members. We are selling four Boeing 747-400BCF freighters and two spare engines to the joint venture. • We recommenced work on our HK$5. • In November 2010. with six expecting to enter service before the end of 2011. The number of members based in Mainland China grew by 33% in 2010. • The Asia Miles Mobile Sites and iPhone apps were introduced in 2010. These investigations are ongoing and the outcomes are subject to uncertainties. Cathay Pacific is pioneering the move to e-AWB in Hong Kong. our travel rewards programme. continued to grow. The new card offers rewards and savings to medium sized and large companies in Hong Kong. Almost 90% of Cathay Pacific flights carried passengers redeeming frequent flyer miles. and the two airlines are now in the process of completing the necessary paperwork to enable operations to commence. We are managing our capacity accordingly in the first half of 2011 and look forward to having the new aircraft in service in time for the 2011 air cargo peak. hotels and major financial institutions. 1 . One of these aircraft has already been sold to Air China Cargo. will be used as the platform for the joint venture. An existing Air China subsidiary.Cathay Pacific Airways Limited Annual Report 2010 Review of Operations CARGO SERVICES ASIA MILES • The authorities in Mainland China have given formal approval for our cargo joint venture with Air China.

for people on the move. our latest passenger lounge at Hong Kong International Airport. .The CX Mobile application offers a wide range of services. offers a new level of comfort and convenience. Our New Products & Services The Cabin. including bookings and check in.

Our iPad app – one of the world’s first customised airline applications for the device – puts passengers in touch with a wide range of Cathay Pacific online services. . and one of the longest. Our new long-haul Business Class offers the things our customers want – a combination of privacy and openness. widest full-flat beds in the sky.

that is gains on the disposal of shares in Hong Kong Air Cargo Terminals Limited and Hong Kong Aircraft Engineering Company Limited and on the deemed disposal of shares in Air China.920 17.000 12.500 1.354 25.7% in 2010 compared with 2009.803 66.000 0 2006 2007 2008 2009 2010 5.000 15.978 59.341 3.727 3.920 15.000 900 800 700 600 500 400 1H06 2H06 1H07 2H07 1H08 2H08 1H09 2H09 1H10 2H10 Passengers carried Cargo and mail carried 40. recoveries and other services Cargo services Passenger services * Includes Dragonair from 1st October 2006.269 89.901 4.000 80.128 64. 59.524 45.048 million in 2010 compared with a profit of HK$4.354 23.000 20.389 Turnover* HK$ million Cathay Pacific and Dragonair: passengers and cargo carried* Passenger in ‘000 Cargo in ‘000 tonnes 100.000 60.000 7.500 10.694 million in 2009.Financial Review The Cathay Pacific Group reported a record attributable profit of HK$14. recoveries and other services Turnover # Includes relevant surcharges.572 86.500 0 Catering.255 3. The record result reflects a continued and significant recovery in its core business following the extremely challenging conditions experienced for much of 2009 and a significantly increased contribution from Air China. It also includes non-recurring items.653 45.  . Turnover Group 2010 HK$M 2009 HK$M Cathay Pacific and Dragonair 2010 HK$M 2009 HK$M Passenger services# Cargo services# Catering.000 2. • Group turnover increased by 33.

Cathay Pacific Airways Limited Annual Report 2010

Financial Review

Cathay Pacific and Dragonair
• Passenger turnover increased significantly, by 29.3% to HK$59,354 million, as a result of strong demand. The number of passengers carried increased by 9.1% to 26.8 million and revenue passenger kilometres increased by 8.0%. • The passenger load factor increased by 2.9 percentage points to a record 83.4% while available seat kilometres increased by 4.1%. • Passenger yield increased by 19.8% to HK¢61.2. • First and business class revenues increased by 40.3% and the premium class load factor increased from 58.5% to 66.7%. Economy class revenues increased by 24.8% and the economy class load factor increased from 84.3% to 86.4%. • Cargo turnover increased by 54.7% to HK$23,727 million, with a 15.2% increase in capacity. Demand for exports from Mainland China routed through Hong Kong remained strong. • Fuel surcharges increased by HK$3.6 billion as a result of higher fuel prices and more passengers and cargo carried. • The cargo load factor increased by 4.9 percentage points. The cargo yield increased by 25.3% to HK$2.33. • The revenue load factor increased by 3.4 percentage points to 81.1%. The breakeven load factor was 69.3%.

Cathay Pacific and Dragonair: revenue and breakeven load factor*
%

90 85 80 75 70 65 60 2006 2007 2008 2009 2010

Revenue load factor Breakeven load factor

* Includes Dragonair from 1st October 2006. • The annualised impact on revenue arising from changes in yield and load factor is set out below:
HK$M

+ 1 percentage point in passenger load factor + 1 percentage point in cargo and mail load factor + HK¢1 in passenger yield + HK¢1 in cargo and mail yield

709 313 966 102 

Financial Review

Operating expenses
Group 2010 HK$M 2009 HK$M Change Cathay Pacific and Dragonair 2010 HK$M 2009 HK$M Change

Staff Inflight service and passenger expenses Landing, parking and route expenses Fuel Aircraft maintenance Aircraft depreciation and operating leases Other depreciation, amortisation and operating leases Commissions Exchange gain Others Operating expenses Net finance charges Total operating expenses

13,850 3,308 11,301 28,276 7,072 8,288 1,107 736 (196) 4,729 78,471 978 79,449

12,618 2,915 10,458 17,349 6,567 7,978 1,103 571 (344) 3,284 62,499 847 63,346

+9.8% +13.5% +8.1% +63.0% +7.7% +3.9% +0.4% +28.9% -43.0% +44.0% +25.6% +15.5% +25.4%

12,655 3,308 11,104 27,705 6,921 8,120 881 736 (214) 5,080 76,296 933 77,229

11,515 2,915 10,281 16,937 6,411 7,796 867 571 (356) 3,628 60,565 781 61,346

+9.9% +13.5% +8.0% +63.6% +8.0% +4.2% +1.6% +28.9% -39.9% +40.0% +26.0% +19.5% +25.9%

• Group total operating expenses increased by 25.4% to HK$79,449 million.

• The combined cost per ATK of Cathay Pacific and Dragonair increased from HK$2.76 to HK$3.16. This principally reflected higher average fuel prices.

Total operating expenses
6% Others 17% Staff 4% Inflight service and passenger expenses 14% Landing, parking and route expenses

Fuel price and consumption
US$ per barrel (jet fuel) Barrels in million

160 140 120 100 80 60 40

60 50 40 30 20 10 0 2006 2007 2008 2009 2010

1% 1% Commissions Net finance charges

12% Depreciation and operating leases

9% 36% Aircraft Fuel maintenance

Into wing price – before hedging Into wing price – after hedging Uplifted volume 

Cathay Pacific Airways Limited Annual Report 2010

Financial Review

Cathay Pacific and Dragonair operating results analysis
2010 HK$M 2009 HK$M

Airlines’ operating profit before fuel hedging, non-recurring items and tax Profit on disposal of Hactl and HAECO shares Gain on deemed disposal of Air China shares Airlines’ profit before fuel hedging (losses)/gains and tax Realised and unrealised fuel hedging (losses)/gains Tax charge Airlines’ profit after tax Share of profits from subsidiaries and associates Profit attributable to owners of Cathay Pacific

9,465 2,165 868 12,498 (41) (1,347) 11,110 2,938 14,048

285 1,254 – 1,539 2,758 (170) 4,127 567 4,694

The change in the airlines’ operating profit before fuel hedging, non-recurring items and tax can be analysed as follows:
HK$M

2009 airlines’ operating profit before fuel hedging, non-recurring items and tax Passenger and cargo turnover

285 21,820 Passenger
– Increased HK$1,885 million due to a 4.1% increase in capacity. – A 2.9% points increase in load factor contributed to an increase of HK$1,807 million. – HK$9,742 million of the increase arose from a 19.8% increase in yield partly due to an increase in fuel surcharges.

Cargo
– Increased HK$2,336 million due to a 15.2% increase in capacity. – A 4.9% points increase in load factor contributed to an increase of HK$1,231 million. – HK$4,819 million of the increase arose from a 25.3% increase in yield partly due to an increase in fuel surcharges.

Staff Fuel

(1,140) – Increased due to provision for bonus and profit share scheme. (7,969) – Fuel costs increased due to a 28.0% increase in the average intoplane fuel price to US$94 per barrel and a 7.4% increase in consumption to 37.9 million barrels.

Others 2010 airlines’ operating profit before fuel hedging, non-recurring items and tax

(3,531)

9,465 

comprising HK$6.Financial Review Fuel expenditure and hedging A breakdown of the Group’s fuel cost is shown below: 2010 HK$M 2009 HK$M Gross fuel cost Realised hedging losses/(gains) Unrealised mark to market gains Net fuel cost Settlement and premium paid 28.367 million representing a dividend cover of 3.107 (740) (2. • Dividends per share increased from HK¢10 to HK¢111.462 million.742 million for aircraft and related equipment. principally reflecting the higher profit.110 million.053 million.179 million to HK$1. HK$1. The Group’s policy is to reduce exposure to fuel price risk by hedging a percentage of its expected fuel consumption.276 746 20. As the Group uses a combination of fuel derivatives to achieve its desired hedging position.349 3. 30% 20% Assets • Total assets as at 31st December 2010 were HK$128.211 million for buildings and HK$157 million for other equipment.235 78 (37) 28.180 The Group’s maximum fuel hedging exposure as at 31st December 2010 is set out below: Taxation • The tax charge increased by HK$1.018) 17.2 times. Total assets 47% Aircraft and related equipment 4% Buildings and other equipment 6% Intangible assets 14% Long-term investments 29% Current assets  . Maximum fuel hedging exposure Percentage consumption subject to hedging contracts 40% Dividends • Dividends proposed for the year are HK$4. the percentage of expected consumption hedged will vary depending on the nature and combination of contracts which generate payoffs in any particular range of fuel prices. additions to fixed assets were $60 $70 2011 $80 $90 2012 $100 $110 $120 $130 10% 0% Brent (US$/barrel) HK$8. • During the year. The chart indicates the estimated maximum percentage of projected consumption by year covered by hedging transactions at various settled Brent prices.

3 0.000 0 EUR HKD JPY USD SGD Others 40 20 0 2006 Fixed Floating 2007 2008 2009 2010 Before derivatives After derivatives Others include CAD.7% of which are denominated in US dollars. 73.642 million in 2009.000 50.000 20.629 million from HK$42.000 60 20.  .000 25.198 million. RMB and TWD.6 0. Japanese yen and Euros. increased by 46.000 5.5 0.000 30.000 40. Net debt and equity HK$ million Times 60. Singapore dollars.2 0.28 times.1 Funds attributable to owners of Cathay Pacific Net borrowings Net debt/equity ratio Interest rate profile: borrowings Borrowings before and after derivatives HK$ million % 100 80 30. • Borrowings are mainly denominated in US dollars.000 10.Cathay Pacific Airways Limited Annual Report 2010 Financial Review Borrowings and capital • Borrowings decreased by 7.435 million. • Funds attributable to the owners of Cathay Pacific increased by 28.7 0.62 times to 0. • The net debt/equity ratio decreased from 0.000 15. and are fully repayable by 2023 with 59% currently at fixed rates of interest after taking into account derivative transactions.000 10.1% to HK$39.5% to HK$24.4 0.5% to HK$54. • Liquid funds. Hong Kong dollars. KRW.9% to HK$15.274 million.000 0 2006 2007 2008 2009 2010 0. • Net borrowings decreased by 40.

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On the ground. . in the air and behind the scenes. Our People The popular “Meet the Team” function at our website introduces you to the diverse group of people who make travelling on Cathay Pacific a unique experience. our people always go the extra mile to make you feel special.

Japan. Swire Pacific Limited and Hong Kong Dragon Airlines Limited.) Limited. Jianjiang. He is also a Director of John  Non-Executive Directors CAI. aged 54. He is General Manager of China National Aviation Holding Company and Chairman of Air China Limited.) Limited. He is also a Director of HSBC Holdings plc.Directors and Officers Executive Directors PRATT. He is Chairman of John Swire & Sons Limited and a Director of Swire Pacific Limited. William Edward James . Swire Properties Limited and Steamships Trading Company Limited. HUGHES-HALLETT. has been a Director of the Company since December 1996.K. CHU. He joined the Swire group in 1982 and has worked with the Company in Hong Kong. been a Director of the Company since July 2010. He joined the Swire group in 1978 and in addition to Hong Kong has worked for the group in Australia and Papua New Guinea. CBE.K. aged 47.K. His resignation followed the recommendation of the Board of Governors of the International Air Transport Association (“IATA”) that he be appointed as Director General and Chief Executive Officer of IATA with effect from 1st July 2011. He is also Chairman of Hong Kong Dragon Airlines Limited.K. He is also a Director of Hong Kong Dragon Airlines Limited and AHK Air Hong Kong Limited. Dong. He is a Director. Taiwan. He joined the Swire group in 1976 and has worked with the group in Hong Kong. Antony Nigel#.K. aged 62. James Wyndham John#+. He is also Finance Director of Swire Pacific Limited and a Director of John Swire & Sons (H. Australia and London. Chief Operating Officer in January 2005 and Chief Executive in July 2007. He is also a Director of Hong Kong Dragon Airlines Limited.) Limited and Swire Properties Limited. Peter Alan#. Thailand and Australia. aged 55. HUGHES-HALLETT. has been a Director of the Company since July 2007. He joined the Swire group in 1994. aged 51. has been Deputy Chairman and a Director of the Company since May 2008. has been Chairman and a Director of the Company since February 2006. KILGOUR. has been a Director of the Company since November 2009. Japan. aged 56. John Robert#. He is also Chairman of John Swire & Sons (H.) Limited. Kwok Leung Ivan. BARRINGTON. He joined the Swire group in 1977 and in addition to Hong Kong has worked for the group in Australia. Swire Pacific Limited.K. has been Finance Director of the Company since March 2009. He was appointed Director Service Delivery in September 2008 and is also Chairman of Cathay Pacific Catering Services (H. Italy and the United Kingdom. He is a Director and President of Air China Limited. has been a Director of the Company since November 2009. Hong Kong Aircraft Engineering Company Limited and Swire Properties Limited. has been a Director of the Company since July 1998 and served as Chairman of the Board from June 1999 to December 2004. Swire Pacific Limited. He is also a Director of John Swire & Sons (H. aged 55. Taiwan.) Limited and Swire Pacific Limited. He is also a Director of John Swire & Sons (H. aged 45. has # Swire & Sons (H. and Chairman of Swire Beverages Limited. He joined the Swire group in 1980 and has worked for the group in Hong Kong. Malaysia and Canada since 1983. He was appointed Chief Operating Officer in July 2007. Christopher Dale#. Ian Sai Cheung#. He has resigned as Director and Chief Executive of the Company with effect from 31st March 2011. and a Director of The Hongkong and Shanghai Banking Corporation Limited and Air China Limited. Canada. SLOSAR. James Edward#. KONG. aged 49. SHIU. Vice President and Chief Financial Officer of Air China Limited. Hong Kong Dragon Airlines Limited and Air China Limited. He joined the Company in 1978 and has worked for the . has been appointed Chief Operating Officer of the Company with effect from 31st March 2011. aged 55. aged 61. FAN. the Philippines. Cheng*. TYLER. aged 54. He was appointed Director Corporate Development in December 1996. Mainland China.) Limited. He joined the Swire group in 1983. the United States and Thailand. He joined the Company in 1984 and has worked with the Company in Hong Kong. has been a Director of the Company since October 2008. He was previously Deputy Finance Director of Swire Pacific Limited. has been a Director of the Company since May 2009. He has been appointed Chief Executive of the Company with effect from 31st March 2011.

aged 65. Ltd.. aged 55. He is Chairman of Hong Kong Trade Development Council. Hong Kong Aircraft Engineering Company Limited and Swire Properties Limited and an Alternate Director of Steamships Trading Company Limited. Irene Yun Lien+*. She is a Non-Executive Director of Hysan Development Company Limited and will become its Non-Executive Chairman on 9th May 2011. aged 57. 2004. aged 37. has been Director Cargo since August 2010. aged 49. He is currently Chief Executive of The Hongkong and Shanghai Banking Corporation Limited. He joined the Swire group in 1997 and has worked with the group in Hong Kong. aged 57. Independent Non-Executive Directors LEE. Sing Tao News Corporation Limited and Wing Hang Bank. He joined the Swire group in 1980. SWIRE. aged 49. has been Director Sales and Marketing since August 2010. He joined the Swire group in 1986. Wai Yan Quince. She joined the Company in 1998. Siu Cheong William. and a member of the Advisory Council of JP Morgan Australia. Singapore and the United Kingdom. has been Engineering Director since January 2007. She was a member of the Australian Government Takeovers Panel from March 2001 until March 2010. Tomasz. Chairman and Non-Executive Director of HSBC Bank Malaysia Berhad. Christopher Patrick. Ltd. He joined the Company in 1973. aged 59. He joined the Company in 1992. and Ping An Insurance (Group) Company of China. has been Director Personnel since May 2000. He joined the Company in 1988. has been Company Secretary since January 2006. BOC Hong Kong (Holdings) Limited.. has been Director Corporate Affairs since September 2008. He is also an Independent Non-Executive Director of a number of listed companies. He is also President of the Hong Kong Institute of Bankers and was Chairman of the Hong Kong Association of Banks in 2001. He is Chairman and Chief Executive Officer of Orient Overseas (International) Limited. and a Non-Executive Director of Hang Seng Bank Limited. Lan. TUNG. has been a Director of the Company since May 2009. She was Vice President of Air China Limited. SMACZNY. has been a Director # WONG. aged 48. a Group Managing Director of HSBC Holdings plc. He joined the Company in 2008. He is also Vice Chairman of Credit Suisse (Greater China) and a NonExecutive Director of AIA Group Limited. RHODES. Merlin Bingham . Yat Hung David#. UMing Marine Transport Corp. aged 47. HOGG. aged 68. Richard John. has been a Director of the Company since October 2006. aged 52. has been Director Flight Operations since August 2010. has been Director Information Management since August 2010. of the Company since June 2010. CHONG. Tung Shun Peter*. including Zhejiang Expressway Company Limited. Bank of Communications Co. Australia. PetroChina Company Limited. the Netherlands. a Director of Swire Pacific Limited. She is Chairman of Keybridge Capital Limited. aged 47. GIBBS. Nicholas Peter#. Rupert Bruce Grantham Trower#. aged 55. has been a Director of the Company since January 2010. Chak Kwong Jack*. 2006 and 2009. QBE Insurance Group Limited and ING Bank (Australia) Limited. has been a Director of the Company since September 2002. Limited. He is a Director and shareholder of John Swire & Sons Limited. has been a Director of the + Company since September 2002. HALL. Deputy Chairman and a Non-Executive Director of HSBC Bank (China) Company Limited. He joined the Swire group in 1988. Mainland China and London. Chee Chen . ZHANG. He was appointed Director Corporate Development in September 2008 and served as an Executive Director of the Company from 1st October 2008 until 30th June 2010. a Non-Executive Director of The Myer Family Company Pty Limited. Chairman of Air China Development Corporation (Hong Kong) Limited and a Director of Shandong Aviation Group Corporation until her retirement from Air China Limited in February 2011. Executive Officers CHAU.Cathay Pacific Airways Limited Annual Report 2010 Directors and Officers Company in Hong Kong. Vice Chairman and Non-Executive Director of HSBC Bank (Vietnam) Limited. SO. Secretary FU. # Employees of the John Swire & Sons Limited group + Member of the Remuneration Committee * Member of the Audit Committee  .

Reserves Movements in the reserves of the Group and the Company during the year are set out in the statement of changes in equity on pages 56 and 57. Donations During the year.933. the Group did not purchase.  .572 shares were in issue (31st December 2009: 3. 12th May 2011. Accounting policies The principal accounting policies are set out on pages 48 to 51. during which period no transfer of shares will be effected.844. all transfer forms accompanied by the relevant share Bank and other borrowings The net bank loans. At 31st December 2010. The airline operations are principally to and from Hong Kong. overdrafts and other borrowings. Subject to shareholders’ approval of the final dividend at the annual general meeting on 18th May 2011. which is where most of the Group’s other activities are also carried out.933. 18th May 2011. aircraft handling and aircraft engineering. As well as operating scheduled airline services. Hopewell Centre. Dividends We recommend the payment of a final dividend of HK¢78 per share for the year ended 31st December 2010. certificates must be lodged with the Company’s share registrars. In order to qualify for the entitlement of the final dividend. payment of the final dividend will be made on 1st June 2011 to shareholders registered at the close of business on the record date. of the Group and the Company are shown in notes 17 and 23 to the accounts. Accounts The profit of the Group for the year ended 31st December 2010 and the state of affairs of the Group and the Company at that date are set out in the accounts on pages 52 to 97. Together with the interim dividend of HK¢33 per share paid on 4th October 2010. for registration not later than 4:30 p.Directors’ Report We submit our report and the audited accounts for the year ended 31st December 2010 which are on pages 48 to 97. 3. Computershare Hong Kong Investor Services Limited. Fixed assets Movements of fixed assets are shown in note 12 to the accounts. the Company and its subsidiaries made charitable donations amounting to HK$11 million in direct payments and a further HK$5 million in the form of discounts on airline travel. the Company and its subsidiaries (the “Group”) are engaged in other related areas including airline catering.m. both dates inclusive. 183 Queen’s Road East.367 million. sell or redeem any shares in the Company and the Group has not adopted any share option scheme. Details of the movement of share capital can be found in note 24 to the accounts.572 shares). Share capital During the year under review. and details of principal associates are listed on pages 96 and 97. Details of aircraft acquisitions are set out on page 11. including obligations under finance leases. this makes a total dividend for the year of HK¢111 per share. their main areas of operation and particulars of their issued capital. The register of members will be closed from 13th May 2011 to 18th May 2011. on Thursday. 17th Floor. Details of principal subsidiaries. Hong Kong.844. Activities Cathay Pacific Airways Limited (the “Company”) is managed and controlled in Hong Kong. This represents a total distribution for the year of HK$4.

919 (comprising RMB226. HAECO is a subsidiary of Swire Pacific. entered into an agreement with Airbus S. John Slosar.140 (comprising RMB808. Discloseable transaction CPAS entered into an agreement with The Boeing Company on 21st September 2010 for the acquisition of six Boeing 777-300ER aircraft.983. Ian Shiu. Merlin Swire is also interested as a shareholder of Swire. 24% and 25% respectively (with premium contribution credited as capital reserve fund of Air China Cargo).823.530 as contribution to the registered capital and RMB42. on 16th September 2010 for the acquisition of 30 Airbus A350-900 aircraft. Hughes-Hallett.J. Philip Chen and Robert Woods were interested as directors and/or employees of the Swire group until their resignation with effect from 1st July 2010 and 1st June 2010 respectively. James Barrington.. all contracts have been concluded on normal commercial terms in the ordinary course of the business of both parties. Following the completion of such equity subscription and capital contribution. Hughes-Hallett.  . (“Air China Cargo”) and Fine Star Enterprises Corporation (“Fine Star”) on 25th February 2010. Ltd. Agreement for services The Company has an agreement for services with John Swire & Sons (H. Significant contracts Contracts between the Group and HAECO and its subsidiary TAECO for the maintenance and overhaul of aircraft and related equipment accounted for approximately 2% of the Group’s operating expenses in 2010.A. the equity interests of Air China. Connected transactions (a) The Company and its wholly owned subsidiaries Cathay Pacific China Cargo Holdings Limited (“Cathay Pacific China Cargo Holdings”) and Dragonair entered into a framework agreement with Air China Limited (“Air China”) and its wholly owned subsidiaries Air China Cargo Co.331 as premium contribution) in cash to Air China Cargo. W. which provided for the entry of relevant ancillary agreements for the following transactions (the “Joint Venture Transaction”) to take place: (i) Cathay Pacific China Cargo Holdings would subscribe for a 25% equity interest in Air China Cargo for a consideration of RMB851.470.Cathay Pacific Airways Limited Annual Report 2010 Directors’ Report Commitments and contingencies The details of capital commitments and contingent liabilities of the Group and the Company as at 31st December 2010 are set out in note 31 to the accounts.E. the particulars of which are set out in the section on continuing connected transactions.453. This transaction constituted a discloseable transaction under the Listing Rules in respect of which an announcement dated 21st September 2010 was published. Fine Star and Cathay Pacific China Cargo Holdings in Air China Cargo would be 51%.) Limited (“JSSHK”). Particulars of the fees paid and the expenses reimbursed for the year ended 31st December 2010 are set out below and also given in note 30 to the accounts. James W.K.S. Christopher Pratt.797. a wholly owned subsidiary of the Company.621. Major transaction Cathay Pacific Aircraft Services Limited (“CPAS”).588 as contribution to the registered capital and RMB11. This transaction constituted a major transaction under the Listing Rules in respect of which an announcement dated 16th September 2010 was published and a circular dated 21st September 2010 was sent to shareholders. Peter Kilgour. As directors and/or employees of the John Swire & Sons Limited (“Swire”) group. Merlin Swire and Tony Tyler are interested in the JSSHK Services Agreement (as defined below). James E.610 as premium contribution) and Fine Star would make a further capital contribution of RMB238.

in continuing enhancements in products and services. Swire Aviation Limited. The transaction was completed on 31st May 2010. the HAECO Share Transaction constituted a connected transaction for the Company under the Listing Rules. in respect of which an announcement dated 25th February 2010 was published and a circular dated 8th April 2010 was sent to shareholders.  . the sale of the Company’s interests in Hactl and HIHL constituted a connected transaction of the Company under the Listing Rules. Limited. in the new cargo terminal being constructed at the Hong Kong International Airport.Directors’ Report (ii) Advent Fortune Limited (“AFL”) would acquire the entire issued share capital and shareholder’s loan of Fine Star held by China National Aviation Company Limited. (b) The Company. as well as towards Cathay Pacific’s general working capital requirements. and (iv) the Company would provide a guarantee in favour of Air China in respect of Cathay Pacific China Cargo Holdings’ obligations under the relevant agreements and undertook to exercise its contractual rights under the loan agreement with respect to the loan referred to in (ii) above and other related agreements to procure Fine Star to perform its obligations under the joint venture agreement of Air China Cargo. in respect of which an announcement dated 7th June 2010 was published. CNACG is a connected person of the Company because it is an associate of Air China Limited which is a substantial shareholder of the Company.96%. (c) The Company entered into a sale and purchase agreement with Swire Pacific on 7th June 2010 for Swire Pacific to purchase and the Company to sell 24. The HAECO Share Transaction was driven by the strategic priorities of the Company and would benefit its core aviation business. As Swire Pacific is a substantial shareholder and therefore a connected person of the Company. The transaction enabled the Company to realise cash from its investment in the 10% interests in Hactl and HIHL.. the Company’s shareholding interest in HAECO decreased from 15. Swire Pacific. As Swire Pacific is a controlling shareholder of the Company and was also a substantial shareholder of Hactl and HIHL. a subsidiary of Air China with a loan of approximately RMB817 million from the Company.620 million (equivalent to HK$105 per HAECO share) (the “HAECO Share Transaction”). AFL would pledge its equity interest in Fine Star to the Company and the Company’s returns on the loan would be equal to the dividend returns on AFL’s 24% effective shareholding in Air China Cargo. Hutchison Port Holdings Limited and China National Aviation Corporation (Group) Limited (“CNACG”) (as purchasers) on 25th May 2010 for the Company to sell its entire 10% interests in Hong Kong Air Cargo Terminals Limited (“Hactl”) and Hactl Investment Holdings Limited (“HIHL”) for a consideration of HK$640 million. the Joint Venture Transaction constituted a connected transaction for the Company under the Listing Rules.924 million. The Wharf (Holdings) Limited. Swire Pacific is a substantial shareholder and therefore a connected person of the Company.00% shareholding in HAECO) for a consideration of approximately HK$2. Mosgen Limited. (iii) Air China Cargo would purchase from the Company and Dragonair four Boeing 747-400BCF converted freighters powered by PW4056-3 engines and two spare engines for a consideration of approximately RMB1.948.00% to nil and Swire Pacific’s shareholding interest in HAECO increased from 45. It enabled the Company to apply the proceeds from the transaction towards other investments in the Company’s core aviation business.728 ordinary shares of HK$1 each in HAECO (representing approximately 15.96% to 60. Matheson & Co. CITIC Pacific Limited (as sellers) entered into a sale and purchase agreement with Jardine. As Air China is a substantial shareholder and therefore a connected person of the Company. Following completion of the HAECO Share Transaction on 14th June 2010. in respect of which an announcement dated 25th May 2010 was published. including investments in new aircraft. In return. The completion process of the Joint Venture Transaction has commenced and is in progress. Swire Finance Limited.

Swire is the holding company of Swire Pacific which owns approximately 42.  . with JSSHK. announcement and independent shareholders’ approval requirements under the Listing Rules. The fees for each year are payable in cash in arrear in two instalments. The Company also reimburses the Swire group at cost for all the expenses incurred in the provision of the services. and in procuring for the Company and its subsidiary. details of which are set out below: (a) Pursuant to an agreement dated 17th October 2002 (the “DHL Services Agreement”) with DHL International GmbH (formerly DHL International Limited) (“DHL”). JSSHK receives annual service fees calculated as 2.Cathay Pacific Airways Limited Annual Report 2010 Directors’ Report Continuing connected transactions During the year ended 31st December 2010.33(4) of the Listing Rules with effect from 1st January 2011 and are therefore exempt from the reporting. For the year ended 31st December 2010. transactions under the DHL Services Agreement constitute transactions with persons connected at the level of subsidiaries of the Company under Rule 14A. JSSHK waived its entitlement to fees under the JSSHK Services Agreement in respect of that part of the Company’s adjusted consolidated profit before taxation and non-controlling interests which was referable to the sale by the Company to Swire Pacific of 24. In return for these services. JSSHK provides services to the Company and its subsidiaries. the fees payable by the Company to JSSHK under the JSSHK Services Agreement totalled HK$293 million and expenses of HK$139 million were reimbursed at cost. Following amendments to the Listing Rules effective 3rd June 2010.093 million for the year ended 31st December 2010. The fees payable by DHL to Air Hong Kong under the DHL Services Agreement totalled HK$2. Payment is made in cash by DHL within 30 days from the date of receipt of Air Hong Kong’s monthly invoices. The services comprise advice and expertise of the directors and senior officers of the Swire group including (but not limited to) assistance in negotiating with regulatory and other governmental or official bodies. 1st October 2007 and 1st October 2010 were published.97% of the issued capital of the Company and JSSHK. a wholly-owned subsidiary of Swire. as amended and restated on 18th September 2008. full or part time services of members of the staff of the Swire group. No fee is payable in consideration of such procuration obligation or such use. 27th June 2005.948.5% of the Company’s consolidated profit before taxation and non-controlling interests after certain adjustments. (b) Pursuant to an agreement (“JSSHK Services Agreement”) dated 1st December 2004. The transactions under the JSSHK Services Agreement are continuing connected transactions in respect of which announcements dated 1st December 2004. other administrative and similar services and such other services as may be agreed from time to time. The current term of the JSSHK Services Agreement is from 1st January 2011 to 31st December 2013 and it is renewable for successive periods of three years thereafter unless either party to it gives to the other notice of termination of not less than three months expiring on any 31st December. 12th March 2007 and 9th March 2011 were published and circulars dated 12th July 2005 and 21st March 2007 were sent to shareholders. adjusted to take account of the interim payment. is therefore a connected person of the Company under the Listing Rules. DHL is a connected person of the Company because its holding company Deutsche Post AG holds a 40% attributable interest in the Company’s subsidiary Air Hong Kong. The transactions under the DHL Services Agreement were continuing connected transactions in respect of which announcements dated 17th October 2002. Air Hong Kong provides to DHL services in respect of the sale of space on certain cargo services operated by Air Hong Kong in the Asian region for the carriage of DHL’s door to door air express materials. The term of the DHL Services Agreement is from 17th October 2002 to 31st December 2018. the Group had the following continuing connected transactions. annual review. jointly controlled and associated companies the use of relevant trademarks owned by the Swire group. an interim payment by the end of October and a final payment by the end of April of the following year.728 shares in HAECO. After taking account of that waiver.

The transactions under the HAECO Framework Agreement are continuing connected transactions in respect of which an announcement dated 21st May 2007 was published and a circular dated 31st May 2007 was sent to shareholders. engineering services and ancillary services at Hong Kong International Airport. by virtue of its 29. Payment is made in cash by CPLP within 45 days from the date of receipt of Teleservices’ invoice. annual review. The services include line maintenance. interline arrangements. Air China. The fees payable by the Group to HAECO group under the HAECO Framework Agreement totalled HK$1. code sharing arrangements. Xiamen or other airports. the provision of airline catering. The fees payable by CPLP to Teleservices under the PCCW Services Agreement totalled HK$37 million for the period from 1st January to 2nd June 2010.  . The current term of the Air China Framework Agreement is for 3 years ending on 31st December 2013 and is renewable for successive periods of three years thereafter unless either party to it gives to the other notice of termination of not less than three months expiring on any 31st December. ground support and engineering services and other services agreed to be provided and other transactions agreed to be undertaken under the Air China Framework Agreement. comprehensive stores and logistics support. (d) Pursuant to a framework agreement dated 21st May 2007 (“HAECO Framework Agreement”) with HAECO. transactions under the PCCW Services Agreement constitute de minimis transactions for the Company and are therefore exempt from the reporting. Payment is made in cash by the Group to HAECO group within 30 days upon receipt of the invoice. The term of the HAECO Framework Agreement is for 10 years ending on 31st December 2016. base maintenance. Following amendments to the Listing Rules effective 3rd June 2010. Teleservices provides services to CPLP. Teleservices is therefore a connected person of the Company under the Listing Rules. HAECO is a connected person of the Company by virtue of it being an associate of the Company’s substantial shareholder Swire Pacific. material supply. HAECO and its subsidiaries (“HAECO group”) provide services to the Group’s aircraft fleets. is a substantial shareholder and therefore a connected person of Cathay Pacific under the Listing Rules. announcement and independent shareholders’ approval requirements under the Listing Rules.99% shareholding in Cathay Pacific. frequent flyer programmes. The transactions under the PCCW Services Agreement were continuing connected transactions in respect of which announcements dated 29th September 2008 and 29th June 2010 were published. Teleservices is an indirect wholly owned subsidiary of PCCW Limited which indirectly holds a 37% equity interest in the Company’s subsidiary Abacus Distribution Systems (Hong Kong) Limited. (e) The Company entered into a framework agreement dated 26th June 2008 (“Air China Framework Agreement”) with Air China Limited (“Air China”) in respect of transactions between the Group on the one hand and Air China and its subsidiaries (“Air China Group”) on the other hand arising from joint venture arrangements for the operation of passenger air transportation. The services comprise the provision of a service centre and handling of customer calls and related administration for the Company’s frequent flyer and customer loyalty programmes. aircraft leasing.818 million for the year ended 31st December 2010. The transactions under the Air China Framework Agreement are continuing connected transactions in respect of which announcements dated 26th June 2008 and 10th September 2010 were published. The term of the PCCW Services Agreement is from 1st October 2008 to 30th September 2011. component and avionics overhaul.Directors’ Report (c) Pursuant to an agreement dated 29th September 2008 (“PCCW Services Agreement”) between Cathay Pacific Loyalty Programmes Limited (“CPLP”) with PCCW Teleservices (Hong Kong) Limited (“Teleservices”).

the amounts payable by the Group to Air China Group totalled HK$403 million. PetroChina Company Limited. Rolls-Royce plc (or any of its group companies or affiliates) for the Company. In respect of the Company’s purchases from PetroChina International (Hong Kong) Corporation Limited. On 7th June 2010. The current term of the HAESL Framework Agreement is for 3 years ending on 31st December 2012 and is renewable for successive periods of three years thereafter unless either party to it gives to the other notice of termination of not less than three months expiring on any 31st December. (b) either on normal commercial terms or.  . became a subsidiary of Swire Pacific and as a result HAESL became an associate of Swire Pacific under the Listing Rules. As a result. (c) they have been entered into in accordance with the relevant agreements governing the transactions. HAECO. the transactions under the HAESL Framework Agreement became continuing connected transactions in respect of which an announcement dated 27th July 2010 was published. HAESL became a connected person of the Company under the Listing Rules by becoming an associate of a substantial shareholder of the Company.Cathay Pacific Airways Limited Annual Report 2010 Directors’ Report For the year ended 31st December 2010 and under the Air China Framework Agreement. on terms no less favourable to the Group than terms available to or from (as appropriate) independent third parties. and the amounts payable by Air China Group to the Group totalled HK$219 million. have reviewed and confirmed that the continuing connected transactions as set out above have been entered into by the Group: (a) in the ordinary and usual course of business of the Group. Save as disclosed in this paragraph. any of their associates or any shareholder who. no Director. (f) Pursuant to a framework agreement dated 27th July 2010 (“HAESL Framework Agreement”) with Hong Kong Aero Engine Services Limited (“HAESL”). owns more than 5% of the Company’s issued share capital has an interest in the Group’s five largest suppliers. which holds a 45% shareholding in HAESL. who are not interested in any connected transactions with the Group. The fees payable by the Group to HAESL under the HAESL Framework Agreement totalled HK$228 million for period from 7th June 2010 to 31st December 2010. and (c) in accordance with the relevant agreement governing them on terms that are fair and reasonable and in the interests of the shareholders of the Company as a whole. which was among the Group’s five largest suppliers in 2010. (b) they are in accordance with the pricing policies of the Group (if the transactions involve provision of goods or services by the Group). The Auditors of the Company have also reviewed these transactions and confirmed to the Board that: (a) they have been approved by the Board of the Company. Payment is made in cash by the Group to HAESL within 30 days upon receipt of the invoice. Tung Chee Chen is interested as a director of its holding company. HAESL provides certain services to the Group in connection with the overhaul and repair of aircraft engines and components. 1% of sales were made to the Group’s largest customer while 10% of purchases were made from the Group’s largest supplier. The independent non-executive Directors. Major customers and suppliers 6% of sales and 33% of purchases during the year were attributable to the Group’s five largest customers and suppliers respectively. Such services do not include reimbursement of the cost of materials purchased by HAESL from the engine supplier. to the knowledge of the Directors. As Swire Pacific is a substantial shareholder of the Company under the Listing Rules. if there are not sufficient comparable transactions to judge whether they are on normal commercial terms. and (d) they have not exceeded the relevant annual caps disclosed in previous announcements.

13 and the Company still considers all its independent non-executive Directors to be independent. with the businesses of the Company as it operates airline services to certain destinations which are also served by the Company. either directly or indirectly. None of the Directors has any existing or proposed service contract with any member of the Group which is not expiring or terminable by the Group within one year without payment of compensation (other than statutory compensation). offer themselves for election. of shares Percentage of issued capital (%) Ian Shiu Tony Tyler Personal Personal 1. Directors’ fees paid to the independent non-executive Directors during the year totalled HK$2. Irene Lee. being eligible. Kong Dong and Ian Shiu had disclosed that they were directors of Air China during the year. Directors’ interests At 31st December 2010.000 0.6 million. offer themselves for re-election. 1st July 2010 and 31st March 2011 respectively. The Company has received from each of its independent non-executive Directors an annual confirmation of his/her independence pursuant to Listing Rule 3. James Barrington were appointed as Directors with effect from 31st March 2011. Cai Jianjiang.E. Philip Chen. W. Each of the Directors has entered into a letter of appointment.000 5. being eligible. they received no other emoluments from the Company or any of its subsidiaries. Air China competes or is likely to compete. Fan Cheng. 13th January 2010. All the other present Directors of the Company whose names are listed on pages 32 and 33 served throughout the year.Directors’ Report Directors Ivan Chu. in the shares or underlying shares (including options) and debentures of Cathay Pacific Airways Limited or any of its associated corporations (within the meaning of Part XV of the SFO). 1st June 2010 and 1st July 2010 respectively. which constitutes a service contract. In accordance therewith. HughesHallett and John Slosar retire this year and. Article 93 of the Company’s Articles of Association provides for all the Directors to retire at the third annual general meeting following their election by ordinary resolution.E. James W. whether beneficial or non-beneficial.J. Philip Chen and Tony Tyler served as Directors until their resignation with effect from 1st June 2010.00003 0. Robert Woods. Directors’ interests in competing business Pursuant to Rule 8. having been appointed as Directors of the Company under Article 91 since the last annual general meeting. James Barrington. the register maintained under Section 352 of the Securities and Futures Ordinance (“SFO”) showed that Directors held the following interests in the shares of Cathay Pacific Airways Limited: Capacity No. with the Company for a term of up to three years until his/ her retirement under Article 91 or Article 93 of the Articles of Association of the Company. Ivan Chu and Merlin Swire.00013 Other than as stated above.10 of the Listing Rules. Christopher Pratt. 0 . which will be renewed for a term of three years upon each election/ re-election. also retire and. Merlin Swire and W. no Director or chief executive of Cathay Pacific Airways Limited had any interest or short position.

107.. each of Air China. 189. was deemed to be interested in a total of 2.107.351 shares of the Company. comprising the following shares held by their wholly owned subsidiaries: 288.645 shares held by Grand Link Investments Holdings Ltd. 191. comprising: (i) 1.96 72. (c) Swire and its wholly owned subsidiary JSSHK are deemed to be interested in a total of 2. 207. at least 25% of the Company’s total issued share capital is held by the public.680 shares held by Custain Limited. and 21.987 shares indirectly held by Air China and its subsidiaries CNAC. being eligible..96 72. China National Aviation Company Limited (“CNAC”) and Swire Pacific. By order of the Board Christopher Pratt Chairman Hong Kong.351 72.96 72. (ii) 1.759.870. Super Supreme Company Limited and Total Transform Group Limited.870.351 2.273 shares held by Easerich Investments Inc. John Swire & Sons Limited 2.179.922. offer themselves for reappointment. Public float From information that is publicly available to the Company and within the knowledge of its Directors as at the date of this report.351 shares of the Company.63% of the issued capital and approximately 57.347.351 shares of the Company by virtue of the Swire group’s interests in shares of Swire Pacific representing approximately 40. of shares Percentage of issued capital (%) Type of interest (Note) 1. being a party to the Shareholders’ Agreement in relation to the Company dated 8th June 2006.107. A resolution for the re-appointment of KPMG as Auditors to the Company is to be proposed at the forthcoming annual general meeting.351 2.655 shares held by Motive Link Holdings Inc. Air China Limited 2.870. in which its subsidiary Air China is deemed interested.690.96 Attributable interest (a) Attributable interest (b) Attributable interest (a) Attributable interest (c) Note: At 31st December 2010: (a) Under Section 317 of the SFO.107.376.. 9th March 2011 1 .870. Auditors KPMG retire and.976.809.335 shares held by Angel Paradise Ltd.870. China National Aviation Holding Company 3.364 shares directly held by Swire Pacific. Swire Pacific Limited 4.870.62% of the voting rights.351 2. 280.399 shares held by Perfect Match Assets Holdings Ltd. (b) China National Aviation Holding Company is deemed to be interested in a total of 2.107.078.596.870.107.107.Cathay Pacific Airways Limited Annual Report 2010 Directors’ Report Substantial shareholders The register of interests in shares and short positions maintained under Section 336 of the SFO shows that as at 31st December 2010 the Company had been notified of the following interests in the shares of the Company held by substantial shareholders and other persons: No.

clear and understandable assessment of the financial and other information contained in the Company’s accounts. Hughes-Hallett (6/6). the role of the Chairman is separate from that of the Chief Executive (“CE”). was as follows: Christopher Pratt (6/6). It also identifies and nominates qualified individuals. dividend policy. The Board of Directors held six meetings during 2010. major financing arrangements. Tung Chee Chen (5/6). the annual operating budgets. the latter two with the participation of independent non-executive Directors. Irene Lee (6/6).Corporate Governance Cathay Pacific is committed to maintaining a high standard of corporate governance and devotes considerable effort to identifying and formalising best practices of corporate governance. Robert Woods (3/3) and Zhang Lan (3/6).E. It is also responsible for presenting a balanced. A Director appointed by the Board to fill a casual vacancy is subject to election of shareholders at the first general meeting after his/her appointment and all Directors have to retire at the third annual general meeting following their election by ordinary resolution. monitors and controls operating and financial performance and sets appropriate policies to manage risks in pursuit of the Company’s strategic objectives. The Board of Directors The Board is chaired by Christopher Pratt (the “Chairman”). The Board regularly reviews its structure. It determines the overall strategies.  . To ensure a balance of power and authority. These include: financial statements. James W. who are expected to have such expertise to make a positive contribution to the performance of the Board. the Finance Committee. W. significant changes in accounting policy. The Board is accountable to the shareholders for leading the Company in a responsible and effective manner. Peter Kilgour (6/6). to be additional Directors or fill Board vacancies as and when they arise. Philip Chen (3/3). Tony Tyler (6/6). the Remuneration Committee and the Audit Committee. Names and other details of the Directors are given on pages 32 and 33 of this report. Jack So (6/6). size and composition to ensure its expertise and independence are maintained. announcements and other disclosures required under the Listing Rules or other statutory requirements. John Slosar (6/6). Peter Wong (4/6). The CE. Kong Dong (2/6). Ian Shiu (6/6). Merlin Swire (3/3). The Company has complied throughout the year with all the code provisions set out in the Code on Corporate Governance Practices (the “CG Code”) contained in Appendix 14 of the Listing Rules. Matters reserved for the Board are those affecting the Company’s overall strategic policies. Tony Tyler will be succeeded by John Slosar on 31st March 2011. Fan Cheng (3/6). material contracts. major investments. four of whom are independent. he/she declares his/her interest and is required to abstain from voting.J. James Barrington (3/3). All Directors disclose to the Board on their first appointment their interests as director or otherwise in other companies or organisations and such declarations of interests are updated annually. There are five executive Directors and 12 non-executive Directors. Cai Jianjiang (1/6). the Executive Committee. risk management strategy and treasury policies. but are eligible for re-election. The independent non-executive Directors are high calibre executives with diversified industry expertise and serve the important function of providing adequate checks and balances for safeguarding the interests of shareholders and the Company as a whole. When the Board considers any proposal or transaction in which a Director has a conflict of interest. The Company has also put in place corporate governance practices to meet most of the recommended best practices in the CG Code. Hughes-Hallett (5/6). taking into account dates of appointment or resignation. the attendance of which. All Directors are able to take independent professional advice in furtherance of their duties if necessary. James E. The functions of the Board and the powers delegated to the CE are reviewed periodically to ensure that they remain appropriate. finances and shareholders. Day-to-day management of the Company’s business is delegated to the CE. The Board has established the following committees: the Board Safety Review Committee.

Nick Rhodes and Tomasz Smaczny. and is chaired by the Company’s past Chairman. Finance Committee The Finance Committee meets monthly to review the financial position of the Company and is responsible for establishing the financial risk management policies. James E. A copy of the Securities Code is sent to each Director of the Company first on his/her appointment and thereafter twice annually. James W.Cathay Pacific Airways Limited Annual Report 2010 Corporate Governance Securities Transactions The Company has adopted codes of conduct regarding securities transactions by Directors (the “Securities Code”) and relevant employees (as defined in the CG Code) on terms no less exacting than the required standard set out in the Model Code for Securities Transactions by Directors of Listed Issuers (the “Model Code”) contained in Appendix 10 of the Listing Rules. Hughes-Hallett who is also a nonexecutive Director. Hughes-Hallett and John Slosar. It is chaired by the CE and comprises three executive Directors. It meets three times a year and comprises two executive Directors. Directors’ interests as at 31st December 2010 in the shares of the Company and its associated corporations (within the meaning of Part XV of the SFO) are set out on page 40. with a reminder that the Director cannot deal in the securities and derivatives of the Company until after such results have been published. Fan Cheng.  . On specific enquiries made. James E. Keith Fung. three executive officers. James Barrington. It is chaired by a former Director Flight Operations. Management Committee The Management Committee meets once a month and is responsible to the Board for overseeing the day-to-day operation of the Company. the CE and John Slosar. Christopher Gibbs. W. Directors of the Company are required to notify the Chairman and receive a dated written acknowledgement before dealing in the securities and derivatives of the Company and. at least 30 days and 60 days respectively before the date of the board meeting to approve the Company’s half-year result and annual result. Peter Kilgour and Zhang Lan.E. and all eight executive officers. and an independent representative from the financial community.E. It meets monthly and is responsible to the Board for overseeing and setting the strategic direction of the Company. all Directors have confirmed that they have complied with the required standard set out in the Model Code throughout the year. Executive Committee The Executive Committee is chaired by the CE and comprises three executive Directors. one independent non-executive Director. It is chaired by the CE and comprises three executive Directors. Andrew West. Kong Dong and Zhang Lan. Christopher Gibbs and Captain Richard Hall. Ivan Chu. three non-executive Directors. Captain Henry Craig and the Head of Corporate Safety. Cai Jianjiang. W. the General Manager Corporate Finance. HughesHallett and John Slosar. Under the Securities Code. Remuneration Committee The Remuneration Committee comprises two independent non-executive Directors.E. Peter Kilgour. Board Safety Review Committee The Board Safety Review Committee reviews and reports to the Board on safety issues. James Barrington. in the case of the Chairman himself. James E. Captain Richard Hall. the Manager Corporate Treasury. Jack So. the General Manager Flying. Fan Cheng. Richard Howell. Reports on its decisions and recommendations are presented at Board meetings. James Barrington. Quince Chong. Irene Lee and Tung Chee Chen. Rupert Hogg. Hughes-Hallett and John Slosar. J. William Chau. Ken Barley. Ivan Chu. W. and five non-executive Directors. he must notify the Chairman of the Audit Committee and receive a dated written acknowledgement before any dealing.

This policy and the levels of remuneration paid to executive Directors of the Company were reviewed by the Remuneration Committee. it is in the best interest of Swire to see that executives of high quality are seconded to and retained within the Company.000  . this has contributed considerably to the maintenance of a stable. The remuneration of independent nonexecutive Directors is determined by the Board in consideration of the complexity of the business and the responsibility involved. The Committee approved individual Directors’ remuneration packages to be paid in respect of 2009. Annual fees of independent non-executive Directors in 2010 were as follows: Director’s fee Fee for serving as Audit Committee chairman Fee for serving as Audit Committee member Fee for serving as Remuneration Committee chairman Fee for serving as Remuneration Committee member 2010. the Remuneration Committee considered a report prepared for it by independent consultants. provident fund. Whilst bonuses are calculated by reference to the profits of the Swire group overall. including executive Directors. as a substantial shareholder of the Company. it is considered that. a significant part of such profits are usually derived from the Company. Mercer Limited. At its meeting in November. leave passage and education allowances and. after three years’ service. In order to be able to attract and retain international staff of suitable calibre.Corporate Governance Under the Services Agreement between the Company and JSSHK. Hughes-Hallett (2/2). The provision of housing affords ease of relocation either within Hong Kong or elsewhere in accordance with the needs of the business and as part of the training process whereby managers gain practical experience in various businesses within the Swire group.000 HK$150. staff at various levels. Those staff report to and take instructions from the Board of the Company but remain employees of Swire. This comprises salary.000 HK$500. and payment of bonuses on a group-wide basis enables postings to be made to group companies with very different profitability profiles. given the volatility of the aviation business. the attendance of which was as follows: James W. Furthermore. No Director takes part in any discussion about his/her own remuneration. Although the remuneration of these executives is not entirely linked to the profits of the Company. A number of Directors and senior staff with specialist skills are employed directly by the Company on similar terms.J.000 HK$200. the Swire group provides a competitive remuneration package. which has been considered in detail and approved by the Directors of the Board who are not connected with the Swire group. housing. are seconded to the Company.000 The Remuneration Committee held two meetings during HK$65. motivated and high-calibre senior management team in the Company. HK$50. which confirmed that the remuneration of the Company’s executive Directors was in line with comparators in peer group companies. Irene Lee (2/2) and Tung Chee Chen (2/2). a bonus related to the profit of the overall Swire group.

It reviewed the work done by the internal and external auditors. external auditors and the relevant management of the auditee department. control and report on major risks. The Internal Audit Manager has direct access to the Audit Committee. the Finance Director and the Internal Audit Manager also attended these meetings. The Audit Committee held three meetings during 2010. Jack So (3/3) and Peter Wong (3/3). A summary of major audit findings is reported quarterly to the Board and reviewed by the Audit Committee.  . James Barrington and James E. Jack So. As a key criterion of assessing the effectiveness of the internal control system. legal. and their training programmes and budget. Internal Control and Internal Audit The internal control system has been designed to safeguard corporate assets. results of audits performed by the external auditors and appropriate actions required on significant control weaknesses. the Board considered that the Company’s internal control system is adequate and effective and the Company has complied with the code provisions on internal control of the CG Code. Exposures to these risks are monitored by the Board with the assistance of various committees and senior management. It is chaired by an independent non-executive Director. including business. stock exchange and legal requirements. Expenditure Control Committee The Expenditure Control Committee meets monthly to evaluate and approve capital expenditure.E. accuracy and fairness of the Company’s reports and accounts and provided assurance to the Board that these comply with accounting standards. the Board and the Committee actively monitor the number and seriousness of findings raised by the Internal Audit Department and also the corrective actions taken by relevant departments. For the year under review. taking into account dates of appointment or resignation/cessation. It is chaired by one executive Director. The Board is responsible for the system of internal control and for reviewing its effectiveness. The Committee reviewed the completeness. The audit plan. In addition to its agreed annual schedule of work. Detailed control guidelines have been set and made available to all employees of the Company regarding handling and dissemination of corporate data which is price sensitive.Cathay Pacific Airways Limited Annual Report 2010 Corporate Governance Audit Committee The Audit Committee is responsible to the Board and consists of four non-executive Directors. the attendance of which. Systems and procedures are in place to identify. qualifications and experience of the staff of the Company’s accounting and financial reporting function. the Finance Director. Irene Lee and Peter Wong. Hughes-Hallett. environmental and reputational risks. W. including the adequacy of the resources. was as follows: Fan Cheng (1/3). Audit reports are sent to the Chief Operating Officer. The external auditors. Irene Lee (3/3). The Internal Audit Department provides an independent review of the adequacy and effectiveness of the internal control system. The members currently are Fan Cheng. the relevant fees and terms. is discussed and agreed every year with the Audit Committee. which is prepared based on risk assessment methodology. The Committee also reviewed the adequacy and effectiveness of the internal control and risk management systems. The system comprises a well-established organisational structure and comprehensive policies and standards. maintain proper accounting records and ensure transactions are executed in accordance with management’s authorisation. safety. three of whom are independent. the Department conducts other special reviews as required. financial. John Slosar and includes two other executive Directors.

Inquiries from investors are dealt with in an informative and timely manner. being HK$10 million for audit. Airline Safety Review Committee The Airline Safety Review Committee meets monthly to review the Company’s exposure to operational risk. Any inquiries from shareholders can be addressed to the Corporate Communication Department whose contact details are given on page 104. Extensive information about the Company’s performance and activities is provided in the Annual Report and the Interim Report which are sent to shareholders. HAS. In order to promote effective communication. All shareholders are encouraged to attend the annual general meeting to discuss matters relating to the Company. HAECO. It is chaired by the Head of Corporate Safety and comprises Directors and senior management of all operational departments as well as senior management from the ground handling company.cathaypacific. Shareholders may request an extraordinary general meeting to be convened in accordance with Section 113 of the Companies Ordinance. the Company maintains its website at www. HK$13 million for tax advice and HK$3 million for other professional services. In 2010 the total remuneration paid to the external auditors was HK$26 million.Corporate Governance External Auditors The external auditors are primarily responsible for auditing and reporting on the annual accounts. Regular dialogue with institutional investors and analysts is in place to keep them abreast of the Company’s development. and the aircraft maintenance company. It reviews the work of the Cabin Safety Review Committee. the Operational Ramp Safety Committee and the Engineering Mandatory Occurrence Report Meeting.com on which financial and other information relating to the Company and its business is disclosed. Investor Relations The Company continues to enhance relationships and communication with its investors.  .

KPMG Certified Public Accountants 8th Floor. This report is made solely to you. In making those risk assessments. We do not assume responsibility towards or accept liability to any other person for the contents of this report. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by the directors. We conducted our audit in accordance with Hong Kong Standards on Auditing issued by the Hong Kong Institute of Certified Public Accountants. whether due to fraud or error.Cathay Pacific Airways Limited Annual Report 2010 Independent Auditor’s Report To the shareholders of Cathay Pacific Airways Limited (Incorporated in Hong Kong with limited liability) We have audited the consolidated financial statements of Cathay Pacific Airways Limited (“the Company”) and its subsidiaries (together “the Group”) set out on pages 48 to 97. which comprise the consolidated and company statements of financial position as at 31st December 2010. whether due to fraud or error. including the assessment of the risks of material misstatement of the consolidated financial statements. the consolidated financial statements give a true and fair view of the state of affairs of the Company and of the Group as at 31st December 2010 and of the Group’s profit and cash flows for the year then ended in accordance with Hong Kong Financial Reporting Standards and have been properly prepared in accordance with the Hong Kong Companies Ordinance. the consolidated statement of comprehensive income. as a body. as well as evaluating the overall presentation of the consolidated financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. The procedures selected depend on the auditor’s judgement. Hong Kong 9th March 2011 47 . Opinion In our opinion. Prince’s Building 10 Chater Road Central. in accordance with section 141 of the Hong Kong Companies Ordinance. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free from material misstatement. but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. and for no other purpose. Auditor’s responsibility Our responsibility is to express an opinion on these consolidated financial statements based on our audit. Directors’ responsibility for the consolidated financial statements The directors of the Company are responsible for the preparation of consolidated financial statements that give a true and fair view in accordance with Hong Kong Financial Reporting Standards issued by the Hong Kong Institute of Certified Public Accountants and the Hong Kong Companies Ordinance and for such internal control as the directors determine is necessary to enable the preparation of consolidated financial statements that are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. the auditor considers internal control relevant to the entity’s preparation of the consolidated financial statements that give a true and fair view in order to design audit procedures that are appropriate in the circumstances. the consolidated and company statements of changes in equity and the consolidated cash flow statement for the year then ended and a summary of significant accounting policies and other explanatory information.

to govern the financial and operating policies. not being subsidiaries. intangible assets. 2. The measurement basis used is historical cost modified by the use of fair value for certain financial assets and liabilities as explained in accounting policies 8. In the consolidated statement of financial position investments in associates represent the Group’s share of net assets. in which the Group holds a substantial long-term interest in the equity share capital and over which the Group is in a position to exercise significant influence. On disposal of a subsidiary or associate. The preparation of the accounts in conformity with HKFRS requires management to make certain estimates and assumptions which affect the amounts of fixed assets. The results of subsidiaries are included in the consolidated statement of comprehensive income. goodwill is included in the calculation of any gain or loss.Principal Accounting Policies 1. Subsidiaries are considered to be controlled if the Company has the power. long-term investments. non-controlling interests are disclosed as an allocation of the profit or loss for the year. (b) assets and liabilities of foreign subsidiaries and associates. Associates Associates are those companies. goodwill arising on acquisition of the associates (less any impairment) and loans to those companies. Basis of consolidation The consolidated accounts incorporate the accounts of the Company and its subsidiaries made up to 31st December together with the Group’s share of the results and net assets of its associates. 9. The results of subsidiaries are accounted for by the Company on the basis of dividends received and receivable. Non-controlling interests in the consolidated statement of financial position comprise the outside shareholders’ proportion of the net assets of subsidiaries and are treated as a part of equity. These estimates and assumptions are continually re-evaluated and are based on management’s expectations of future events which are considered to be reasonable. In the Company’s statement of financial position. Goodwill is recognised at cost less accumulated impairment losses. only those results relating to the period of control are included in the accounts. investments in associates are stated at cost less any impairment loss recognised and loans to those companies. 3. so as to obtain benefits from their activities. Basis of accounting The accounts have been prepared in accordance with all applicable Hong Kong Financial Reporting Standards (“HKFRS”) (which include all applicable Hong Kong Accounting Standards (“HKAS”). Subsidiaries are entities controlled by the Group. Exchange differences arising on the translation of foreign currencies into Hong Kong dollars are reflected in profit and loss except that: . 10 and 12 below. In the Company’s statement of financial position. The consolidated statement of comprehensive income includes the Group’s share of results of associates as reported in their accounts made up to dates not earlier than three months prior to 31st December. investments in subsidiaries are stated at cost less any impairment loss recognised. In the statement of comprehensive income. Foreign currencies Foreign currency transactions entered into during the year are translated into Hong Kong dollars at the market rates ruling at the relevant transaction dates whilst the following items are translated at the rates ruling at the reporting date: (a) foreign currency denominated financial assets and liabilities. directly or indirectly. retirement benefit obligations and taxation included in the accounts. Where interests have been bought or sold during the year. 48 4. Goodwill arising from the acquisition of subsidiaries is allocated to cash-generating units and is tested annually for impairment. These accounts also comply with the requirements of the Hong Kong Companies Ordinance and the applicable disclosure provisions of the Rules Governing the Listing of Securities (the “Listing Rules”) of The Stock Exchange of Hong Kong Limited (the “Stock Exchange”). Hong Kong Financial Reporting Standards and Interpretations) issued by the Hong Kong Institute of Certified Public Accountants (“HKICPA”). Goodwill represents the excess of the cost of subsidiaries and associates over the fair value of the Group’s share of the net assets at the date of acquisition.

Fixed assets and depreciation Fixed assets are stated at cost less accumulated depreciation and impairment. On disposal or if there is evidence that the investment is impaired. The depreciation policy and the carrying amount of fixed assets are reviewed annually taking into consideration factors such as changes in fleet composition. current and forecast market values and technical factors which affect the life expectancy of the assets. as described in accounting policies 8. that qualify as effective cash flow hedge instruments under HKAS 39 “Financial Instruments: Recognition and Measurement” are recognised directly in equity via the Statement of Changes in Equity. Any impairment in value is recognised by writing down the carrying amount to estimated recoverable amount which is the higher of the value 49 . bank and security deposits. net of interest charges. Any change in fair value is recognised in the investment revaluation reserve. (b) unrealised differences on net investments in foreign subsidiaries and associates (including intra-Group balances of an equity nature) and related long-term liabilities are taken directly to equity.Cathay Pacific Airways Limited Annual Report 2010 Principal Accounting Policies (a) unrealised exchange differences on foreign currency denominated financial assets and liabilities. Aircraft product Other equipment Buildings Major modifications to aircraft and reconfiguration costs are capitalised as part of aircraft cost and are depreciated over periods of up to 10 years. trade and other short-term receivables are categorised as loans and receivables and are stated at amortised cost less impairment loss. these investments are stated at fair value. in use (the present value of future cash flows) and the fair value less costs to sell. the cumulative gain or loss on the investment is reclassified from the investment revaluation reserve to profit and loss. Expenditure on computer system development which gives rise to economic benefits is capitalised as part of intangible assets and is amortised on a straight line basis over its useful life not exceeding a period of four years. are included as obligations under finance leases. Leases which do not give rights equivalent to ownership are treated as operating leases. 6. Freighter aircraft 8. Intangible assets Intangible assets comprise goodwill arising on consolidation and expenditure on computer system development. Financial assets Other long-term receivables. 5. 9 and 10 below. Operating lease payments and income are charged and credited respectively to profit and loss on a straight line basis over the life of the related lease. Amounts payable in respect of finance leases are apportioned between interest charges and reductions of obligations based on the interest rates implicit in the leases. The accounting policy for goodwill is outlined in accounting policy 2 on page 48. Fair values for the unquoted equity investments are estimated using an appropriate valuation model. Leased assets Fixed assets held under lease agreements that give rights equivalent to ownership are treated as if they had been purchased outright at fair market value and the corresponding liabilities to the lessor. These exchange differences are included in profit and loss as an adjustment to revenue in the same period or periods during which the hedged item affects profit and loss. Depreciation of fixed assets is calculated on a straight line basis to write down cost over anticipated useful lives to estimated residual value as follows: Passenger aircraft over 20 years to residual value of the lower of 10% of cost or expected realisable value over 20-27 years to residual value of between 10% to 20% of cost and over 10 years to nil residual value for freighters converted from passenger aircraft over 5-10 years to nil residual value over 4 years to nil residual value over the lease term of the leasehold land to nil residual value 7. Where long-term investments held by the Group are designated as available-for-sale financial assets. Fair value is based on quoted market prices at the end of the reporting period without any deduction for transaction costs.

(b) the ineffective portion of the fair value change is recognised in profit and loss immediately. Derivatives which do not qualify as hedging instruments under HKAS 39 “Financial Instruments: Recognition and Measurement” are accounted for as held for trading financial instruments and any fair value change is recognised in profit and loss immediately. Such netting off occurs where there is a current legally enforceable right to set off the liability and the deposit and the Group intends either to settle on a net basis or to realise the deposit and settle the liability simultaneously. 10. thereby reflecting the substance and economic reality of the transactions. 11. 12. Retirement benefits Arrangements for staff retirement benefits vary from country to country and are made in accordance with local regulations and customs. Where derivative financial instruments are designated as effective hedging instruments under HKAS 39 “Financial Instruments: Recognition and Measurement” and hedge exposure to fluctuations in foreign exchange rates. The accounting policy for derivative financial assets is outlined in accounting policy 10. finance lease obligations and trade and other payables are stated at amortised cost or designated as at fair value through profit and loss. those liabilities and deposits (and income and charge arising therefrom) are netted off. For transactions entered into before 2005. net finance charges or fuel expense in the same period or periods during which the hedged transaction affects profit and loss. having been within three months of maturity at acquisition. demand deposits with banks and other financial institutions. Financial liabilities Long-term loans. Derivative financial instruments Derivative financial instruments are used solely to manage exposures to fluctuations in foreign exchange rates. Interest expenses incurred under financial liabilities are calculated and recognised using the effective interest method. Impairment is recognised when the recoverability of the debt is in doubt resulting from financial difficulty of a customer or the debt in dispute. any fair value change is accounted for as follows: (a) the portion of the fair value change that is determined to be an effective cash flow hedge is recognised directly in equity via the statement of changes in equity and is included in profit and loss as an adjustment to revenue. Financial liabilities are recognised or derecognised when the contracted obligations are incurred or extinguished. 9. in order to reflect the overall commercial effect of the arrangements. Fair value measurement Fair value of financial assets and financial liabilities is determined either by reference to quoted market values or by discounting future cash flows using market interest rates for similar instruments. Interest income from financial assets is recognised as it accrues while dividend income is recognised when the right to receive payment is established. All derivative financial instruments are recognised at fair value in the statement of financial position. The accounting policy for derivative financial liabilities is outlined in accounting policy 10. Where long-term liabilities have been defeased by the placement of security deposits. Funds with investment managers and other liquid investments which are managed and evaluated on a fair value basis are designated as at fair value through profit and loss. interest rates or jet fuel prices. interest rates and jet fuel prices in accordance with the Group’s risk management policies. such netting off occurs where there is a right to insist on net settlement of the liability and the deposit including situations of default and where that right is assured beyond doubt. 50 . The Group does not hold or issue derivative financial instruments for trading purposes. and short-term. Financial assets are recognised or derecognised by the Group on the date when the purchase or sale of the assets occurs.Principal Accounting Policies Cash and cash equivalents comprise cash at bank and on hand. highly liquid investments that are readily convertible into known amounts of cash and which are subject to an insignificant risk of changes in value.

Deferred tax assets relating to unused tax losses and deductible temporary differences are recognised to the extent that it is probable that future taxable profits will be available against which these unused tax losses and deductible temporary differences can be utilised. The amount exceeding this corridor is recognised in profit and loss on a straight line basis over the expected average remaining working lives of the employees participating in the plans. or the amount cannot be estimated reliably. Frequent-flyer programme The Company operates a frequent-flyer programme called Asia Miles (the “programme”). The deferred revenue and breakage revenue are recognised when the awards are redeemed by members. 14.Cathay Pacific Airways Limited Annual Report 2010 Principal Accounting Policies The retirement benefit obligation in respect of defined benefit retirement plans refers to the obligation less the fair value of plan assets where the obligation is calculated by estimating the present value of the expected future payments required to settle the benefit that employees have earned using the projected unit credit method. Revenue recognition Passenger and cargo sales are recognised as revenue when the transportation service is provided. Stock Stock held for consumption is valued either at cost or weighted average cost less any applicable allowance for obsolescence. The revenue earned from miles sold is also deferred. The value of unflown passenger and cargo sales is recorded as unearned transportation revenue. As members accumulate miles by travelling on Cathay Pacific or Dragonair flights. 15. 16. future redemption pattern and programme design. Net realisable value represents estimated resale price. directly or indirectly. 17. The breakage expectation is determined by a variety of assumptions including historical experience. this is deemed to occur when the transportation service is provided which represents the miles. Stock held for disposal is stated at the lower of cost and net realisable value. 18. unless the probability of outflow of economic benefits is remote. part of the revenue from the initial sales transaction equal to the programme awards at their fair value is deferred. to control the Group or exercise significant influence over the Group in making financial and operating decisions or where the Group and the party are subject to common control. Actuarial gains and losses are not recognised unless their cumulative amounts exceed either 10% of the present value of the defined benefit obligation or 10% of the fair value of plan assets whichever is greater. Where it is not probable that an outflow of economic benefits is required. Maintenance and overhaul costs Replacement spares and labour costs for maintenance and overhaul of aircraft are charged to profit and loss on consumption and as incurred respectively. joint ventures and key management personnel (including close members of their families) are also considered to be related parties of the Group. In addition. where initial cash benefits have been received in respect of certain lease arrangements. the obligation is disclosed as a contingent liability. 51 . Income from catering and other services is recognised when the services are rendered. Provisions and contingent liabilities Provisions are recognised when the Group or the Company has a legal or constructive obligation arising as a result of a past event. 13. The Company sells miles to participating partners in the programme. For redemption on the Group’s flights. The Group’s associates. it is probable that an outflow of economic benefits will be required to settle the obligation and a reliable estimate can be made. Deferred taxation Provision for deferred tax is made on all temporary differences. provision is made for the future obligation to make tax payments. Related parties Related parties are considered to be related to the Group if the party has the ability. 19.

587 15.1¢ 45.471) 11.776) (424) (1.694 170 4.499) 4.912 357.912 14.8.165 868 14.449) (3.233 13.224) (842) (1.567) (7.806 (212) 87 (125) 331 2.269 89.850) (3.915) (10. The notes on pages 58 to 97 and the principal accounting policies on pages 48 to 51 form part of these accounts.887 2.062) (142) (94) (581) (10.524 (13.301) (28.521 170 5.072) (8.760 24 1.255 3. net of tax Total comprehensive income for the year Profit attributable to Owners of Cathay Pacific Non-controlling interests Total comprehensive income attributable to Owners of Cathay Pacific Non-controlling interests Earnings per share (basic and diluted) 1 59.978 (12.023) (141) (73) (377) (8.147 (283) 4.308) (11.254 – 5.233 (488) (15) (131) 313 (321) 13.691 4.060) 1.288) (1.695 (1.940) (62.3¢ 7.354 25. amortisation and operating leases Commissions Others Operating expenses Operating profit before non-recurring items Profit on disposal of investments Gain on deemed disposal of an associate Operating profit Finance charges Finance income Net finance charges Share of profits of associates Profit before tax Taxation Profit for the year Other comprehensive income Cash flow hedges Revaluation (deficit)/surplus arising from available-for-sale financial assets Share of other comprehensive income of associates Exchange differences on translation of foreign operations Other comprehensive income for the year.3¢ 3 4 5 6 15 7 8 9 10 The accounts are prepared and presented in HK$.691 119.276) (7.864 5.864 329 479 11 8 827 5.825 1.733 (1.920 17.462) 14.803 66.784 45.013) 574 161 – 735 (184) 75 (109) 33 659 (36) 623 42 62 1 1 106 729 601 22 623 707 22 729 15.Consolidated Statement of Comprehensive Income for the year ended 31st December 2010 2010 HK$M 2009 HK$M 2010 US$M 2009 US$M Note Turnover Passenger services Cargo services Catering.477 (1.321 547 11.341) (2.978) (1.825 (62) (2) (17) 40 (41) 1.012 (187) 1. The US$ figures are shown only as supplementary information and are translated at HK$7 .618) (374) (1.086 (1. the functional currency. recoveries and other services Total turnover Expenses Staff Inflight service and passenger expenses Landing.349) (6.8¢ 5. 52 .479 1.784 1.458) (17.609 3.727 185 13.587 (1.417 278 111 1.107) (736) (4.625) (907) (1.618) (2.901 4.655) 677 (978) 2.533) (78.048 185 14. parking and route expenses Fuel Aircraft maintenance Aircraft depreciation and operating leases Other depreciation.103) (571) (2.212 488 8.801 24 1.435) 588 (847) 261 5.053 2.

440) 52.198 36.926 4.059) (5. other receivables and other assets Liquid funds Current portion of long-term liabilities Related pledged security deposits Net current portion of long-term liabilities Trade and other payables Unearned transportation revenue Taxation Net current assets/(liabilities) Net assets CAPITAL AND RESERVES Share capital Reserves Funds attributable to owners of Cathay Pacific Non-controlling interests Total equity 24 25 17 23 21 22 17 18 20 12 13 15 16 66. The US$ figures are shown only as supplementary information and are translated at HK$7 .815) (38.433 24.694 (40.652 (9.166) (1.463) (136) (674) (5.416) 5.704) (15.8. The notes on pages 58 to 97 and the principal accounting policies on pages 48 to 51 form part of these accounts.175) (198) (4.476 1.958 20 6.487 54.243 (5.022) (1.026 1.429 787 53.434 101 5.Cathay Pacific Airways Limited Annual Report 2010 Consolidated Statement of Financial Position at 31st December 2010 2010 HK$M 2009 HK$M 2010 US$M 2009 US$M Note ASSETS AND LIABILITIES Non-current assets and liabilities Fixed assets Intangible assets Investments in associates Other long-term receivables and investments Long-term liabilities Related pledged security deposits Net long-term liabilities Other long-term payables Deferred taxation Net non-current assets Current assets and liabilities Stock Trade.495 7.021 11.790 131 1.186) 70 (1.434 The accounts are prepared and presented in HK$.161 16.814) (1.466 3.965) (217) (746) (4.970 122 1.978 101 6.961 1.566 947 8.468 54.699 (1.310 (30.102 4.023) 1.541) (35.657 559 11.630 (9.128) 46.828) (12.359 91.235) 5.401 (36.385 787 41.965) (8.182) 719 (4.116) (2.184) 1.273) 5.385 8.928) 6.004) (1.195 (7.286 (1.181) 42.662) (1.522 25.773) (9.042 5.075) (943) (29.602 (34. Christopher Pratt Director Hong Kong.004 12.046 2.397 1.925) (1.314 5.307 87.255) (41.274 155 54.700) (5.718 (4.157) 153 (1.429 65.811) (4. 9th March 2011 Jack So Director 53 .249) 545 (8.850 9.646) 681 (3.511) 188 6. the functional currency.822) (536) 5.415 19 5.118 3.035) (121) (3.978 8.159 680 11.857 6.007 1.238 147 42.112 8.451 42.

371 23 2.602 3.469) 118 (4.340 (4.553) (7.585) 7.328 (1.435 5.503) (4.141) (39.120 18.517 8. 9th March 2011 54 Jack So Director .550) (35.175 1. The notes on pages 58 to 97 and the principal accounting policies on pages 48 to 51 form part of these accounts.172 2.766) 55.335 106 796 1.809) (193) (583) (4.160) 93 (1.524 80.8.060) 32.077) (1.353) (983) (87) (3.605) 43.005) 5.536 6.052) 728 (8.553 (30.617) 5.116 325 11.213 43 4.041 1.187 (9.460 (1.209 11.140 19.315) 126 (9. Christopher Pratt Director Hong Kong.395 43.538 91.666) (675) (27.703 2.787 883 9.351) (123) (531) (5.916) 107 (3.459 336 31.693 182 19.657) (1.072 4.194) 16 (1.162) 4. the functional currency.860) 923 (33.651 7.490) (1.182 49.551 787 31.519 975 452 10.652 (34.173 101 4.189) (12.067) (1.426 2.738 (3.551 6.173 The accounts are prepared and presented in HK$.547) 834 (29.218) (9. The US$ figures are shown only as supplementary information and are translated at HK$7 .536 101 5.041) 41.713) (1.182 787 42.697) (986) (31.Company Statement of Financial Position at 31st December 2010 2010 HK$M 2009 HK$M 2010 US$M 2009 US$M Note ASSETS AND LIABILITIES Non-current assets and liabilities Fixed assets Intangible assets Investments in subsidiaries Investments in associates Other long-term receivables and investments Long-term liabilities Related pledged security deposits Net long-term liabilities Other long-term payables Deferred taxation Net non-current assets Current assets and liabilities Stock Trade. other receivables and other assets Liquid funds Current portion of long-term liabilities Related pledged security deposits Net current portion of long-term liabilities Trade and other payables Unearned transportation revenue Taxation Net current liabilities Net assets CAPITAL AND RESERVES Share capital Reserves Total equity 24 25 17 23 21 22 17 18 20 12 13 14 15 16 48.764 32.792) (12.178) (1.164 9.611 829 6.115) (127) (4.153 113 1.920) (8.324) (10.937) (963) (4.158 (9.

914) (1.260 869 7 – (8.094 (1. The notes on pages 58 to 97 and the principal accounting policies on pages 48 to 51 form part of these accounts.599 4.223) 6.Cathay Pacific Airways Limited Annual Report 2010 Consolidated Statement of Cash Flows for the year ended 31st December 2010 2010 HK$M 2009 HK$M 2010 US$M 2009 US$M Note Operating activities Cash generated from operations Dividends received from associates Interest received Net interest paid Tax paid Net cash inflow from operating activities Investing activities Net (increase)/decrease in liquid funds other than cash and cash equivalents Disposal of investments Sales of fixed assets Net decrease in other long-term receivables and investments Loan repayment from an associate Payments for fixed and intangible assets Payments to acquire additional shareholding in an associate Net cash outflow from investing activities Financing activities New financing Net cash benefit from financing arrangements Shares repurchased and issued Loan and finance lease repayments Security deposits placed Dividends paid – to owners of Cathay Pacific – to non-controlling interests Net cash (outflow)/inflow from financing activities (Decrease)/increase in cash and cash equivalents Cash and cash equivalents at 1st January Effect of exchange differences Cash and cash equivalents at 31st December 27 26 15 18.416 13 11 (80) (104) 2.978) 10. 55 .952 7.901 1.370) 3.815 488 – (9.140 2.130) (14. The US$ figures are shown only as supplementary information and are translated at HK$7 .844 100 89 (624) (810) 17.663) 5.045 97 10.061 288 244 167 12 1 (869) – (157) 790 75 1 (559) (15) – (18) 274 378 903 13 1.299) (1.776) – (1. the functional currency.250 1.294 The accounts are prepared and presented in HK$.201) 418 112 1 – (1.691) (177) (4.879) 746 63 – (1.490 174 79 (965) (1.094 156 8.256 576 22 10 (124) (223) 261 (9.362) (117) – (143) 2.064) (145) (1.304 92 6 (6.8.191) (8) (217) (23) (630) (253) 1.743) 2.290) (59) (1.169 585 8 (4.272 2.294 20 1.035 2.

044 54.298) – 12.010 – – – – – 16.556 42. 56 .429 36.238 170 (143) – 27 147 5.036 54.061 20.298) (177) 12.357 37.712) 182 – – – 182 900 699 13.694 – – 4.Consolidated Statement of Changes in Equity for the year ended 31st December 2010 Noncontrolling interests Attributable to owners of Cathay Pacific Non-distributable Investment Share revaluation premium reserve HK$M HK$M Capital Cash flow redemption hedge reserve and reserve others HK$M HK$M Total equity Share capital HK$M Retained profit HK$M Total HK$M HK$M HK$M At 1st January 2010 Total comprehensive income for the year 2009 final dividends 2010 interim dividends Dividends paid to noncontrolling interests 787 24.691 (143) 8 5.117 329 – – 329 (1.704 16.727 (393) (1.295 479 – – 479 1.287 (15) – – – (15) 1.529 42.385 – – – – – 14.238 147 42.102 638 (488) – – – (488) (1.871) (1.274 36.829 At 31st December 2010 At 1st January 2009 Total comprehensive income for the year Dividends paid to noncontrolling interests Share options exercised 787 787 – – – – 4.295 1.709 185 – – (177) 8 155 120 13.521 – 8 5.298) – 12.385 At 31st December 2009 787 The notes on pages 58 to 97 and the principal accounting policies on pages 48 to 51 form part of these accounts.383) 718 42.704 – – 8 8 16.295 16.694 24.117 (1.048 (393) (1.912 (393) (1.383) 19 – – 19 718 5.

184 26.295 412 – 412 1.509 32.298) 10.042 At 31st December 2010 At 1st January 2009 Total comprehensive income for the year Share options exercised 787 787 – – – 7.Cathay Pacific Airways Limited Annual Report 2010 Company Statement of Changes in Equity for the year ended 31st December 2010 Attributable to owners of Cathay Pacific Non-distributable Investment revaluation reserve HK$M Capital Cash flow redemption hedge reserve and reserve others HK$M HK$M Share capital HK$M Retained profit HK$M Share premium HK$M Total HK$M At 1st January 2010 Total comprehensive income for the year 2009 final dividends 2010 interim dividends 787 15.322 (393) (1.298) 11.005 422 – 422 (1.501 8 8.875 (393) (1.018 – – – – 16.244) – – – 23 8.685 16. 57 .005 (1.667 – 7.551 – – – – 12.244) 23 32.685 – 8 8 16.667 15.295 16.295 1.666) – – – – 23 23 12.869 8.720) (1.551 At 31st December 2009 787 The notes on pages 58 to 97 and the principal accounting policies on pages 48 to 51 form part of these accounts.182 24.631 43.287 (77) – – (77) 928 593 (476) – – (476) (1.

252 68.684 6. The airline business segment comprises the Group’s passenger and cargo operations.962 (971) 12.175 5.147 (283) 4.086 (978) 13.978 1.351 8.462) 14. The non-airline business segment includes mainly catering.867 14. The major revenue earning asset is the aircraft fleet which is used both for passenger and cargo services.542 – 88.776 (1.252 2.150 95 (8) 87 2.886 261 5. Management considers that there is no suitable basis for allocating such assets and related operating costs between the two segments.695 (1.080 – 66. 58 .299 5.325 124 (7) 117 898 1. Inter-segment sales are based on prices set on an arm’s length basis.343 90.733 (847) 4.587 15. airline catering.799 982 1.233 66. Segment information (a) Segment results Airline business 2010 HK$M 2009 HK$M Non-airline business 2010 HK$M 2009 HK$M Unallocated 2010 HK$M 2009 HK$M Total 2010 HK$M 2009 HK$M Profit or loss Sales to external customers Inter-segment sales Segment revenue Segment results Net finance charges Share of profits of associates Profit before tax Taxation Profit for the year Other segment information Depreciation and amortisation Purchase of fixed and intangible assets 6.524 1.864 The Group’s two reportable segments are classified according to the nature of the business.991 66.230 5.534 6. recoveries and other services provided to third parties.343 2.745 145 1. Accordingly. passenger and cargo services are not disclosed as separate business segments.124 150 31 6.638 (839) 4. Turnover STATEMENT OF COMPREHENSIVE INCOME Turnover comprises revenue and surcharges from transportation services.108 2.587 261 89.448) (269) (14) (14) 88.542 13.080 5. 2.206 7.Notes to the Accounts 1. ground handling and aircraft ramp handling services.

Indonesia. New Zealand and Southern Africa. the Company sold its remaining 15% interest in HAECO to Swire Pacific for HK$2. Pakistan and Sri Lanka Southwest Pacific and South Africa Europe Southeast Asia North America 41.880 8. Russia.165 1. Pakistan.282 8.524 28.866 8. Cathay Pacific’s shareholding in Air China has been diluted from 19. As a consequence. Baltic and Turkey. The 2009 comparatives have been reclassified accordingly.400 A shares and 157.000 H shares. Air China completed the issuance of 483.S. segment liabilities and other segment information is not disclosed.152 89. the Philippines.A. 4. Segment information (continued) (b) Geographical information 2010 HK$M 2009 HK$M Turnover by origin of sale: North Asia – Hong Kong and Mainland China – Japan.592.7%). the Management has decided to split it into two separate regions. Gain on deemed disposal of an associate On 24th November 2010.664 6.3% to 18. segment assets.409 4. A gain on this deemed disposal of HK$868 million was recorded. Canada and Latin America. Analysis of net assets by geographical segment: The major revenue earning asset is the aircraft fleet which is registered in Hong Kong and is employed across its worldwide route network.175 11. Korea and Taiwan India. Pakistan and Sri Lanka region and the Southeast Asia region.Cathay Pacific Airways Limited Annual Report 2010 Notes to the Accounts STATEMENT OF COMPREHENSIVE INCOME 2. Management considers that there is no suitable basis for allocating such assets and related liabilities to geographical segments.452 66. Pakistan and Sri Lanka includes Indian sub-continent. Europe includes continental Europe.3% (further purchases after the year end takes the current holding to 18.529 6.712 7.620 million. Middle East. The disposal constitutes a related party transaction as the Company is an associate of Swire Pacific. principally reflecting the change in the Group’s share of net assets in Air China immediately before and after the share issuance.920 4.254 In June 2010. Middle East.735 4. Middle East. North America includes U. Scandinavia.978 In view of the growing significance of the Southeast Asia and Middle East region during the year under review. Accordingly.313 11. Malaysia.413 3. Southeast Asia includes Singapore. Sri Lanka and Bangladesh.837 328 2. Profit on disposal of investments 2010 HK$M 2009 HK$M Profit on disposal of an associate Profit on disposal of a long-term investment 1. India. the United Kingdom. Vietnam and Cambodia. Middle East. 3. 59 ..000. Thailand.254 – 1. Southwest Pacific and South Africa includes Australia. the India.

343 26 (98) 1.082) (58) (170) (5) 1. notes and bonds – bank loans and overdrafts – other loans wholly repayable within five years Income from liquid funds: – funds with investment managers and other liquid investments – bank deposits and other receivables Fair value change: – obligations under finance leases designated as at fair value through profit and loss – financial derivatives 159 369 528 978 Finance income and charges relating to defeasance arrangements have been netted off in the above figures.912 (196) 10 (565) 159 (68) (3) 668 2. Operating profit 2010 HK$M 2009 HK$M Operating profit has been arrived at after charging/(crediting): Depreciation of fixed assets – leased – owned Amortisation of intangible assets Operating lease rentals – land and buildings – aircraft and related equipment – others Net (write back)/provision for impairment of aircraft and related equipment Cost of stock expensed Exchange differences Auditors’ remuneration Net gain on financial assets and liabilities classified as held for trading Net loss/(gain) on financial assets and liabilities designated as at fair value through profit and loss Income from unlisted investments Income from listed investments 675 2. (58) 116 58 847 (135) (64) (199) (43) (62) (105) 743 (343) 400 196 53 649 991 (417) 574 229 91 894 60 .384 35 1.707 22 219 1.892 (344) 10 (3.720 32 6.932 3. Net finance charges 2010 HK$M 2009 HK$M Net interest charges comprise: – obligations under finance leases stated at amortised cost – interest income on related security deposits.932 4.Notes to the Accounts STATEMENT OF COMPREHENSIVE INCOME 5.

Overseas tax is calculated at rates of tax applicable in countries in which the Group is assessable for tax.Cathay Pacific Airways Limited Annual Report 2010 Notes to the Accounts STATEMENT OF COMPREHENSIVE INCOME 7.5%) Expenses not deductible for tax purposes Tax (under)/over provisions arising from prior years Effect of different tax rates in overseas jurisdictions Tax losses recognised/(tax losses not recognised) Income not subject to tax Tax charge Further information on deferred tax is shown in note 20 to the accounts.5% (2009: 16.590) (211) (13) 892 79 381 (1.147 (849) (229) 259 320 (19) 235 (283) 61 . Taxation 2010 HK$M 2009 HK$M Current tax expenses – Hong Kong profits tax – overseas tax – under/(over) provisions for prior years Deferred tax – origination and reversal of temporary differences (note 20) 1. A reconciliation between tax charge and accounting profit at applicable tax rates is as follows: 2010 HK$M 2009 HK$M 100 241 13 36 264 (259) 242 283 Consolidated profit before tax Notional tax calculated at Hong Kong profits tax rate of 16.695 (2.462) 5.5% (2009: 16. practice and status of negotiations (see note 31(d) to the accounts).462 Hong Kong profits tax is calculated at 16. Tax provisions are reviewed regularly to take into account changes in legislation.5%) on the estimated assessable profits for the year. 15.108 1.

694 million) by the daily weighted average number of shares in issue throughout the year of 3. 10. 11.Notes to the Accounts STATEMENT OF COMPREHENSIVE INCOME 8.048 million (2009: HK$4.367 – 393 393 62 . Dividends 2010 HK$M 2009 HK$M 2010 interim dividend paid on 4th October 2010 of HK¢33 per share (2009: nil) 2010 final dividend proposed on 9th March 2011 of HK¢78 per share (2009: HK¢10 per share) 1.875 million (2009: HK$7.298 3.414) 874 52 6 360 (37) 9. Profit attributable to owners of Cathay Pacific Of the profit attributable to owners of Cathay Pacific.934 million (2009: 3. Earnings per share (basic and diluted) Earnings per share is calculated by dividing the profit attributable to owners of Cathay Pacific of HK$14.667 million) has been dealt with in the accounts of the Company. a profit of HK$12.069 4. Other comprehensive income 2010 HK$M 2009 HK$M Cash flow hedges – recognised during the year – transferred to profit and loss – deferred tax recognised Revaluation of available-for-sale financial assets – recognised during the year – transferred to profit and loss Share of other comprehensive income of associates – recognised during the year – transferred to profit and loss Exchange differences on translation of foreign operations – recognised during the year – transferred to profit and loss Other comprehensive income for the year 383 (70) (321) 8 – 827 (156) 25 11 – 263 (278) 479 – (1.934 million) shares.

912 29.395 3.848 113.360 219 (3.728 2.426) (552) – 120.Cathay Pacific Airways Limited Annual Report 2010 Notes to the Accounts 12.330) 13.227) – 114.676 (5.567 1.736 47.140 (13) 3.104 – 32 (3) – 5.280 (13) 6.110 (1.666 4.333) (552) 3.666 43.387 1.387 1.259 14.221 6.856 193 – (82) – 1.967 330 20 – – – – 350 309 21 – – – 330 2.942 2. other receivables and other assets Transfers At 31st December 2010 At 1st January 2009 Exchange differences Additions Disposals Transfers At 31st December 2009 Accumulated depreciation At 1st January 2010 Charge for the year Impairment Disposals Reclassification to trade.221 61.091 30.486 31.257 5.133 837 1.920 620 – 217 – – 837 114.140) 973 61.851 – 107 (84) – 2.806) 1.341 880 907 128 148 2.398 62.884 29.967 182 – (87) – – 2.133 128 (4) – – 5.033 (98) (428) (184) 2. other receivables and other assets Transfers At 31st December 2010 At 1st January 2009 Charge for the year Impairment Disposals Transfers At 31st December 2009 Net book value At 31st December 2010 At 31st December 2009 31.716 8.614 – (973) 43.278 169 – (4) – – 2.316 (98) (519) (184) – 54.112 65.911 – – (1.874 157 (89) – – 2.728 2.443 2.912 – – – (2.259 4.853 42.407 28.495 30.062 1.969 13.278 – – – – – – – – – – – – – 49.330 35. Fixed assets STATEMENT OF FINANCIAL POSITION Aircraft and related equipment Owned HK$M Leased HK$M Other equipment Owned HK$M Leased HK$M Buildings Under Owned construction HK$M HK$M Total HK$M Group Cost At 1st January 2010 Additions Disposals Reclassification to trade.855 1.652 219 (3.716 63 .544 (1.198 – – (3.891) – 49.083 – – – 1.114 167 – (3) – 2.091) 14.706 (5.874 478 – – – – 478 478 – – – – 478 5.073) 42.073 67.920 837 66.087 – 2.241 5.814 2.

702 219 (2.138 3.174 28.154) – 91.854 – (1.576 31. All leases permit subleasing rights subject to appropriate consent from lessors.693 26.044 1.470 5.012 14.094 336 318 129 150 187 63 48.116) – 94.012 3.802 87.044 713 85 – (16) – 782 677 92 – (56) – 713 328 21 – – – 349 308 20 – – – 328 373 4 – – – 377 372 1 – – – 373 41. Early repayment penalties would be payable on some of the leases should they be terminated prior to their specified expiry dates.163 4. Fixed assets (continued) Aircraft and related equipment Owned HK$M Leased HK$M Other equipment Owned HK$M Leased HK$M Buildings Owned HK$M Total HK$M Company Cost At 1st January 2010 Additions Disposals Transfers At 31st December 2010 At 1st January 2009 Additions Disposals Transfers At 31st December 2009 Accumulated depreciation At 1st January 2010 Charge for the year Impairment Disposals Transfers At 31st December 2010 At 1st January 2009 Charge for the year Impairment Disposals Transfers At 31st December 2009 Net book value At 31st December 2010 At 31st December 2009 (a) Finance leased assets Certain aircraft are subject to leases with purchase options to be exercised at the end of the respective leases.069 45.580 6.031 103 (16) – 1.755 (1.427 47.436 25.098) 1.427) 42.459 49.138 1.080 800 (1.080 42.931 – – (2.100) 4.Notes to the Accounts STATEMENT OF FINANCIAL POSITION 12. The remaining lease terms range from 1 to 13 years.672) – 41. 19.470 47.018 69 (56) – 1.163 64 .616) 707 26.397 (98) (426) – 46.849 1.576) 13.717 219 (2.737 (3.573 39.633 21.965 2.289) 41.343 39.356 (98) (410) 2.118 1.902 – – (707) 14.399 12.289 51. Some of the rent payments are on a floating basis which are generally linked to market rates of interest.724 – (4.031 478 – – – 478 478 – – – 478 436 128 – – 564 408 28 – – 436 91.068 28.000 2.206 4.786 (3.711 3.

(f) Parked aircraft with no existing plan for reactivation are recognised at the lower of their carrying value and fair value less costs to sell. one Boeing 747-400BCF (2009: one). No depreciation is provided on these advance payments.354 2. As at the year end. The estimated capitalised value of these leases being the present value of the aggregate future lease payments is HK$12.262 20.810 million) for the Group and HK$359 million (2009: HK$292 million) for the Company. nine Boeing 777-300ERs (2009: eight).707 2. were not capitalised.358 19. (e) The Group revised the estimated residual values of certain aircraft and as a result. six Airbus A320-200s (2009: four) and four Airbus A321-200s (2009: four) held under operating leases. most with purchase options.849 million (2009: HK$2. The future minimum lease payments payable under operating leases committed as at 31st December 2010 for each of the following periods are as follows: 2010 HK$M 2009 HK$M Aircraft and related equipment: – within one year – after one year but within two years – after two years but within five years – after five years Buildings and other equipment: – within one year – after one year but within two years – after two years but within five years – after five years 498 315 383 66 1. 65 . fourteen Airbus A330-300s (2009: fifteen). Further information is provided under note 17 to the accounts. four Airbus A340-300s (2009: four).925 8. (d) Security. buildings and other equipment are under operating leases. advance payments included in owned aircraft and related equipment amounted to HK$4.470 7.086 million.420 5. including charges over the assets concerned and relevant insurance policies.824 (c) Advance payments are made to manufacturers for aircraft and related equipment to be delivered in future years. At 31st December 2010. Operating leases for buildings and other equipment are normally set with fixed rental payments with options to renew the leases upon expiry at new terms.530 19. the lease rentals are fixed and subleasing is not allowed. Under the operating lease arrangements for aircraft.328 5.559 552 384 559 35 1. the Group reversed an impairment loss of HK$251 million (2009: nil) for aircraft which have now been brought back to service.Cathay Pacific Airways Limited Annual Report 2010 Notes to the Accounts STATEMENT OF FINANCIAL POSITION 12.227 17. On the other hand. This will also increase the depreciation charge for future periods up to the year ending 31st December 2020 by HK$1. the depreciation charge of the Group increased by HK$549 million in 2010. Fixed assets (continued) (b) Operating leased assets Certain aircraft. An impairment loss amounting to HK$153 million was recognised for these aircraft and related equipment for the year ended 31st December 2010 (2009: HK$219 million).572 million (2009: HK$11.687 million). is provided to the leasing companies or other parties that provide the underlying finance.297 2. five Boeing 747-400s (2009: six).686 2.

66 .Notes to the Accounts STATEMENT OF FINANCIAL POSITION 13. Intangible assets Group Goodwill HK$M Computer systems HK$M Total HK$M Company Computer systems HK$M Cost At 1st January 2010 Additions At 31st December 2010 At 1st January 2009 Additions At 31st December 2009 Accumulated amortisation At 1st January 2010 Charge for the year At 31st December 2010 At 1st January 2009 Charge for the year At 31st December 2009 Net book value At 31st December 2010 At 31st December 2009 7. In accordance with HKAS 36 “Impairment of Assets” the Group completed its annual impairment test for goodwill allocated to the Group’s various cash generating units (“CGUs”) by comparing their total recoverable amounts to their total carrying amounts as at the reporting date. Cash flows beyond the five-year period are extrapolated with an estimated general annual growth rate which does not exceed the long-term average growth rate for the business in which the CGU operates.627 million). approved by management. The recoverable amount of a CGU is determined based on value-in-use calculations.458 189 8.666 338 184 8.666 7.627 million (2009: HK$7.647 8.666 792 189 981 692 100 792 8.358 100 8.458 764 188 952 667 97 764 The carrying amount of goodwill allocated to the airline operation is HK$7.666 7. These calculations use cash flow projections based on five-year financial budgets.666 – 7.666 – 7. The discount rates used of approximately 9% (2009: 10%) are pre-tax and reflect specific risk related to the relevant segments.004 7. Management believes that any reasonably foreseeable change in any of the above key assumptions would not cause the carrying amount of goodwill to exceed the recoverable amount.850 336 182 – – – – – – 608 35 643 576 32 608 608 35 643 576 32 608 582 34 616 551 31 582 7. with reference to past performance and expectations for market development.

594 17 – – – 7.671 12.976 million) Unlisted shares at cost Share of net assets – listed in Hong Kong – unlisted Goodwill Less: Impairment loss Share of profits of associates – listed – unlisted Dividends received and receivable from associates – – 8.611 (9) 7.695 20 – – – 8.911 2.795 9. 2009: HK$15.008 31.715 (12) 8.983 6.Cathay Pacific Airways Limited Annual Report 2010 Notes to the Accounts STATEMENT OF FINANCIAL POSITION 14.651 Principal subsidiaries are listed on page 96.602 – – – 126 2010 HK$M 2009 HK$M Summarised financial information of associates (100 percent): Assets Liabilities Equity Turnover Net profit for the year 177.394) 39.587 100 – – 5.285 11.461 62.391 (92.042 – 9.611 million.041 67 .462 10.879 88. Associates Group 2010 HK$M 2009 HK$M Company 2010 HK$M 2009 HK$M Hong Kong listed shares at cost (Market value: HK$20.926 2.880 367 2.882 373 3.640 2. 15.649 127.042 209 52 261 174 8.273 (137.526 61 2.303 19.926 – 12.517 246 6. Subsidiaries Company 2010 HK$M 2009 HK$M Unlisted shares at cost Other investments at cost Net amounts due from subsidiaries – loan accounts – current accounts 246 14.703 – – – 38 7.930) 34.280 10.

133 – 95 1.925 7.911 8.307 – 1.793 2.713 4. Long-term liabilities 2010 Note Current HK$M Non-current HK$M 2009 Current HK$M Non-current HK$M Group Long-term loans Obligations under finance leases Company Long-term loans Obligations under finance leases (a) (b) (a) (b) 5.828 3.111 199 2.373 1.891 – 5.557 311 1.324 15.704 4.140 3.891 – 3.937 68 .732 30.328 – 305 1. Associates (continued) In respect of the year ended 31st December 2010.189 11.564 22.359 175 1.193 19.159 19.357 22. Other long-term receivables and investments Group 2010 HK$M 2009 HK$M Company 2010 HK$M 2009 HK$M Investments at fair value – listed in Hong Kong – unlisted Leasehold land rental prepayments Loans and other receivables Derivative financial assets – long-term portion Retirement benefit assets (note 19) 183 1.232 1. Air China has been included in the consolidated accounts based on the most recently available accounts drawn up to 30th September 2010 (2009: 30th September 2009).557 million (2009: HK$1.814 11.046 8.600 million).912 4.688 7.514 101 1.655 34.538 – 1.356 29. The Group has taken advantage of the provision contained in HKAS 28 “Investments in Associates” whereby it is permitted to include the attributable share of associates’ results based on accounts drawn up to a non-coterminous period end where the difference must be no greater than three months.524 Leasehold land is held under medium-term leases in Hong Kong with a total unamortised value of HK$1.373 33.111 218 4. 16. Principal associates are listed on page 97.277 9. 17.Notes to the Accounts STATEMENT OF FINANCIAL POSITION 15.278 5.

842 (3.290 million and HK$19. have been netted off in the accounts.240 11.420 – 2.831 6.159 – 2.437 15.958 3.912) 7.224 7.510 (4.82% per annum while bank loans are repayable up to 2020. Accordingly.676 14. the Group and the Company had long-term loans which were defeased by funds and other investments totalling HK$20.274 6.942 4.357 1.668 million and HK$3.297 2.Cathay Pacific Airways Limited Annual Report 2010 Notes to the Accounts STATEMENT OF FINANCIAL POSITION 17.140) 15.575 1.420 16.849 1.793) 11.319 million and HK$18.495 5.789 2.912) 7.213 3.564 8.616 1.226 million).140) 15.420 (5.278) 11. As at 31st December 2010.035 million respectively (2009: HK$22.373 4.581 million respectively (2009: HK$6.566 2.510 (3.359 million and HK$1.26% and 3.458 19.173 4. Long-term liabilities (continued) (a) Long-term loans Group 2010 HK$M 2009 HK$M Company 2010 HK$M 2009 HK$M Bank loans – secured – unsecured Other loans – secured – unsecured Amount due within one year included under current liabilities Repayable as follows: Bank loans – within one year – after one year but within two years – after two years but within five years – after five years Other loans – within one year – after one year but within two years Amount due within one year included under current liabilities 2.357 52 3.299 (4.159 2. as well as related expenditure and income.981 2.285 2.217 2. Long-term loans and other liabilities of the Group and the Company not wholly repayable within five years amounted to HK$4.420 – 2. 69 .725 415 9.278) 11.676 6.297 2.793) 11.193 52 3.292 8.843 3.269 (4.986 (5.420 12.420 (4.492 4.332 – 2. these liabilities and the related funds.458 14.623 Borrowings other than bank loans are repayable on various dates up to 2011 at interest rates between 1.193 1.213 3.846 million).564 3.709 6.

the Group and the Company had obligations under finance leases which were defeased by funds and other investments amounting to HK$7.932) 27.474 million) and HK$4.833) 30.296 (7.059 – – 1.973 (5.083 million respectively (2009: HK$8. as well as related expenditure and income.600) 28.251 8.503 224 – 739 963 70 .774 4.732 35.688) 19.503 1.098 (4.498 (5.373 The present value of future payments is repayable as follows: Group 2010 HK$M 2009 HK$M Company 2010 HK$M 2009 HK$M Within one year After one year but within two years After two years but within five years After five years 3.515 11.033 million and HK$1.Notes to the Accounts STATEMENT OF FINANCIAL POSITION 17. have been netted off in the accounts.277) 22. Long-term liabilities (continued) (b) Obligations under finance leases The Group has commitments under finance lease agreements in respect of aircraft and related equipment expiring during the years 2011 to 2023.081 million).474 million) respectively.498 4.588 11.140 4.140 (6.978 28.581 11.469 30.855) (2. The reconciliation of future lease payments and their carrying value under these finance leases is as follows: Group 2010 HK$M 2009 HK$M Company 2010 HK$M 2009 HK$M Future payments Interest charges relating to future periods Present value of future payments Security deposits.603 1.797) (3.200 10.317 9. notes and zero coupon bonds Amounts due within one year included under current liabilities 33.357 million and HK$1.070 (1.656 29.059 7.456 4.046) 22.593 (960) (4.883 3.231 million (2009: HK$4.356 36. As at 31st December 2010. Accordingly these liabilities and the related funds.593 5.651) (5. As at 31st December 2010.231 million (2009: HK$4.525 (5. 18.070 The future lease payment profile is disclosed in note 32 to the accounts.911) 19.403 3.747 10.424 27.226) 29.700 216 – 843 1.655 33. the Group and the Company had financial liabilities designated as at fair value through profit and loss of HK$4. Other long-term payables Group 2010 HK$M 2009 HK$M Company 2010 HK$M 2009 HK$M Retirement benefit obligations (note 19) Deferred creditors Derivative financial liabilities – long-term portion – 97 1.

in which the Company and Cathay Pacific Catering Services (H. Watson Wyatt Hong Kong Limited. Most of the employees engaged outside Hong Kong are covered by appropriate local arrangements. as at 31st December 2009 using the projected unit credit method. The Company and CPCS meet the full cost of all benefits due by SGRBS to their employee members who are not required to contribute to the scheme.Cathay Pacific Airways Limited Annual Report 2010 Notes to the Accounts STATEMENT OF FINANCIAL POSITION 19.) Limited (“CPCS”) are participating employers. provides resignation and retirement benefits to its members. upon their cessation of service.0% 2-5% 4. The Group operates the following principal schemes: (a) Defined benefit retirement schemes The Swire Group Retirement Benefit Scheme (“SGRBS”) in Hong Kong.4% 6.4% 8.5% 1-5% 4. the administration manager. The retirement schemes in Hong Kong are registered under and comply with the Occupational Retirement Schemes Ordinance and the Mandatory Provident Fund Schemes Ordinance (“MPFSO”). The figures for SGRBS and CPALRS disclosed as at 31st December 2010 were provided by Cannon Trustees Limited.0% 2-5% 4.K. the Cathay Pacific Airways Limited Retirement Scheme (“CPALRS”). Both members and the Company contribute to CPALRS.8% 8. Retirement benefits The Group operates various defined benefit and defined contribution retirement schemes for its employees in Hong Kong and in certain overseas locations. Staff employed by the Company in Hong Kong on expatriate terms before April 1993 were eligible to join another scheme. which include the Company’s cabin attendants who joined before September 1996 and other locally engaged employees who joined before June 1997. 2010 HK$M 2009 HK$M Net expenses recognised in the Group profit and loss: Current service cost Interest on obligations Expected return on plan assets Actuarial loss recognised Total included in staff costs Actual return on plan assets 324 311 (518) 1 118 820 316 342 (371) 30 317 1.5% 1-5% The Group’s obligations are 106% (2009: 97%) covered by the plan assets held by the trustees as at 31st December 2010. The assets of these schemes are held in funds administered by independent trustees.578 71 . 2010 SGRBS CPALRS 2009 SGRBS CPALRS The principal actuarial assumptions are: Discount rate used Expected return on plan assets Future salary increases 4.8% 6. The latest actuarial valuation of CPALRS and the portion of SGRBS funds specifically designated for the Company’s employees were completed by a qualified actuary.

217 469 12 532 (483) 283 7.583 5.108 6.522 Group 2010 HK$M 2009 HK$M Company 2010 HK$M 2009 HK$M Movements in fair value of plan assets comprise: At 1st January Movements for the year – expected return on plan assets – employee contributions – employer contributions – benefits paid – actuarial gains At 31st December 518 12 552 (524) 302 8.077 371 14 382 (681) 1.426 72 .991 (7.583 7.396 337 14 359 (645) 1.207 7.460 (7. Retirement benefits (continued) Group 2010 HK$M 2009 HK$M Company 2010 HK$M 2009 HK$M Net (asset)/liability recognised in the statement of financial position: Present value of funded obligations Fair value of plan assets Net unrecognised actuarial gain/(losses) 7.615 316 342 14 (681) 361 7.092 6.Notes to the Accounts STATEMENT OF FINANCIAL POSITION 19.615 (8.870 (6.583) 287 (63) 224 Group 2010 HK$M 2009 HK$M Company 2010 HK$M 2009 HK$M Movements in present value of funded obligations comprise: At 1st January Movements for the year – current service cost – interest cost – employee contributions – benefits paid – actuarial losses At 31st December 324 311 12 (524) 32 7.396) (405) 206 (199) 6.991 284 314 14 (645) 381 6.077) (462) 244 (218) 7.460 7.217 5.924 6.460 293 285 12 (483) 14 6.870 6.870 7.217) 243 (27) 216 6.

297 1.065) (221) 267 (529) Company 2010 HK$M 2009 HK$M 2008 HK$M 2007 HK$M 2006 HK$M Present value of funded obligations Fair value of plan assets (Surplus)/deficit Actuarial losses/(gains) arising on plan liabilities Actuarial (gains)/losses arising on plan assets 6.217 4.607 522 669 6.108 (5.583) 287 381 (1.396) (405) 14 (283) 6.318 1.844 (8.324) 3.217) 243 361 (1.Cathay Pacific Airways Limited Annual Report 2010 Notes to the Accounts STATEMENT OF FINANCIAL POSITION 19.549 (8.615 (8.870 (6.070 7.859 1.207) 7.210) 3.919 840 – 8.460 (7.131) (908) 205 (990) 7.096 (1.785 1.522 (5. 73 .712 825 – 7.991 (7.924) 1.368 8. Retirement benefits (continued) Group 2010 HK$M 2009 HK$M Company 2010 HK$M 2009 HK$M Fair value of plan assets comprises: Equities Debt instruments Deposits and cash Others 5.369) (173) 261 (495) The difference between the fair value of the schemes’ assets and the present value of the accrued past services liabilities at the date of an actuarial valuation is taken into consideration when determining future funding levels in order to ensure that the schemes will be able to meet liabilities as they become due.426) 1.725 526 669 7.184 (1. The Group expects to make contributions of HK$378 million to the schemes in 2011.092) 6.077) (462) 32 (302) 7. Group 2010 HK$M 2009 HK$M 2008 HK$M 2007 HK$M 2006 HK$M Present value of funded obligations Fair value of plan assets (Surplus)/deficit Actuarial losses/(gains) arising on plan liabilities Actuarial (gains)/losses arising on plan assets 7.583 The overall expected rate of return on plan assets is determined based on the average rate of return of major categories of assets that constitute the total plan assets.196 (7.077 4.353) (804) 178 (893) 7.396 3.223 (9. The contributions are calculated based upon funding recommendations arising from actuarial valuations.

305 4. All staff employed in Hong Kong are eligible to join the CPA Provident Fund.596 4. Retirement benefits (continued) (b) Defined contribution retirement schemes Staff employed by the Company in Hong Kong on expatriate terms are eligible to join a defined contribution retirement scheme.444 5.831) (158) (82) (112) (926) (184) (41) (113) (1.550 11 1.380 – 4.516) (135) (82) 74 .182 225 4. A mandatory provident fund (“MPF”) scheme was established under the MPFSO in December 2000.948 5. Under the terms of these schemes.136) (210) (41) (178) (1. the benefits forfeited in accordance with the schemes’ rules amounted to HK$18 million (2009: HK$19 million) which have been applied towards the contributions payable by the Company. Staff may elect to contribute more than the minimum as a voluntary contribution.047 – 5. staff may elect to contribute from 0% to 10% of their monthly salary.000). other than the Company contribution. Deferred taxation Group 2010 HK$M 2009 HK$M Company 2010 HK$M 2009 HK$M Deferred tax assets: – provisions – tax losses – cash flow hedges – customer loyalty programmes Deferred tax liabilities: – retirement benefits – accelerated tax depreciation – investment in associates Provision in respect of certain lease arrangements 8 2.815 13 2. 20. Contributions to defined contribution retirement schemes charged to the Group profit and loss are HK$756 million (2009: HK$677 million).255 7 1. Where staff elect to join the MPF scheme.501 – 4. During the year. the CPA Provident Fund 1993. both the Company and staff are required to contribute 5% of the employees’ relevant income (capped at HK$20.Notes to the Accounts STATEMENT OF FINANCIAL POSITION 19.141 (161) (1.

904 2. Trade.831 4.209 75 .161 5.305 2.349 2.772 384 4.Cathay Pacific Airways Limited Annual Report 2010 Notes to the Accounts STATEMENT OF FINANCIAL POSITION 20.351 11 – 6.598 2.141 The Group has certain tax losses which do not expire under current tax legislation and a deferred tax asset has been recognised to the extent that recoverability is considered probable.948 2.444 1.515 384 4.766 46 368 11. other receivables and other assets Group 2010 HK$M 2009 HK$M Company 2010 HK$M 2009 HK$M Trade debtors Derivative financial assets – current portion Other receivables and prepayments Due from associates Aircraft held for sale 5.771 746 2.054) 5.108 470 4.406 2. Deferred taxation (continued) Group 2010 HK$M 2009 HK$M Company 2010 HK$M 2009 HK$M Movements in deferred taxation comprise: At 1st January Movements for the year – transferred from the profit and loss – deferred tax expenses (note 7) – operating expenses – transferred to cash flow hedge reserve – initial cash benefit from lease arrangements Current portion of provision in respect of certain lease arrangements included under current liabilities – taxation At 31st December 1.164 4. The provision in respect of certain lease arrangements equates to payments which are expected to be made during the years 2012 to 2021 (2009: 2011 to 2020) as follows: Group 2010 HK$M 2009 HK$M Company 2010 HK$M 2009 HK$M After one year but within five years After five years but within 10 years After 10 years 1.625 25 – 9.433 4.255 (831) 4.255 4.114 733 1.165 2.108 70 (52) 488 242 76 37 585 749 52 (49) 488 193 56 56 585 5.815 (516) 5.689 (1.631 13 – 8.550 (438) 4.349 1.141 3.596 21.376 470 5.018 2.792 2.

Notes to the Accounts STATEMENT OF FINANCIAL POSITION 21.004 24. Liquid funds Group 2010 HK$M 2009 HK$M Company 2010 HK$M 2009 HK$M Short-term deposits and bank balances Short-term deposits maturing beyond three months when placed Funds with investment managers – debt securities listed outside Hong Kong – bank deposits Other liquid investments – debt securities listed outside Hong Kong – bank deposits 8.130 30 5 5.370 2 1.097 15 2 4.198 10.700 11.120 Included in other liquid investments are bank deposits of HK$1.146 1.105 407 2.741 27 3 4.123 million) respectively.632 2.372 1.522 5.827 551 – – 1. other receivables and other assets (continued) As at 31st December 2010. 76 . The arrangements provide that these deposits and debt securities must be maintained at specified levels for the duration of the financing.872 402 – – 1. total derivative financial assets of the Group and the Company which did not qualify for hedge accounting amounted to HK$842 million (2009: HK$1.085 million) and debt securities of HK$1. Group 2010 HK$M 2009 HK$M Company 2010 HK$M 2009 HK$M Analysis of trade debtors by age: Current One to three months overdue More than three months overdue 5.853 45 6 5.388 2.388 million) which are pledged as part of long-term financing arrangements.140 7.771 5.390 9.722 13 1.123 million) and HK$842 million (2009: HK$1.114 The movement in the provision for bad debt included in trade debtors during the year was as follows: Group 2010 HK$M 2009 HK$M Company 2010 HK$M 2009 HK$M At 1st January Amounts written back Impairment loss recognised At 31st December 163 – 32 195 169 (8) 2 163 128 – 30 158 135 (7) – 128 22.632 million (2009: HK$1.250 16.276 551 11.856 million (2009: HK$1.165 4.904 4. Trade.

211 1. total derivative financial liabilities of the Group and the Company which did not qualify for hedge accounting amounted to HK$355 million (2009: HK$1.000 3.000.20 each) Issued and fully paid (HK$0.965 4.681 1.832 4.933.832 1.773 4.471 million) respectively.681 3.000.211 4. Trade and other payables Group 2010 HK$M 2009 HK$M Company 2010 HK$M 2009 HK$M Trade creditors Derivative financial liabilities Other payables Due to associates Due to other related companies Bank overdrafts – unsecured (note 27) 6.000. Group 2010 HK$M 2009 HK$M Company 2010 HK$M 2009 HK$M Analysis of trade creditors by age: Current One to three months overdue More than three months overdue 6.000 3.548 126 7 4.844. sell or redeem any of its shares.933.746.361 6.713 106 13 4.933.844.Cathay Pacific Airways Limited Annual Report 2010 Notes to the Accounts STATEMENT OF FINANCIAL POSITION 23.332 70 8 3.920 3.932.410 1.553 As at 31st December 2010.844.572 1.779 37 351 4 15.098. the Company did not purchase.410 24.000 787 – – 787 5.572 1.000 787 – – 787 During the year.053 97 137 11 10.039 161 11 6.072 – 1.477 million) and HK$355 million (2009: HK$1.000. 77 .20 each) At 1st January Shares repurchased during the year Share options exercised At 31st December 5.391 7.572 – – 3.845 5.500 3. Share capital 2010 Number of shares HK$M 2009 Number of shares HK$M Authorised (HK$0.884 5.517 23 334 4 12.970 131 137 11 12.

458 million (2009: HK$1. Total HK$M 2011 2012 2013 2014 2015 Beyond 2015 331 488 315 184 148 405 1.720) 23 42.383) 718 41.487 24.451 26.295 1. 78 . The amount transferred from the cash flow hedge reserve to the following profit and loss items was as follows: 2010 HK$M 2009 HK$M Turnover Fuel Others Finance income Net loss transferred to the profit and loss (243) (477) (14) (140) (874) (94) (192) (46) (28) (360) The cash flow hedge reserve is expected to be charged to operating profit/loss as noted below when the hedged transactions affect profit and loss.871 The actual amount ultimately recognised in operating profit/loss will depend upon the fair values of the hedging instruments at the time that the hedged transactions affect profit and loss.Notes to the Accounts STATEMENT OF FINANCIAL POSITION 25.117 (1. Reserves Group 2010 HK$M 2009 HK$M Company 2010 HK$M 2009 HK$M Retained profit Share premium Investment revaluation reserve Cash flow hedge reserve Capital redemption reserve and others 37.764 Investment revaluation reserve relates to changes in the fair value of long-term investments. The cash flow hedge reserve relates to the effective portion of the cumulative net change in fair values of hedging instruments and exchange differences on borrowings and lease obligations which are arranged in foreign currencies such that repayments can be met by anticipated operating cash flows.871) 900 53.244) 23 31.145 million) and share of associate’s other negative reserve of HK$605 million (2009: HK$474 million).061 16.295 1.295 1.685 16. Capital redemption reserve and others of the Group mainly include the capital redemption reserve of HK$24 million (2009: HK$24 million).295 928 (1.395 15.869 16.704 16.005 (1.102 (1. exchange differences arising from revaluation of foreign investments amounted to HK$1.

091 (1.844 5.652 32 32 (1.091) 87 3.490 27.316 35 107 (2.422 94 (8.Cathay Pacific Airways Limited Annual Report 2010 Notes to the Accounts STATEMENT OF CASH FLOWS 26.086 6.165) (868) 238 (74) (2.276 (4) 8.105 (11) 10. Reconciliation of operating profit to cash generated from operations 2010 HK$M 2009 HK$M Operating profit Depreciation Amortisation of intangible assets Loss on disposal of fixed assets and intangible assets Profit on disposal of investments Gain on deemed disposal of an associate Currency adjustments and other items not involving cash flows (Increase)/decrease in stock (Increase)/decrease in trade debtors. other payables.254) – 525 13 2.094 79 . Analysis of cash and cash equivalents 2010 HK$M 2009 HK$M Short-term deposits and bank balances Bank overdrafts (note 23) 8.733 5.303) (574) 118 4. other receivables and prepayments and long-term portion of derivative financial assets Increase in net amounts due to related companies and associates Increase/(decrease) in trade creditors.470) 18. long-term portion of derivative financial liabilities and deferred creditors Increase/(decrease) in unearned transportation revenue Non-operating movements in debtors and creditors Cash generated from operations 14.552 1.272 10.

391 2.033 2. Directors’ and executive officers’ remuneration (a) Directors’ remuneration disclosed pursuant to the Listing Rules is as follows: Cash Basic salary/ Directors’ fee* HK$’000 Non-cash Bonus Contributions paid into to retirement retirement schemes schemes HK$’000 HK$’000 Bonus HK$’000 Allowances & benefits HK$’000 Housing benefits HK$’000 2010 Total HK$’000 2009 Total HK$’000 Executive Directors Christopher Pratt Robert Atkinson (up to March 2009) W.072 2. Hughes-Hallett Peter Kilgour (from May 2009) Kong Dong Vernon Moore (up to November 2009) Ian Shiu (from July 2010) Merlin Swire (from June 2010) Robert Woods (up to May 2010) Zhang Lan 500* – – – – – 500 48 1.088 4.942 – 2.300 79 – 1.629 – 1.086 9.194 11.E.125 12.926 2.282 1.646 157 – – 313 – 686 775 626 – – 1.271 2.428 530 – – 684 1.475 3.160 – 4.109 – – – 650* – – – 500* – – – – 500* – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – 650 – – – 500 – – – – 500 270 – – 62 134 – – 500 466 – – – 621 80 .217 372 290 55 420 – 395 736 137 1. James Barrington (from July 2010) James E.J.291 7. Hughes-Hallett (from March 2009) Ian Shiu (up to June 2010) John Slosar Tony Tyler Non-Executive Directors Cai Jianjiang (from November 2009) Chang Zhenming (from May 2009 to November 2009) Philip Chen (up to June 2010) Martin Cubbon (up to May 2009) Fan Cheng (from November 2009) Henry Fan (up to April 2009) James W.186 3.130 – 824 1.449 4.559 3.980 1.Notes to the Accounts DIRECTORS AND EMPLOYEES 28.798 3.666 11.

143 12.515 – 46. Bonus is related to services for 2009 but paid and charged to the Company in 2010.139 – – – – – – 6.452 6.303 1.056 3.094 5.486 1.808 708 14.938 3.681 1.027 3.749 1.724 17.448 1. 81 .599 3.960 4.621 328 652 840 793 212 9.082 – – – – – – 387 533 482 – 1.698 7. (b) Executive Officers’ remuneration disclosed as recommended by the Listing Rules is as follows: Cash Contributions to retirement schemes HK$’000 Non-cash Bonus paid into retirement schemes HK$’000 Basic salary HK$’000 Bonus HK$’000 Allowances & benefits HK$’000 Housing benefits HK$’000 2010 Total HK$’000 2009 Total HK$’000 W.607 8.240 3.366 1.420 1.897 – 7.085 1.206 3.917 3.997 – 556 255 682 550 379 For Directors employed by the Swire group.623 1. Directors’ and executive officers’ remuneration (continued) Cash Basic salary/ Directors’ fee* HK$’000 Non-cash Bonus Contributions paid into to retirement retirement schemes schemes HK$’000 HK$’000 Bonus HK$’000 Allowances & benefits HK$’000 Housing benefits HK$’000 2010 Total HK$’000 2009 Total HK$’000 Independent NonExecutive Directors Irene Lee (from January 2010) Peter Lee (up to October 2009) Raymond Or (up to May 2009) Jack So Tung Chee Chen Peter Wong (from May 2009) 2010 Total 2009 Total 677* – – 700* 550* 650* 17.741 – – – – 522 369 2.511 1.447 – – – – – – 4.251 495 457 246 6.931 – – – – – – – 6.424 6.537 1.828 3.278 – – – – – – 1.902 8.762 1.596 677 – – 700 550 650 41.746 42.Cathay Pacific Airways Limited Annual Report 2010 Notes to the Accounts DIRECTORS AND EMPLOYEES 28.616 14.783 2.E.340 Bonus related to services for 2009 was paid in 2010.537 – – – – – – 4.201 42.550 – 7.167 1.703 8.565 5.233 601 613 796 311 695 1.168 1.195 7. James Barrington (up to June 2010) William Chau Quince Chong Ivan Chu Christopher Gibbs Richard Hall (from August 2010) Rupert Hogg Edward Nicol (up to October 2010) Nick Rhodes Tomasz Smaczny (from August 2010) 2010 Total 2009 Total 824 1.443 4.202 6.155 9.959 218 257 168 238 335 77 571 584 672 35 3. the remuneration disclosed represents the amount charged to the Company.402 2.486 2.994 733 1.

001 – 4. in each employment category whose total remuneration for the year fell into the following ranges: 2010 HK$’000 Director Flight staff Other staff Director 2009 Flight staff Other staff 0 – 1.001 – 11.000 3.001 – 2.500 4.974 17 – – – – 2 – 1 1 – – – – – – – – 1 1 23 9.185 209 103 42 7 4 5 3 4 1 2 1 2 1 2 2 – – – 8.501 – 8.000 4.000 5.573 82 .501 – 3.500 5.Notes to the Accounts DIRECTORS AND EMPLOYEES 29.000 2.501 – 9. including those who have retired or resigned during the year.000 7.501 – 10.000 11.001 – 6.501 – 5.501 – 2.001 – 1.500 3.501 – 4.000 1.500 1.500 12.000 6.815 8.501 – 6.525 238 112 58 12 10 6 2 4 3 1 1 2 – – – – – – 8. whose emoluments are set out in note 28 above.500 7. (b) The table below sets out the number of individuals.001 – 3.001 – 12.500 2.500 6.501 – 7.258 8. Employee information (a) The five highest paid individuals of the Company included three Directors (2009: two) and two Executive Officers (2009: three).122 662 585 379 291 137 59 19 3 1 – – – – – – – – – 11.000 8.046 551 638 330 150 75 21 4 – – – – – – – – – – – 10.000 9.500 13 – – 1 1 1 – – – – – – – – 1 – 1 1 – 19 9.001 – 7.001 – 5.

(d) Guarantees given by the Company in respect of bank loan facilities of an associate at 31st December 2010 are disclosed in note 31 to the accounts. results of associates. aircraft leasing. For definition of terms. Related party transactions RELATED PARTY TRANSACTIONS (a) Material transactions between the Group and associates and other related parties which were carried out in the normal course of business on commercial terms are summarised below: 2010 Other related Associates parties HK$M HK$M 2009 Associates HK$M Other related parties HK$M Turnover Aircraft maintenance costs Route operating costs Dividends received Fixed assets purchase 219 666 540 (132) 1 8 1. ground support and engineering services and other services agreed to be provided and other transactions agreed to be undertaken under the Air China Framework Agreement. interline arrangements. has since been classified as an “other related party”.891 million). in respect of which the Company has complied with the disclosure and shareholders’ approval requirements in accordance with Chapter 14A of the Listing Rules. service fees paid for the year ended 31st December 2010 totalled HK$293 million (2009: HK$95 million) and expenses of HK$139 million (2009: HK$161 million) were reimbursed at cost. The amounts payable to Air China group for the year ended 31st December 2010 totalled HK$403 million (2009: HK$305 million). HAECO.818 million (2009: HK$1. and received fees from. (iii) Under the Air China Framework Agreement with Air China dated 26th June 2008. the Group paid fees to. Transactions under the Air China Framework Agreement are continuing connected transactions. please refer to Directors’ Report on page 38. in respect of which the Company has complied with the disclosure requirements in accordance with Chapter 14A of the Listing Rules. (e) There were no material transactions with Directors and Executive Officers except for those relating to shareholdings (Directors’ Report and Corporate Governance). Under the JSSHK Services Agreement. the Group paid fees to HAECO group in exchange for maintenance services provided to the Group’s aircraft fleets. non-controlling interests. For the year ended 31st December 2010. Remuneration of Directors and Executive Officers is disclosed in note 28 to the accounts. The amounts receivable from Air China group for the year ended 31st December 2010 totalled HK$219 million (2009: HK$164 million). For definition of terms. code sharing arrangements.5% of the Group’s profit before tax. and any profits and losses on disposal of fixed assets are paid annually. Air China group in respect of transactions between the Group on the one hand and Air China group on the other hand arising from joint venture arrangements for the operation of passenger air transportation. in respect of which the Company has complied with the disclosure requirements in accordance with Chapter 14A of the Listing Rules.Cathay Pacific Airways Limited Annual Report 2010 Notes to the Accounts 30. Service fees paid to HAECO group for the year ended 31st December 2010 were HK$1. in addition. Service fees calculated at 2.152 – – – 161 1. please refer to Directors’ Report on pages 38 and 39.891 463 (174) 2 – – – – – On 7th June 2010 the Company entered into a sale and purchase agreement to sell its entire 15% shareholding in HAECO to Swire Pacific and HAECO has since become a subsidiary of Swire Pacific. frequent flyer programmes. (b) Other transactions with related parties (i) The Company had an agreement for services with JSSHK (“JSSHK Services Agreement”). (c) Amounts due from and due to associates and other related companies at 31st December 2010 are disclosed in notes 21 and 23 to the accounts. Transactions under the HAECO Framework Agreement are continuing connected transactions. the Company paid fees and reimbursed costs to JSSHK in exchange for services provided. These balances arising in the normal course of business are non-interest bearing and have no fixed repayment terms. 83 . Transactions under the JSSHK Services Agreement are continuing connected transactions. the provision of airline catering. which was an associate of the Company before completion of the transaction on 14th June 2010. please refer to Directors’ Report on page 37. For definition of terms. HK$57 million (2009: HK$60 million) in respect of shared administrative services were reimbursed. (ii) Under the HAECO Framework Agreement with HAECO.

On 29th November 2010. On 15th December 2008.421 62 200 4. Commitments and contingencies SUPPLEMENTARY INFORMATION (a) Outstanding commitments for capital expenditure authorised at the year end but not provided for in the accounts: Group 2010 HK$M 2009 HK$M Company 2010 HK$M 2009 HK$M Authorised and contracted for Authorised but not contracted for 75.35 billion which is approximately HK$36 million at the exchange rate current as of the date of the announcement. Canada. (e) The Company is the subject of investigations and proceedings with regard to its air cargo operations by the competition authorities of various jurisdictions. The Company.900 1.913 8.497 4.248 35.683 (c) The Company has under certain circumstances undertaken to maintain specified rates of return within the Group’s leasing arrangements. KFTC issued a written decision and Cathay Pacific’s fine was KRW 5. where applicable. On 27th May 2010.440 3. Switzerland. vigorously defending itself. The Company is represented by legal counsel in connection with these matters.235 62 200 4. including the European Union. Provisions have been made to cover the expected outcome of the disputes to the extent that outcomes are likely and reliable estimates can be made. 84 .958 87. However. Korea and New Zealand. including Cathay Pacific. has responded. The Company has been cooperating with the authorities in their investigations and.554 Operating lease commitments are shown in note 12 to the accounts.949 605 2.987 12. the Korean Fair Trade Commission (“KFTC”) announced it will fine several airlines. bank loans and other liabilities outstanding at the year end: Group 2010 HK$M 2009 HK$M Company 2010 HK$M 2009 HK$M Subsidiaries Associates Staff – 62 200 262 – 62 200 262 4.458 40.Notes to the Accounts 31. (d) The Company operates in many jurisdictions and in certain of these there are disputes with the tax authorities. for their air cargo pricing practices. Cathay Pacific has filed an appeal in the Seoul High Court challenging the KFTC’s decision in December 2010. with the assistance of legal counsel.982 4. the Company received an Amended Statement of Claim from the Australian Competition & Consumer Commission with regard to the Company’s air cargo operations. The investigations and proceedings are focused on issues relating to pricing and competition. the final outcomes are subject to uncertainties and resulting liabilities may exceed provisions. the Company received a Statement of Claim from the New Zealand Commerce Commission with regard to the Company’s air cargo operations.290 11. Australia. with the assistance of legal counsel. The Company. has responded. The Directors do not consider that an estimate of the potential financial effect of these contingencies can practically be made. On 17th July 2009. (b) Guarantees in respect of lease obligations.

32.Cathay Pacific Airways Limited Annual Report 2010 Notes to the Accounts SUPPLEMENTARY INFORMATION 31. the European Commission announced that it has issued a decision in its Airfreight investigation finding that. 85 . In most cases amounts due from airlines are settled on net basis via an IATA clearing house. Exposure to foreign exchange rates. The majority of the agents are connected to the settlement systems operated by the International Air Transport Association (“IATA”) who is responsible for checking the credit worthiness of such agents and collecting bank guarantees or other monetary collateral according to local industry practice. Canada.120. Cathay Pacific is not in a position to assess the full potential liabilities but makes provisions based on facts and circumstances in line with accounting policy 19 set out on page 51. To manage credit risk.562 million). In addition. The Group normally grants a credit term of 30 days to customers or follows the local industry standard with the debt in certain circumstances being partially protected by bank guarantees or other monetary collateral. The European Commission has imposed a fine of Euros 57. including derivative financial instruments. in the statement of financial position and the amount of guarantees granted as disclosed in note 31 to the accounts. United Kingdom and Australia alleging violations of applicable competition laws arising from the Company’s conduct relating to its air cargo operations. Collateral and guarantees received in respect of credit terms granted as at 31st December 2010 is HK$1. in a number of countries including the United States. interest rates and jet fuel price movements are regularly reviewed and positions are amended in compliance with internal guidelines and limits. proceedings and civil actions are ongoing and the outcomes are subject to uncertainties. including class litigation and third party contribution claims. The Company is represented by legal counsel and is defending those actions. The Company has been named as a defendant in a number of civil complaints. sometimes with the use of derivative financial instruments. by the Treasury Department of Cathay Pacific in accordance with the policies approved by the Finance Committee. The movement in the provision for bad debt in respect of trade debtors during the year is set out in note 21 to the accounts. The credit risk with regard to individual agents and airlines is relatively low. These exposures are managed. Cathay Pacific has filed an appeal with the General Court of the European Union in January 2011. Trade debtors mainly represented passenger and freight sales due from agents and amounts due from airlines for interline services provided. Commitments and contingencies (continued) On 9th November 2010. civil class action claims have been filed in the United States and Canada alleging violations of applicable competition laws arising from the Company’s conduct relating to certain of its passenger operations. (a) Credit risk Management has a credit policy in place and the exposure to credit risk is monitored on an ongoing basis. Cathay Pacific and a number of other international cargo carriers agreed to cargo surcharge levels and that such agreements infringed European competition law. Derivative financial instruments are used solely for financial risk management purposes and the Group does not hold or issue derivative financial instruments for proprietary trading purposes. deposits and funds are only carried out with financial institutions which have high credit ratings and all counterparties are subject to prescribed trading limits which are regularly reviewed. Korea. the Group is exposed to fluctuations in foreign exchange rates. Risk exposures are monitored regularly by reference to market values. The investigations. derivative financial transactions. At the reporting date there was no significant concentration of credit risk. Derivative financial instruments which constitute a hedge do not expose the Group to market risk since any change in their market value will be offset by a compensating change in the market value of the hedged items.000 (equivalent to HK$618 million) on Cathay Pacific. interest rates and jet fuel prices. The maximum exposure to credit risk is represented by the carrying amount of each financial asset. Financial risk management In the normal course of business.173 million (2009: HK$2. amongst other things.

206) (5.411) (1.Notes to the Accounts SUPPLEMENTARY INFORMATION 32.561) (35.594) – (578) (9. Financial risk management (continued) (b) Liquidity risk The Group’s policy is to monitor liquidity and compliance with lending covenants. so as to ensure sufficient liquid funds and funding lines from financial institutions are available to meet liquidity requirements in both the short and long term.659) (33.074) (17.210) (20.482) (2.367) – (195) (16.168) 2009 After one year but within two years HK$M After two years but within five years HK$M Within one year HK$M After five years HK$M Total HK$M Group Bank and other loans Obligations under finance leases Trade and other payables Derivative financial liabilities Total (4.671) (14.973) (11.377) – 99 (15.039) (4.225) (11.029) (67.081) (1.729) (3.184) (69.254) (25.098) (14.567) – 24 (17.901) (7.800) (12.799) 86 .382) (2.683) – (679) (10.796) (13.975) (3.535) (22.282) (5.365) (5.587) – (95) (20.667) (14.081) (2.401) (4.849) (11. The undiscounted payment profile of financial liabilities is outlined as follows: 2010 After one year but within two years HK$M After two years but within five years HK$M Within one year HK$M After five years HK$M Total HK$M Group Bank and other loans Obligations under finance leases Trade and other payables Derivative financial liabilities Total (5.382) (1.

725) (15.642) 2009 After one year but within two years HK$M After two years but within five years HK$M Within one year HK$M After five years HK$M Total HK$M Company Bank and other loans Obligations under finance leases Trade and other payables Derivative financial liabilities Total (3.559) (1.868) (10.273) (3.630) (33.093) (8.543) (2.928) (59.525) (11.595) (11.428) (4.442) (1.946) (4.405) – (562) (9.198) (12.226) (22.708) (1.455) (6.418) – (58) (15.Cathay Pacific Airways Limited Annual Report 2010 Notes to the Accounts SUPPLEMENTARY INFORMATION 32. Financial risk management (continued) 2010 After one year but within two years HK$M After two years but within five years HK$M Within one year HK$M After five years HK$M Total HK$M Company Bank and other loans Obligations under finance leases Trade and other payables Derivative financial liabilities Total (5.048) (4.966) (9.856) – 99 (15.375) (16.742) (36.098) (62.913) (5.459) – (146) (13.764) (4.844) 87 .559) (1.380) – 30 (17.296) (8.508) (19.615) – (655) (8.708) (2.473) (441) (14.

In addition. Foreign currency risk is measured by employing sensitivity analysis. To manage this exposure assets are. In this respect.072) (5.458) – (57) 1.289) 37 1.281) (4. Financial risk management (continued) (c) Market risk (i) Foreign currency risk The Group’s revenue streams are denominated in a number of foreign currencies resulting in exposure to foreign exchange rate fluctuations.168) 15.956 (6. The currencies giving rise to this risk in 2010 are primarily US dollars.062) (240) 370 (3. Euros. where possible.159 521 264 – (3. At the reporting date. New Taiwan dollars.742) 2009 USD HK$M EUR HK$M TWD HK$M SGD HK$M RMB HK$M JPY HK$M 215 14 – – (152) (4.285 31.726) (4.669) 88 .Notes to the Accounts SUPPLEMENTARY INFORMATION 32. financed in those foreign currencies in which net operating surpluses are anticipated. Renminbi and Japanese yen (2009: US dollars. New Taiwan dollars.034) 404 2. Renminbi and Japanese yen). the exposure to foreign currency risk was as follows: 2010 USD HK$M EUR HK$M TWD HK$M AUD HK$M RMB HK$M JPY HK$M Group Trade and other receivables Liquid funds Long-term loans Obligations under finance leases Trade and other payables Currency derivatives at notional value Net exposure 5.395 (3. Australian dollars.391) (3.832 (6. it is assumed that the pegged rate between the Hong Kong dollar and the United States dollar would be materially unaffected by any changes in movement in value of the United States dollar against other currencies.342) (11.536 7.882 – – (372) (3.585 (2.449) (8.557) 398 163 (1.702) (19.486) 291 47 – – (71) (1.257) Group Trade and other receivables Liquid funds Long-term loans Obligations under finance leases Trade and other payables Currency derivatives at notional value Net exposure 4.556) (1.165) 497 249 (1.452) (1. thus establishing a natural hedge.253) (282) (1.681) (7.225) 36. as exchange differences realised on the repayment of financial commitments are effectively matched by the change in value of the foreign currency earnings used to make those repayments. taking into account current and anticipated exposures. Singapore dollars.235 (848) 385 1. The use of foreign currency borrowings and currency derivatives to hedge future operating revenues is a key component of the financial risk management process.340) (19.444 – – (564) (10.379) – (170) (6.998 17. Euros.074) 440 58 (52) (4. the Group uses currency derivatives to reduce anticipated foreign currency surpluses.111) (4.429) – (232) (10.476) 336 75 – – (81) (6.

458) – (54) 1.726) (5. This represents the translation of financial assets and liabilities and the change in fair value of currency derivatives at the reporting date. in particular interest rates.174) (21.395 (3.681) (7.397) (2.429) (210) (10.768) 215 14 – – (152) (4.235 (846) 134 971 – – (76) (2.623 (4.308) 36 1. Australian dollars and Renminbi.556) (1.126) 14. The analysis is performed on the same basis for 2009. It assumes that all other variables.968 518 145 – (3.142) (21.192) (3.111) (4.145) 287 72 – – (55) (6. New Taiwan dollars. Sensitivity analysis for foreign currency exposure A five percent appreciation of the Hong Kong dollars against the following currencies at 31st December 2010 would have increased profit and loss and other equity components by the amounts shown below.890) (8.848) (232) 370 (4.807) (275) (1. remain constant.179) 439 59 (52) (4. Japanese yen.571) 490 246 – (1.553 (7. 89 .034) 171 1.809 16.072) (5.264) 233 45 – – (30) (1.327) 388 158 – (1.325 – – (177) (9.804) 35.662) In addition to the current exposure shown above.356) (1.Cathay Pacific Airways Limited Annual Report 2010 Notes to the Accounts SUPPLEMENTARY INFORMATION 32.342) (11.379) (148) (6.879 4. Financial risk management (continued) 2010 USD HK$M EUR HK$M TWD HK$M AUD HK$M RMB HK$M JPY HK$M Company Trade and other receivables Liquid funds Long-term loans Obligations under finance leases Trade and other payables Currency derivatives at notional value Net exposure 4. the Group is exposed to a currency risk on its future net operating cash flow in foreign currencies primarily Euros.460 4.300 (5.245) 2009 USD HK$M EUR HK$M TWD HK$M SGD HK$M RMB HK$M JPY HK$M Company Trade and other receivables Liquid funds Long-term loans Obligations under finance leases Trade and other payables Currency derivatives at notional value Net exposure 3. The Group currently has operating surpluses in all these foreign currencies except the US dollars.

208) – (908) (14. At the reporting date the interest rate profile of the interest-bearing financial instruments was as below: Group 2010 HK$M 2009 HK$M Company 2010 HK$M 2009 HK$M Fixed rate instruments Liquid funds Long-term loans Obligations under finance leases Interest rate and currency swaps Net exposure – (908) (11. Interest rate swaps are used to manage the interest rate profile of interest-bearing financial liabilities on a currency by currency basis to maintain an appropriate fixed rate and floating rate ratio.164 (2.784) (10.708) 1.976) 1.075) (13.099) (22. Interest rate risk is measured by using sensitivity analysis on variable rate instruments.198) (8.739) 90 . Financial risk management (continued) 2010 Profit and loss HK$M Other equity components HK$M US dollars Euros New Taiwan dollars Australian dollars Renminbi Japanese yen Increase 178 (15) (16) (3) (115) (24) 5 (1.407) (25.Notes to the Accounts SUPPLEMENTARY INFORMATION 32.421) (7.452) 216 282 179 482 541 248 2009 Profit and loss HK$M Other equity components HK$M US dollars Euros New Taiwan dollars Singapore dollars Renminbi Japanese yen Increase (ii) Interest rate risk 686 4 (12) (30) (94) (18) 536 (438) 164 73 76 160 316 351 The Group’s cash flow exposure to interest rate risk arises primarily from long-term borrowings at floating rates.075) (17.016) (25.164 (2.625) (22.443) (10.

762 (4) 8.198 (16. representing the change in fair value of fuel derivatives at the reporting date. This analysis assumes that all other variables. remain constant. The profit or loss generated from these fuel derivatives is dependent on the nature and combination of contracts which generate payoffs in any particular range of fuel prices. Sensitivity analysis for jet fuel price derivatives A five percent change in the jet fuel price would have affected profit and loss and other equity components by the amounts shown below.339) 9.998) 8. The analysis is performed on the same basis for 2009.067 (11) (4.140 (11. These amounts represent the fair value change of interest rate swaps and financial liabilities designated as at fair value through profit and loss at the reporting date and the increase in net finance charges.683 (11) (3.956 (12. Financial risk management (continued) Group 2010 HK$M 2009 HK$M Company 2010 HK$M 2009 HK$M Variable rate instruments Liquid funds Long-term loans Obligations under finance leases Interest rate and currency swaps Bank overdrafts Net exposure Sensitivity analysis for interest rate exposure An increase of 25 basis points in interest rates at the reporting date would have decreased profit and loss and increased other equity components for the year by the amounts shown below.767) (9.678 15.849) 11.224) (10. 2010 Profit and loss HK$M Other equity components HK$M 2009 Profit and loss HK$M Other equity components HK$M 24. 2010 Profit and loss HK$M Other equity components HK$M 2009 Profit and loss HK$M Other equity components HK$M Net increase in jet fuel price Net decrease in jet fuel price 13 (14) 453 (444) 204 (237) 142 (157) 91 .361) (11.200) 11.145) 8.358 (17. This assumes that all other variables remain constant. Exposure to fluctuations in the fuel price is managed by the use of fuel derivatives.078) (11. in particular foreign currency rates. The Group’s policy is to reduce exposure by hedging at least 30% of its anticipated fuel consumption for the next 12 months.Cathay Pacific Airways Limited Annual Report 2010 Notes to the Accounts SUPPLEMENTARY INFORMATION 32.236 (4) (2.753) Variable rate instruments (iii) Fuel price risk (88) 167 (85) 106 Fuel accounted for 36% of the Group’s operating expenses (2009: 28%).838) 9.

269) (27. 92 .595) 110 (1. Financial risk management (continued) (d) Hedge accounting The carrying values of financial assets/(liabilities) designated as cash flow hedges as at 31st December 2010 were as follows: 2010 HK$M 2009 HK$M Foreign currency risk – long-term liabilities (natural hedge) – cross currency swaps – foreign currency forward contracts Interest rate risk – interest rate swaps Fuel price risk – fuel options Others – carbon offsets (e) Fair values The fair values of the following financial instruments differ from their carrying amounts shown in the statement of financial position: Carrying amount 2010 HK$M Fair value 2010 HK$M Carrying amount 2009 HK$M Fair value 2009 HK$M (2.639) (31.166) 1.855 (17.070) 1.211) (176) 1.846) 6.651 (15.986) (28.Notes to the Accounts SUPPLEMENTARY INFORMATION 32.420) 7.593) 960 (12.606 Carrying amount 2010 HK$M Fair value 2010 HK$M Carrying amount 2009 HK$M Fair value 2009 HK$M Company Long-term loans Obligations under finance leases Pledged security deposits (12.403) (30.797 (19.680) 164 46 10 92 (45) Group Long-term loans Obligations under finance leases Pledged security deposits (16.577 (19.301 (45) (4.736) 1.983 The carrying amounts of other financial assets and liabilities are considered to be reasonable approximations to their fair values.236) (29.140) 6.498) 5.267 (14.299) (30.842) (29.085) (31.

095) – – – (4.232 11.632 3. Level 1 includes financial instruments with fair values measured using quoted prices in active markets for identical assets or liabilities.722 1.864) (7.133 – – – 1.095) 93 .231) (2. Group 2010 Level 1 HK$M 2010 Level 2 HK$M 2010 Level 3 HK$M 2010 Total HK$M 2010 Level 1 HK$M Company 2010 Level 2 HK$M 2010 Level 3 HK$M 2010 Total HK$M Assets Investments at fair value – listed – unlisted Liquid funds – funds with investment managers – other liquid investments Derivative financial assets – – – 183 Liabilities Obligations under finance leases designated as at fair value through profit or loss Derivative financial liabilities 11. Level 2 includes financial instruments with fair values measured using quoted prices in active markets for similar assets or liabilities.460 18.225) – – – (4.460 16.814 – – – 1.722 1.994) (7.232 – – – 1.133 – – – (4.965 – – – – – 1.965 183 – – – – 1.632 3. Financial risk management (continued) (f) Financial instruments carried at fair value The following table presents the carrying value of financial instruments measured at fair value as at 31st December 2010 across three levels of the fair value hierarchy defined in HKFRS 7 “Financial Instruments: Disclosures” with the fair value of each financial instrument categorised in its entirety based on the lowest level of input that is significant to that fair value measurement.225) – – – (4.Cathay Pacific Airways Limited Annual Report 2010 Notes to the Accounts SUPPLEMENTARY INFORMATION 32.994) (7.372 3.864) (7.232 183 1.229 – – – – – 1.460 5.231) (2.231) (2. Level 3 includes financial instruments with fair values measured using valuation techniques in which any significant input is not based on observable market data. or using valuation techniques in which all significant input are based on observable market data.460 5.231) (2.372 3.

232 1.474) (2.584) (7.328 (396) 201 1.098 175 – – – – 1.328 – 1.373 2.Notes to the Accounts SUPPLEMENTARY INFORMATION 32.328 94 .373 175 1.474) (2.388 2.146 2.373 – – – – – 1.395 – – – 1.058) – – – (4.388 2.637 7.058) The movement during the year in the balance of level 3 fair value measurements is as follows: Group HK$M Company HK$M Investments at fair value – unlisted At 1st January 2010 Disposals Net unrealised gains or losses recognised in other comprehensive income during the year At 31st December 2010 1.624 3.474) (2.943 – – – – – 1.146 2.727) (7.624 5.328 – 1.370 1.201) – – – (4. Financial risk management (continued) Group 2009 Level 1 HK$M 2009 Level 2 HK$M 2009 Level 3 HK$M 2009 Total HK$M 2009 Level 1 HK$M Company 2009 Level 2 HK$M 2009 Level 3 HK$M 2009 Total HK$M Assets Investments at fair value – listed – unlisted Liquid funds – funds with investment managers – other liquid investments Derivative financial assets – – – 175 Liabilities Obligations under finance leases designated as at fair value through profit or loss Derivative financial liabilities 2.727) (7.373 916 412 1.328 – – – (4.770 – – – 1.370 1.133 Group HK$M Company HK$M Investments at fair value – unlisted At 1st January 2009 Net unrealised gains or losses recognised in other comprehensive income during the year At 31st December 2009 992 381 1.373 (396) 255 1.584) (7.637 6.474) (2.201) – – – (4.

Cathay Pacific Airways Limited Annual Report 2010 Notes to the Accounts SUPPLEMENTARY INFORMATION 33. agreements were entered into under which a wholly owned subsidiary of the Company agreed to purchase 15 Airbus A330-300 aircraft and 10 Boeing 777-300ER aircraft. The Group is in the process of assessing the impact of this new accounting standard on both the results and the financial position of the Group. Capital risk management The Group’s objectives when managing capital are to ensure a sufficient level of liquid funds and to establish an optimal capital structure which maximises shareholders’ value. is lower than the catalogue price. The definition of net debt/equity ratio is shown on page 103 and a ten year history is included on pages 98 to 99 of the annual report. 95 . The standard requires that financial assets are measured at either amortised cost or fair value. The actual purchase price of the aircraft. The Group regards the net debt/equity ratio as the key measurement of capital risk management. 35. Impact of further new accounting standards HKICPA has issued new and revised HKFRS which become effective for accounting periods beginning on or after 1st January 2011 and which are not adopted in the accounts. HKFRS 9 “Financial Instruments” is relevant to the Group and becomes effective for accounting periods beginning on or after 1st January 2013.683 million. The catalogue price of these aircraft is approximately HK$46. which was determined after arm’s length negotiations between the parties. 34. Event after the reporting period In March 2011.

000 B shares of HK$1 2 shares of HK$10 2 shares of HK$10 2 shares of HK$10 40. 96 .700 shares of HK$500 Aircraft ramp handling Property investment Airline Financial services Financial services 100 100* 100* 100* 100 Laundry and dry cleaning 100 Principal subsidiaries and associates are those which materially affect the results or assets of the Group.000 shares of HK$1 54.000 shares of HK$1 2 shares of GBP1 12.) Company Limited Guangzhou Guo Tai Information Processing Company Limited Hong Kong Airport Services Limited Hong Kong Aviation and Airport Services Limited Hong Kong Dragon Airlines Limited Snowdon Limited Troon Limited Vogue Laundry Service Limited Hong Kong Hong Kong Hong Kong People’s Republic of China Hong Kong Hong Kong Hong Kong Isle of Man Bermuda Hong Kong 100* Paid up registered capital HK$8.402.K.000 A shares of HK$1 36.600.000.268.000 2 shares of HK$1 1 share of HK$1 100 shares of HK$10 Hong Kong 60* Airline Property Limited Airline Stores Property Limited Cathay Holidays Limited Cathay Pacific Aero Limited Cathay Pacific Aircraft Acquisition Limited Cathay Pacific Aircraft Services Limited Hong Kong Hong Kong Hong Kong Hong Kong Isle of Man Isle of Man Property investment Property investment Property investment Travel tour operator Financial services Aircraft acquisition facilitator Aircraft acquisition facilitator Airline catering Travel reward programme Cargo terminal Computer network for interchange of air cargo related information Information processing 100 100 100 100 100 100 100 100 100 100 95 Airline Training Property Limited Hong Kong Cathay Pacific Catering Services Hong Kong (H.K.000.000 shares of US$1 3. * Shareholding held through subsidiaries.000 (wholly foreign equity enterprise) 100 shares of HK$1 2 ordinary shares of HK$1 500.000 shares of US$1 10.000 shares of US$1 600 shares of HK$1.Principal Subsidiaries and Associates at 31st December 2010 Subsidiaries Place of incorporation and operation Principal activities Percentage of issued capital owned Issued and paid up share capital and debt securities Abacus Distribution Systems (Hong Kong) Limited AHK Air Hong Kong Limited Hong Kong Computerised reservation systems and related services Cargo airline 53 15.000 shares of HK$100 1 share of HK$10 2.) Limited Cathay Pacific Loyalty Programmes Limited Cathay Pacific Services Limited Global Logistics System (H.

97 .Cathay Pacific Airways Limited Annual Report 2010 Principal Subsidiaries and Associates Associates Place of incorporation and operation Percentage of issued capital owned Principal activities Air China Limited People’s Airline Republic of China Ground handling Airline catering Airline catering Airport ground engineering support and equipment maintenance Airline catering Airline catering Philippines Canada Hong Kong 18# 32 40* 30* 50* Cathay Kansai Terminal Services Company Limited Japan Cebu Pacific Catering Services Inc. CLS Catering Services Limited Ground Support Engineering Limited LSG Lufthansa Service Hong Kong Limited VN/CX Catering Services Limited * Shareholding held through subsidiaries. # The Hong Kong Vietnam 32* 40* Group has significant influence by demonstrating the power to participate in its financial and operating policy decisions.

2 0.385 42.0 8.429 HK$ HK$ HK cents HK cents 13.499) 4.700) (5.238 147 42.Statistics 2010 2009 Consolidated profit and loss summary Passenger services Cargo services Catering.349 (42.694 73.354 25.511 (26.0 3.147 (283) 4.479 1.7 11.048 (1.357 HK$M 45.194 (15.116 17.97 119.9 5.429 54.053 2.059) (5.1 111.864 (170) 4.62 74.920 17.255 3.01 0.694 – 4.255) 42.2 35.131) (12.022) (1.642) 16.0 7.1 1.0 % % Times Times Times Times 15.85 357.28 98 .3 10.471) 11.233 (185) 14.7 22.978 (62.691) 12.695 (1.524 (78.269 89.274 155 54.815) 54.165 868 – (978) 2. recoveries and other services Turnover Operating expenses Operating profit/(loss) Profit on disposal of investments Gain on deemed disposal of an associate Settlement of the United States Department of Justice cargo investigations Net finance charges Share of profits/(losses) of associates Profit/(loss) before tax Taxation Profit/(loss) for the year Profit attributable to non-controlling interests Profit/(loss) attributable to owners of Cathay Pacific Dividends paid Retained profit/(loss) for the year Consolidated statement of financial position summary Fixed and intangible assets Long-term receivables and investments Borrowings Liquid funds less bank overdrafts Net borrowings Net current liabilities (excluding liquid funds and bank overdrafts) Other long-term payables Deferred taxation Net assets Financed by: Funds attributable to owners of Cathay Pacific Non-controlling interests Total equity Per share Shareholders’ funds EBITDA Earnings/(loss) Dividend Ratios Profit/(loss) margin Return on capital employed Dividend cover Cash interest cover Gross debt/equity ratio Net debt/equity ratio HK$M 59.80 5.901 4.254 – – (847) 261 5.864) (1.74 2.345 14.285 (39.73 0.385 10.587 15.435) (14.629) 24.803 66.462) 14.

762) 31.186 32.024) 9.096 65.750 – – – (743) 269 4.251 10.0 9.156) 832 452 – – (571) 153 866 (167) 699 (42) 657 (1.46 99 .40 1.350 (30.69 49.813 35.646) (3.249 12.988 (31.746 (14.134) 73.908 2.276 (273) 4.805) 1.917 42.035) 268 50.0 6.196) 1.909 (46.186 (11.887) (4.6 2.36 32.094) (1.783 (55.606) (4.057 8.8 2.0 48.050) (6.726 32.34 2.565) 5.015 (36.989 9.0) 3.7 48.2 0.7 10.416 7.783 4.731) (13.170 15.810) 13.778 70.530 (40.619) 7.308 93 31.992) 1.532 (30.709 120 36.4 65.2 0.829 36.473 (26.401 31.71 0.514) 5.943) 15.516 (99) 4.156 9.247 – – – (583) 298 4.8) (73.1 14.968 283 35.0 11.1 2.10 0.964 24.829 9.332 (22.731 (384) 1.143 – – – (444) 269 3.915) (1.696) (2.0 4.637 (14.787 (24.187) (6.245) 4.198) (16.282 48.75 2.728) – (7.855 134 32.189) 2.976 86.386 152 45.1 0.0 14.46 178.184 (22.460) 35.641 8.0 10.968 (500) 3.102 50.5 8.0 4.401 9.520 21.69 0.6 0.131 50.438) (11.405 (9.85 0.Cathay Pacific Airways Limited Annual Report 2010 Statistics 2008 2007 2006 2005 2004 2003 2002 2001 57.773 3.7 8.012) (764) (9.965 2.30 38.333 (8.989 32.0) (11.490) (6.45 3.468 (170) 3.125) 2.614) 32.7 0.941 31.0 (10.210 (187) 7.621) 49.896) (346) (7.766) 4.53 2.164 (9.69 119.303 (1.054 (782) 4.351 12.538 45.455) 13.055 75.3 84.009 (799) 7.258) 50.607 7.86 39.071 178 49.280) 32.77 0.0 6.704 2.3 12.811 9.755 18.8 2.538 11.561) – – (468) (1.739 – – – (787) 1.1 4.879 12.782) 4.34 18.36 22.70 0.1 0.962 (446) 4.1 0.023 (2.9 84.439) (181) (7.821 14.9 1.63 19.019) (170) (6.2 0.3 11.49 97.347 (44) 1.115 71 32.9 1.0 17.5 2.088 (2.7 17.381) (102) (7.920 10.228 50.79 131.417 (2.456 4.64 0.186 9.297) 15.082 (25.358 (67.124) (7.7) 3.8 2.278) (1.5 44.2 15.472) (224) (8.905 4.631) 11.385 3.156 31.761 (37.280) 15.74 0.444 (11.298 (2.251 34.8 7.508) 45.30 20.836) 31.831) 36.272 (184) 4.368) 21.232 (31.983 (701) 3.176 4.29 1.111) (4.767) (72) (6.91) (221.26 26.348) (9.406 2.7 1.595 (16.225 – – – (620) 126 1.33 (0.249 49.005 15.623 3.783 (22.052 104 31.563 (94.643 60.78 115.003 (20) 3.63 2.218 – – – (465) 301 5.2 10.

1 83.775 111.1 15.907 1.8 8.175 75.6 11.8 3.0 22.0 15.528 8.8 10.796 96.4 8.592 1.440 77.8 12.7 80.8 – 13.2 – 12.256 70.0 7.053 86.8 11.7 4.6 13.5 1.4 13.2 8.2 Fleet profile Aircraft operated by Cathay Pacific: A330-300 A340-300 A340-600 747-400 747-200F 747-400F 747-400BCF 747-400ERF 777-200 777-300 777-300ER Total Aircraft operated by Dragonair: A320-200 A321-200 A330-300 747-200F 747-300SF 747-400BCF Total 100 32 15 – 22 – 6 12 6 5 12 18 128 11 6 14 – – – 31 32 15 – 23 – 6 13 6 5 12 14 126 9 6 14 – – – 29 .Statistics 2010 2009 Operating summary – Cathay Pacific and Dragonair* Available tonne kilometres Revenue tonne kilometres Available seat kilometres Revenue passengers carried Revenue passenger kilometres Revenue load factor Passenger load factor Cargo and mail carried Cargo and mail revenue tonne kilometres Cargo and mail load factor Excess baggage carried Kilometres flown Block hours Aircraft departures Length of scheduled routes network Destinations at year end Staff number at year end ATK per staff On-time performance* Departure (within 15 minutes) Average aircraft utilisation* A320-200 A321-200 A330-300 A340-300 A340-600 747-400 747-200F/300SF 747-400F/BCF 777-200/300 777-300ER Fleet average * Includes Dragonair’s operation from 1st October 2006.3 12.588 81.053 464 652 138 535 146 21.9 5.748 26.558 89.373 115.2 – 14.4 1.804 10.167 24.9 8.249 16.165 80.461 19.2 8.883 431 605 130 481 122 20. Million Million Million ‘000 Million % % ‘000 tonnes Million % Tonnes Million ‘000 hours ‘000 ‘000 kilometres Number Number ‘000 % Hours per day 24.

Cathay Pacific Airways Limited Annual Report 2010

Statistics

2008

2007

2006

2005

2004

2003

2002

2001

24,410 17,499 115,478 24,959 90,975 75.1 78.8 1,645 8,842 65.9 2,963 460 649 138 453 124 21,309 1,185 81.4 8.4 8.4 10.9 14.7 11.4 14.1 7.5 13.1 8.7 14.3 11.5

23,077 16,680 102,462 23,253 81,801 75.6 79.8 1,672 8,900 66.7 2,310 422 598 131 442 129 19,840 1,194 83.9 8.5 8.9 10.7 15.3 14.4 14.5 10.8 14.0 8.4 10.7 11.7

19,684 14,452 91,769 18,097 72,939 76.2 79.5 1,334 7,514 68.6 2,218 357 489 98 457 125 18,992 1,173 85.2 8.2 8.9 11.2 14.9 14.9 14.9 11.8 15.3 9.0 – 12.5

17,751 12,813 82,766 15,438 65,110 75.2 78.7 1,139 6,618 67.0 2,489 317 431 84 403 92 15,806 1,147 86.1 – – 10.8 15.1 15.3 14.7 11.8 16.1 9.1 – 12.6

15,794 11,459 74,062 13,664 57,283 74.8 77.3 990 6,007 68.7 2,530 285 386 77 386 90 15,054 1,066 90.3 – – 10.1 13.6 13.6 13.9 13.3 16.3 8.8 – 12.0

13,355 9,371 59,280 10,059 42,774 71.1 72.2 889 5,299 68.7 2,190 238 322 65 377 87 14,673 903 91.0 – – 9.2 12.4 11.7 12.8 13.3 16.4 8.7 – 11.4

12,820 9,522 63,050 12,321 49,041 75.9 77.8 862 4,854 71.2 2,401 237 322 68 374 62 14,649 885 90.7 – – 10.1 13.3 6.3 14.1 13.6 15.4 9.4 – 12.1

11,827 8,201 62,790 11,269 44,792 70.4 71.3 713 3,938 67.3 2,270 224 307 65 341 51 14,473 810 82.9 – – 9.4 13.4 – 14.4 12.2 14.3 9.6 – 12.1

32 15 – 23 5 6 10 2 5 12 9 119 10 6 16 1 – 2 35

29 15 3 24 7 6 6 – 5 12 5 112 10 6 16 1 3 3 39

27 15 3 22 7 6 5 – 5 12 – 102 10 6 16 1 3 1 37

26 15 3 22 7 6 1 – 5 11 – 96 11 6 13 1 3 – 34

23 15 3 21 7 5 – – 5 10 – 89 10 6 10 1 3 – 30

23 15 3 19 6 5 – – 5 9 – 85 8 6 9 – 3 – 26

20 15 2 19 6 5 – – 5 7 – 79 8 4 9 – 3 – 24

20 15 – 19 4 5 – – 5 7 – 75 7 3 7 – 2 – 19
101

Statistics

Cost per ATK
4.0 3.5 3.0 2.5 2.0 1.5 1.0 0.5 0 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
HK$

ATK per HK$’000 staff cost
2,400 2,200 2,000 1,800 1,600 1,400 1,200 1,000 800 600 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

Aircraft utilisation
Hours per day

Share price
Average share price in HK$ Average HSI

14 12 10 8 6 4 2 0 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

24 20 16 12 8 4 0

24,000 20,000 16,000 12,000 8,000 4,000 0 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 Cathay Pacific share price Hang Seng Index (HSI)

2010

2009

2008

2007

2006

2005

2004

2003

2002

2001

Productivity* Cost per ATK ATK per HK$’000 staff cost Aircraft utilisation Share prices High Low Year-end Price ratios (Note) Price/earnings Market capitalisation/ funds attributable to owners of Cathay Pacific Price/cash flows

HK$ Unit Hours per day HK$

3.16 1,933 12.0 24.1 12.8 21.5

2.76 1,932 11.2 14.7 7.0 14.5 12.2

3.80 2,160 11.5 20.3 7.1 8.8 (4.0)

2.87 2,105 11.7 23.1 18.3 20.4 11.4

2.75 2,197 12.5 19.5 12.7 19.2 16.5

2.56 2,183 12.6 15.1 12.0 13.6 13.9

2.31 1,978 12.0 16.4 12.5 14.7 11.2

2.21 1,825 11.4 15.5 8.4 14.8 37.9

2.33 1,798 12.1 13.6 9.9 10.7 9.0

2.50 1,725 12.1 14.3 6.1 10.0 50.8

Times

6.0

1.6 4.5

1.4 12.7

0.9 8.9

1.6 5.0

1.7 6.1

1.3 5.3

1.5 4.5

1.6 7.8

1.1 3.8

1.1 7.2

Note: Based on year end share price, where applicable. * Includes Dragonair results from 1st October 2006.

102

Cathay Pacific Airways Limited Annual Report 2010

Glossary
Terms
Borrowings Total borrowings (loans and lease obligations) less security deposits, notes and zero coupon bonds. Net borrowings Borrowings and bank overdrafts less liquid funds. Available tonne kilometres (“ATK”) Overall capacity, measured in tonnes available for the carriage of passengers, excess baggage, cargo and mail on each sector multiplied by the sector distance. Available seat kilometres (“ASK”) Passenger seat capacity, measured in seats available for the carriage of passengers on each sector multiplied by the sector distance. Revenue passenger kilometres (“RPK”) Number of passengers carried on each sector multiplied by the sector distance. Revenue tonne kilometres (“RTK”) Traffic volume, measured in load tonnes from the carriage of passengers, excess baggage, cargo and mail on each sector multiplied by the sector distance. On-time performance Departure within 15 minutes of scheduled departure time. EBITDA Earnings before interest, tax, depreciation and amortisation. Recoveries Cost recoveries from incidental activities.

Ratios
Earnings/(loss) per share Profit/(loss) attributable to owners of Cathay Pacific Weighted average number of shares (by days) in issue for the year Profit/(loss) attributable to owners of Cathay Pacific Turnover Funds attributable to owners of Cathay Pacific Net debt/ equity ratio = Net borrowings Funds attributable to owners of Cathay Pacific

=

Profit/(loss) margin =

Revenue passenger kilometres/ Cargo and mail revenue Passenger/Cargo and = tonne kilometres mail load factor Available seat kilometres/ Available cargo and mail tonne kilometres Total passenger, cargo and mail traffic revenue Maximum possible revenue at current yields and capacity

Shareholders’ funds = per share Total issued and fully paid shares at end of the year Operating profit and share of profits of associates less taxation Average of total equity and net borrowings Profit/(loss) attributable to owners of Cathay Pacific Dividends Cash generated from operations Net interest paid Borrowings Funds attributable to owners of Cathay Pacific

Revenue load factor =

Return on capital employed

=

Breakeven load factor

A theoretical revenue load factor at which the traffic revenue = equates to the net operating expenses.

Dividend cover

=

Cash interest cover = Gross debt/ equity ratio

Passenger turnover/ Cargo and mail turnover Passenger/Cargo and = Revenue passenger kilometres/ mail yield Cargo and mail revenue tonne kilometres Total operating expenses of Cathay Pacific and Dragonair ATK of Cathay Pacific and Dragonair

=

Cost per ATK

=

103

A.S. PA 15252-8516 U. please contact: Corporate Communication Department Cathay Pacific Airways Limited 7th Floor. Pittsburgh. Investor relations For further information about Cathay Pacific Airways Limited.cathaypacific.Corporate and Shareholder Information Cathay Pacific Airways Limited is incorporated in Hong Kong with limited liability. One Pacific Place 88 Queensway Hong Kong Registrars Computershare Hong Kong Investor Services Limited Rooms 1806-1807 18th Floor. North Tower Cathay Pacific City Hong Kong International Airport Hong Kong Tel: (852) 2747 5210 Fax: (852) 2810 6563 Cathay Pacific’s main Internet address is www.com Registered office 33rd Floor. Hopewell Centre 183 Queen’s Road East Hong Kong Depositary The Bank of New York Mellon BNY Mellon Shareowner Services P Box 358516 .bnymellon. Domestic toll free hotline: 1(888) BNY ADRS International hotline: 1(201) 680 6825 Email: shrrelations@bnymellon.O. Prince’s Building 10 Chater Road Hong Kong Financial calendar Year ended 31st December 2010 Annual report available to shareholders 6th April 2011 Annual General Meeting 18th May 2011 Stock codes Hong Kong Stock Exchange ADR 00293 CPCAY Six months ending 30th June 2011 Interim results announcement Interim dividend payable August 2011 October 2011 104 .com Website: www.com/shareowner Auditors KPMG 8th Floor.

hk Printed in Hong Kong .DESIGN: FORMAT LIMITED www.format.com.

cathaypacific.www.com .

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