Cathay Pacific

Cathay Pacic Airways Limited

Annual Report 2016

Stock Code: 293

6 Financial and Operating Highlights

8 Chairman’s Letter

10 2016 in Review

18 Review of Operations

23 2016 Sustainable Development Review

28 Financial Review

34 Directors and Officers

36 Directors’ Report

44 Corporate Governance Report

57 Independent Auditor’s Report

62 Consolidated Statement of Profit or

Loss and Other Comprehensive Income

63 Consolidated Statement of

Financial Position

64 Consolidated Statement of

Cash Flows

65 Consolidated Statement of

Changes in Equity

66 Notes to the Financial Statements

103 Principal Subsidiaries and

Associates

105 Principal Accounting Policies

110 Statistics

115 Glossary

116 Corporate and Shareholder Information

Contents

Cathay Pacific is an international airline registered and based in Hong Kong, offering

scheduled passenger and cargo services to 181 destinations in 43 countries and territories.

The airline was founded in Hong Kong in 1946 and celebrated its 70th anniversary on 24th

September 2016. It has been deeply committed to its home base over the last seven decades,

making substantial investments to develop Hong Kong as one of the world’s leading international

aviation centres.

The Cathay Pacific Group operated 202 aircraft at 31st December 2016. Cathay Pacific itself had

146 aircraft at that date. Its other investments include catering and ground-handling companies

and its corporate headquarters and cargo terminal at Hong Kong International Airport. Cathay

Pacific continues to invest heavily in its home city. At 31st December 2016 it had 59 new aircraft

due for delivery up to 2024.

Hong Kong

Cathay Pacific

Cathay Pacific Freighter

Cathay Dragon

Air Hong Kong

Hong Kong Dragon Airlines Limited (“Cathay Dragon”), a regional airline registered and based in

Hong Kong, is a wholly owned subsidiary of Cathay Pacific operating 43 aircraft on scheduled

services to 53 destinations in Mainland China and elsewhere in Asia. Cathay Pacific owns 18.13%

of Air China Limited (“Air China”), the national flag carrier and a leading provider of passenger,

cargo and other airline-related services in Mainland China. Cathay Pacific is the majority

shareholder in AHK Air Hong Kong Limited (“Air Hong Kong”), an all-cargo carrier providing

scheduled services in Asia.

Cathay Pacific and its subsidiaries employ more than 33,800 people worldwide, of whom around

26,200 are employed 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 1,000 destinations worldwide. Cathay Dragon 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。

The Cathay Dragon rebranding has brought the award-winning

regional airline closer to Cathay Pacic, providing customers

with a more seamless, unied customer experience across

their respective global and regional networks.

Seamless

connectivity

Cathay Pacific Airways Limited

Financial and Operating Highlights

Group Financial Statistics

2016 2015 Change

Results

Revenue HK$ million 92,751 102,342 -9.4%

(Loss)/profit attributable to the shareholders of Cathay Pacific HK$ million (575) 6,000 -109.6%

(Loss)/earnings per share HK cents (14.6) 152.5 -109.6%

Dividend per share HK$ 0.05 0.53 -90.6%

(Loss)/profit margin % (0.6) 5.9 -6.5%pt

Financial position

Funds attributable to the shareholders of Cathay Pacific HK$ million 55,365 47,927 +15.5%

Net borrowings HK$ million 49,879 42,458 +17.5%

Shareholders’ funds per share HK$ 14.1 12.2 +15.6%

Net debt/equity ratio Times 0.90 0.89 +0.01 times

Operating Statistics – Cathay Pacific and Cathay Dragon

2016 2015 Change

Available tonne kilometres (“ATK”) Million 30,462 30,048 +1.4%

Available seat kilometres (“ASK”) Million 146,086 142,680 +2.4%

Revenue passengers carried ‘000 34,323 34,065 +0.8%

Passenger load factor % 84.5 85.7 -1.2%pt

Passenger yield HK cents 54.1 59.6 -9.2%

Cargo and mail carried ‘000 tonnes 1,854 1,798 +3.1%

Cargo and mail load factor % 64.4 64.2 +0.2%pt

Cargo and mail yield HK$ 1.59 1.90 -16.3%

Cost per ATK (with fuel) HK$ 3.02 3.14 -3.8%

Cost per ATK (without fuel) HK$ 2.12 2.06 +2.9%

Aircraft utilisation Hours per day 12.2 12.2 –

On-time performance % 72.1 64.7 +7.4%pt

Average age of fleet Years 9.0 9.1 -1.1%

GHG emissions Million tonnes of CO

e 17.2 17.1 +0.6%

GHG emissions per ATK Grammes of CO

e 565 569 -0.7%

Lost time injury rate

Number of injuries per

100 full-time equivalent

employees

3.12 2.95 +5.8%

Financial and Operating Highlights

2017 Target

12 Airbus A350-900

Fleet

Cathay Dragon Rebranding

2016 Took delivery

10 Airbus A350-900

1 Boeing 747-8F

The Pier Business

Class lounge in

Hong Kong

reopened in

June 2016

New lounge

in Vancouver

opened in

May 2016

Lounges

Best First Class

Airline Lounge in the

Skytrax World Airline

Awards 2016

First and business

class lounges at

London Heathrow

reopened in

December 2016

SafetyNetwork

2015

2016

Zurich

Boston

Tokyo

Haneda

Düsseldorf

London

Gatwick

Madrid

January

2016

Cathay Pacic Cathay Dragon

December

2016

2016 Average:

72.1%

On-time Performance

Leading airline

in the 2016 JACDEC airline

safety rankings

Cathay Pacific Cathay Dragon

Cathay Pacific Airways Limited

Chairman’s Letter

The Cathay Pacific Group reported an attributable loss of HK$575 million for 2016. This

compares to a profit of HK$6,000 million in 2015. The loss per share was HK14.6 cents

compared to earnings per share of HK152.5 cents in the previous year.

The operating environment for our airlines was difficult in

2016, with a number of factors adversely affecting their

performance. Intense and increasing competition with other

airlines was the most important. Other airlines significantly

increased capacity. There were more direct flights between

Mainland China and international destinations. Competition

from low cost carriers increased. Overcapacity in the market

was a particular competitive problem for our cargo business.

Three economic factors were also important, the reduced

rate of economic growth in Mainland China, a reduction in

the number of visitors to Hong Kong and the strength of the

Hong Kong dollar. Hong Kong dollar strength made Hong

Kong an expensive destination and caused revenues earned

in other currencies to be reduced on conversion into Hong

Kong dollars. All these factors put severe competitive

pressure on yields. We benefited from low fuel prices, but

the benefit was reduced by fuel hedging losses, largely

incurred on hedges put in place when the fuel price was

much higher than today. The contribution from subsidiary

and associated companies was satisfactory.

The Group’s passenger revenue in 2016 was HK$66,926

million, a decrease of 8.4% from 2015. Capacity increased

by 2.4%, reflecting the introduction of new routes and

increased frequencies on other routes. The load factor

decreased by 1.2 percentage points, to 84.5%. Yield, which

was under intense pressure throughout the year, fell by

9.2% to HK54.1 cents, reflecting overcapacity in the

market, a decline in premium class demand and weak

foreign currencies.

The Group’s cargo revenue in 2016 was HK$20,063 million,

a decrease of 13.2% compared to the previous year. The

cargo capacity of Cathay Pacific and Cathay Dragon

increased by 0.6%. The load factor increased by 0.2

percentage points, to 64.4%. Tonnage carried increased by

3.1%. The market was very weak in the first quarter. Tonnage

recovered from the second quarter, becoming seasonally

strong in the fourth quarter. Yield fell by 16.3% to HK$1.59,

reflecting strong competition, overcapacity and the

suspension of Hong Kong fuel surcharges. Demand on

European routes was weak. Demand on transpacific routes

grew slightly in the second half of the year. Freighter

services to Portland and Brisbane West Wellcamp were

introduced. We managed freighter capacity in line with

demand and carried a higher proportion of cargo in the

bellies of our passenger aircraft.

Total fuel costs for Cathay Pacific and Cathay Dragon (before

the effect of fuel hedging) decreased by HK$4,906 million (or

20.4%) compared with 2015. Fuel is still the Group’s most

significant cost, accounting for 29.6% of our total operating

costs in 2016 (compared to 34.0% in 2015). Fuel hedging

losses reduced the benefit of low fuel costs. After taking

hedging losses into account, the Group’s fuel costs

decreased by HK$5,015 million (or 15.2%) compared to 2015.

There was a 2.9% increase in non-fuel costs per available

tonne kilometre. Staff costs, landing and parking fees,

and aircraft maintenance costs increased at a faster rate

than capacity.

Congestion at Hong Kong International Airport and air traffic

control constraints in the Greater China region continued to

impose costs on the Group. We are doing more to improve

the reliability of our operations. This was reflected in a 7.4

percentage points improvement in on-time performance.

In response to weak revenues, we have undertaken a critical

review of our business. In the short term, we are

implementing measures designed to improve revenues and

reduce costs. The longer term strategy which is being

developed in response to the review is designed to improve

performance over a three year period.

In 2016, Cathay Pacific introduced passenger services to

Madrid (in June) and London Gatwick (in September). Both

services have been well received. We will increase the

frequency of our Gatwick and Manchester services in June

2017. Frequencies on some other routes were increased in

2016. Cathay Pacific will introduce services to Tel Aviv in

March 2017, to Barcelona in July 2017 and to Christchurch in

December 2017. Cathay Pacific stopped flying to Doha in

February 2016, but still offers codeshare services with Qatar

Airways on this route. Cathay Dragon increased frequencies

on its Phnom Penh, Wenzhou and Wuhan routes and reduced

frequencies on its Clark and Kota Kinabalu routes. Cathay

Dragon stopped flying to Hiroshima and stopped the tagged

flight between Kathmandu and Dhaka, providing direct

services to both destinations instead.

8 9

Annual Report 2016

Chairman’s Letter

In 2016, we took delivery of 10 Airbus A350-900 aircraft.

These fuel efficient and technologically advanced long-haul

aircraft are being used on our Auckland, Düsseldorf, London

Gatwick, Paris and Rome routes. We retired our last three

Boeing 747-400 passenger aircraft and three Airbus A340-

300 aircraft during the year. One Airbus A340-300 aircraft

was retired in January 2017 and the remaining three such

aircraft will be retired later in 2017. We took delivery of our

final Boeing 747-8F freighter in August.

The new Airbus A350-900 aircraft have our latest cabins,

seats and entertainment systems and inflight connectivity

for passengers’ mobile devices. We opened a new lounge in

Vancouver in May 2016, reopened the business class

lounge at The Pier in Hong Kong in June 2016, and

reopened our first and business class lounges at London

Heathrow in December 2016. The G16 lounge in Hong Kong

closed for renovations in July 2016 and will reopen in the

second quarter of 2017.

In November 2016, Dragonair was rebranded as Cathay

Dragon, bringing the brands of our two airlines into closer

alignment. The first aircraft featuring the Cathay Dragon

livery went into service in April 2016.

Prospects

We expect the operating environment in 2017 to remain

challenging. Strong competition from other airlines and the

adverse effect of the strength of the Hong Kong dollar are

expected to continue to put pressure on yield. The cargo

market got off to a good start, but overcapacity is expected

to persist.

We expect to continue to benefit in 2017 from the fact that

fuel prices are much lower than their previous high levels,

but to a lesser extent (because of some increase in oil

prices in recent months) than in 2016. We also expect to

incur further fuel hedging losses in 2017, but these should

be less than in 2016. Our subsidiaries and associates are

expected to continue to perform satisfactorily.

Despite the challenges with which we are faced, we still

expect our business to grow in the long-term. Air traffic to,

from and within the Asia-Pacific region is expected to grow

strongly. We intend to benefit from this growth by increasing

our passenger capacity by 4-5% per annum, at least until

the third runway at Hong Kong International Airport is open.

We will continue to introduce new destinations and to

increase frequencies on our most popular routes. We are

buying new and more fuel efficient aircraft. This will increase

productivity and reduce costs.

We are starting on a three year programme of corporate

transformation with the intention of achieving returns above

the cost of capital. The goal is to become a more agile and

competitive organisation in order to take advantage of

changing market trends and customer preferences.

We will continue to make investments designed to

strengthen our brand and what we offer to our customers.

We aim to deliver better services and to do so more

effectively through the use of data analytics and mobile

technology. Doing this will increase operational efficiency

and help us to meet our customers’ needs better. We are

reviewing our revenue management, distribution and pricing

practices. We intend to increase ancillary revenue.

Just as important as improving revenues is reducing costs.

We are working on operational changes intended to

improve the reliability of our schedules. This will reduce the

costs of disruption and will also enable us to use our assets

more efficiently and to improve our on-time performance.

Our organisation will become leaner. This will improve

productivity and reduce costs and will also enable us to

make decisions more quickly. Our aim is to reduce our unit

costs excluding fuel over the next three years.

The objective of the Cathay Pacific Group is to provide

sustainable growth in shareholder value over the long term.

We are confident of longer-term success. We celebrated

our 70th anniversary in 2016 and our commitment to Hong

Kong and its people remains unwavering.

John Slosar

Chairman

Hong Kong, 15th March 2017

Cathay Pacific Airways Limited

The Group’s performance in 2016 did not match that of 2015. The operating environment

for our airlines was difficult in 2016, with a number of factors adversely affecting their

performance. Intense and increasing competition with other airlines was the most

important. Other airlines significantly increased capacity. There were more direct flights

between Mainland China and international destinations. Competition from low cost carriers

increased. Overcapacity in the market was a particular competitive problem for our cargo

business. Three economic factors were also important, the reduced rate of economic

growth in Mainland China, a reduction in the number of visitors to Hong Kong and the

strength of the Hong Kong dollar. Hong Kong dollar strength made Hong Kong an expensive

destination and caused revenues earned in other currencies to be reduced on conversion

into Hong Kong dollars. All these factors put severe competitive pressure on yields. We

benefited from low fuel prices, but the benefit was reduced by fuel hedging losses, largely

incurred on hedges put in place when the fuel price was much higher than today. The

contribution from subsidiary and associated companies was satisfactory.

Despite the challenges with which we are faced, we still expect our business to grow in the

long-term. Air traffic to, from and within the Asia-Pacific region is expected to grow

strongly. We intend to benefit from this growth by increasing our passenger capacity by

4-5% per annum, at least until the third runway at Hong Kong International Airport is open.

We will continue to introduce new destinations and to increase frequencies on our most

popular routes. We are buying new and more fuel efficient aircraft. This will increase

productivity and reduce costs.

We are starting on a three year programme of corporate transformation with the intention

of achieving returns above the cost of capital. The goal is to become a more agile and

competitive organisation in order to take advantage of changing market trends and

customer preferences.

We will continue to make investments designed to strengthen our brand and what we offer

to our customers. We aim to deliver better services and to do so more effectively through

the use of data analytics and mobile technology. Doing this will increase operational

efficiency and help us to meet our customers’ needs better. We are reviewing our revenue

management, distribution and pricing practices. We intend to increase ancillary revenue.

Just as important as improving revenues is reducing costs. We are working on operational

changes intended to improve the reliability of our schedules. This will reduce the costs of

disruption and will also enable us to use our assets more efficiently and to improve our on-

time performance. Our organisation will become leaner. This will improve productivity and

reduce costs and will also enable us to make decisions more quickly. Our aim is to reduce

our unit costs excluding fuel over the next three years.

2016 in Review

10 11

Annual Report 2016

2016 in Review

Award-winning products and services

• We took delivery of our first Airbus A350-900 aircraft in

May, and took delivery of a further nine aircraft of this type

before the end of 2016. We expect to have 22 aircraft of

this type in service by the end of 2017. They have our

latest cabins, seats and entertainment systems and

inflight connectivity for passengers’ mobile devices.

• The Airbus A350 aircraft are fuel efficient and have the

right range, capacity and operating economics for our

requirements.

• The business class seats in the Airbus A350-900 have

better beds, more storage space, larger televisions and

simpler seat controls than the business class seats in our

other aircraft types.

• The premium economy class seats in the Airbus A350-900

have better storage space and leg rests and larger tables

than the premium class seats in our other aircraft types.

They have personal reading lights and tablet holders.

• The economy class seats in the Airbus A350-900 have

new headrests and tablet holders, and have larger

televisions than the economy class seats in our other

aircraft types.

• We opened a new lounge in Vancouver in May 2016.

The design follows that of our lounges in Bangkok, Tokyo

Haneda, Manila and Taipei.

• In June 2016, we reopened our business class lounge at

The Pier in Hong Kong after refurbishment. This is our

largest lounge. It can accommodate 550 passengers.

• In December 2016, we reopened our first and business

class lounge at London Heathrow following a refurbishment.

It is Cathay Pacific’s only lounge outside Hong Kong that

has separate first and business class areas.

• The G16 lounge at Hong Kong International Airport closed

for renovations in July 2016. It is scheduled to reopen in

the second quarter of 2017.

• Cathay Pacific was ranked first in 2016 among the world’s

largest airlines by the Jet Airliner Crash Data Evaluation

Centre in terms of safety.

• Cathay Pacific was voted Best North Asian Airline at the

27th Annual TTG Travel Awards in 2016.

• At the 2016 Business Traveller Asia-Pacific Awards,

Cathay Pacific won Best Airline Premium Economy Class,

Best Frequent Flyer Programme and Best Airline Lounge in

Asia-Pacific awards.

• In 2016, the first class lounge at The Pier in Hong Kong

was named Best First Class Airline Lounge in the Skytrax

World Airline Awards. Cathay Pacific also won the award

for World’s Best Airline Cabin Cleanliness.

• The business class lounge at The Pier in Hong Kong was

named Best Airport Lounge at the Monocle Travel Top

50 Awards.

• Cathay Pacific service teams and individual staff members

won honours at the Inflight Sales Person of the Year

Awards and the Customer Service Excellence Awards

organised by the Hong Kong Association for Customer

Service Excellence.

• In 2016, Cathay Pacific won Best Presented First Class

Wine List at the Business Traveller Cellars in the Sky 2015

Awards.

Hub development

• In 2016, Cathay Pacific celebrated its 70th anniversary as

the home carrier of Hong Kong. We remain deeply

committed to the long-term development of Hong Kong

International Airport as a premier international centre for

passenger and cargo traffic.

• We fully support the construction of the third runway at

Hong Kong International Airport. We believe its

construction is critical to addressing the airport’s

shortage of capacity, and to maintaining Hong Kong’s

long-term competitiveness as a premier aviation centre.

• The development of our networks is a priority. We manage

capacity in line with passenger and cargo demand. In

2016, we cancelled flights for commercial and operational

reasons, without affecting the integrity of our networks.

• The passenger capacity of Cathay Pacific and Cathay

Dragon increased by 2.4% in 2016 compared to 2015. This

reflected the introduction of new routes and increased

frequencies on other routes. Cathay Pacific’s passenger

capacity increased by 2.8%. Cathay Dragon’s passenger

capacity decreased by 0.4%.

• In 2016, Cathay Pacific introduced passenger services to

Madrid (in June) and to London Gatwick (in September). In

June 2017, we will increase the frequency of the Gatwick

service from four flights per week to daily and the

Manchester service from four to five flights per week. In

December 2017, a sixth weekly flight will be added to the

Manchester route. In October 2017, the service on the

Madrid route will increase from four to five flights per week.

In December 2017, an 11th weekly flight to Paris will be

restored. We will introduce a four-times-weekly passenger

service to Tel Aviv in March 2017 and a four-times-weekly

passenger service to Barcelona between July and

October 2017.

Cathay Pacific Airways Limited

2016 in Review

• We will introduce a three-times-weekly passenger service

to Christchurch between December 2017 and February

2018. From October 2017 to March 2018, we will replace

the current tagged service between Cairns and Brisbane

by providing direct flights to both destinations. The

service to Brisbane will have 11 flights per week and the

service to Cairns will have three flights per week.

• To meet high summer demand, two flights were added per

week on the Toronto route between July and August 2016.

We will operate a twice daily service on this route between

June and September 2017. In April 2017, we will increase

the number of flights to Vancouver from 14 to 17 per week.

A fifth weekly flight was added on the Boston route

between May and August 2016. Daily flights will start on

this route at the end of March 2017. In October 2017, four

flights will be added per week to San Francisco, so that

this service will become three-times-daily.

• In July and August 2016, we increased our services to

Sapporo from five times per week to daily.

• Three of our 10 times per week flights to Paris and all of

our flights to Düsseldorf are now operated by Airbus

A350-900 aircraft. From October 2016 to May 2017, four

flights per week to Rome were operated by Airbus A350-

900 aircraft.

• In October 2016, we started to use Airbus A350-900

aircraft on the Auckland route. One of the flights on this

route was operated by larger Boeing 777-300ER aircraft.

• Cathay Pacific stopped flying to Doha in February 2016,

but still offers codeshare services with Qatar Airways on

this route.

• In November 2016, Cathay Dragon stopped flying to

Hiroshima and Kathmandu via Dhaka. Cathay Dragon now

provides direct services to both Kathmandu and Dhaka.

• From October 2016 to March 2017, Cathay Pacific reduced

flights to Bangkok from 63 to 56 per week.

• In May 2016, Cathay Dragon increased the frequency of its

Wenzhou service from seven to 10 flights per week. From

May to October 2016, it increased the frequency of its

Wuhan service from 11 to 12 flights per week and used

bigger aircraft on the Xi’an route.

• From September 2016, Cathay Dragon increased the

frequency of its Phnom Penh service from 12 to 14 flights

per week. It reduced the frequency of its services to Kota

Kinabalu from seven to five flights per week from May

2016 and of its Clark service from four to three flights per

week from March 2016. In October 2016, the fourth weekly

Clark flight was restored.

• In November 2016, Cathay Pacific introduced a twice-

weekly cargo service to Portland, Oregon and a weekly

cargo service to Brisbane West Wellcamp.

Fleet development

• At 31st December 2016, Cathay Pacific operated 146 aircraft,

Cathay Dragon operated 43 aircraft and Air Hong Kong

operated 13 aircraft (a total of 202 aircraft for the Group). There

are 59 new aircraft on order for delivery up to 2024.

• We took delivery of our first Airbus A350-900 aircraft in

May, and took delivery of a further nine aircraft of this type

before the end of 2016. We expect to have 22 aircraft of

this type in service by the end of 2017. They have our

latest cabins, seats and entertainment systems and

inflight connectivity for passengers’ mobile devices.

• We will start to take delivery of Airbus A350-1000 aircraft

(which have a longer range and more capacity than Airbus

A350-900 aircraft) in 2018 and expect to have 26 aircraft

of this type in service by the end of 2020.

• We retired our last three Boeing 747-400 passenger

aircraft and three Airbus A340-300 aircraft during 2016.

One Airbus A340-300 was retired in January 2017 and our

remaining three Airbus A340-300 aircraft will be retired

later in 2017.

• We delivered four Boeing 747-400F freighters to Boeing

during 2016.

• We took delivery of our final Boeing 747-8F freighter in

August 2016.

• One of Cathay Pacific’s regional Airbus A330-300 aircraft

was transferred to Cathay Dragon in December 2016.

Three Airbus A330-300 aircraft were transferred to

Cathay Dragon in 2017, two in February 2017 and one

March 2017. One more such aircraft will be transferred

later in 2017.

Advances in technology

• During 2016, self-service bag drop facilities were

introduced in Hong Kong and Amsterdam and kiosk bag

tagging facilities were introduced in Auckland, Bengaluru,

Hangzhou, London Gatwick, London Heathrow, Los

Angeles, Paris, San Francisco, Singapore, Toronto,

Vancouver and Xiamen. These facilities will be introduced

in other airports in 2017.

• In August 2016, we introduced a new cargo booking system.

• The Marco Polo Club introduced benefits for some of its

members using electronic vouchers. The benefits provide

the eligible members with additional lounge access,

bookable upgrades and companion cards.

12 13

Annual Report 2016

2016 in Review

Partnerships

• Cathay Pacific stopped flying to Doha in February 2016,

but still offers codeshare services with Qatar Airways on

this route.

• In April 2016, Cathay Pacific ended its frequent flyer

relationship with China Eastern Airlines.

• In August 2016, Cathay Pacific and Cathay Dragon entered

into an air plus rail arrangement with SNCB Railway in

Belgium on train services between Amsterdam and

Brussels, and between Amsterdam and Antwerp.

• In October 2016, Cathay Pacific entered into a codeshare

agreement with LATAM Airlines Brasil. The CX code will be

placed on all LATAM Airlines Brasil flights between London

and Paris (on the one hand) and Sao Paulo (on the other

hand) and between New York (on the one hand) and Sao

Paulo and Rio de Janeiro (on the other hand). The LATAM

Airlines Brasil JJ code will be placed on all Cathay Pacific

flights between New York and Hong Kong.

• In May 2016, Cathay Pacific signed a joint business

agreement with Lufthansa Cargo AG in relation to cargo

routes between Hong Kong and Europe. The agreement

came into effect in the first quarter of 2017.

• In January 2017, Cathay Pacific entered into a codeshare

and frequent flyer programme agreement with Air

Canada. The CX code will be placed on some domestic

Air Canada flights. Air Canada’s AC code will be placed

on some Cathay Pacific and Cathay Dragon flights to

Southeast Asia.

Fleet profile*

Number at

31st December 2016

Leased Firm orders Expiry of operating leases

Aircraft

type Owned Finance Operating Total ‘17 ‘18

‘19 and

beyond Total ‘17 ‘18 ‘19 ‘20 ‘21

‘22 and

beyond Options

Aircraft operated by Cathay Pacific:

A330-300 23 12 6 41 3 1 2

A340-300 4 4

(a)

A350-900 5 3 2 10 12

(b)

12 2

A350-1000 8 18 26

747-400BCF 1 1 1

747-400ERF 6 6

747-8F 3 11 14

777-200 5 5

777-200F 3

(c)

777-300 12 12 2 3 5

(d)

777-300ER 19 11 23 53 1 2 5 15

777-9X 21 21

Total 71 43 32 146 12 10 42 64 5 3 2 5 17 3

Aircraft operated by Cathay Dragon:

A320-200 5 10 15 2 1 1 3 3

A321-200 2 6 8 1 2 3

A330-300 10 10

(e)

20 6 2 2

Total 17 26 43 6 2 3 2 7 6

Aircraft operated by Air Hong Kong:

A300-600F 4 4 2 10 2

747-400BCF 3

(e)

3 3

Total 4 4 5 13 3 2

Grand total 92 47 63

(e)

202 12 10 42 64

(d)

6 10 8 4 12 23 3

Includes parked aircraft. The table does not reflect aircraft movements after 31st December 2016.

(a) Cathay Pacific is accelerating the retirement of its Airbus A340-300 aircraft. Three of these aircraft were retired in 2016. One Airbus A340-300 was

retired in January 2017. The remaining three such aircraft will be retired before the end of 2017.

(b) Two of these Airbus A350-900 aircraft were delivered after 31st December 2016, one in February 2017, the other in March 2017.

(d) Five Boeing 777-300 used aircraft will be delivered from 2018.

(e) 57 of the 63 aircraft which are subject to operating leases are leased from third parties. The remaining six of such aircraft (three Boeing 747-400BCFs

and three Airbus A330-300s) are leased within the Group.

Cathay Pacific Airways Limited

2016 in Review

Review of other subsidiaries and associates

The share of profits from other subsidiaries and associates

in 2016 increased by 14.8% to HK$2,788 million from

HK$2,428 million. This mainly reflected a strong

performance from our associate, Air China, whose results

benefited from low fuel prices and strong passenger

demand, offset in part by the adverse effect of the

devaluation of the Renminbi. Below is a review of the

performance and operations of subsidiaries and associates.

AHK Air Hong Kong Limited (“Air Hong Kong”)

• Air Hong Kong is the only all-cargo airline in Hong Kong.

It is 60.0% owned by Cathay Pacific. It operates express

cargo services for DHL Express.

• Air Hong Kong operates eight owned Airbus A300-600F

freighters, two dry leased Airbus A300-600F freighters

and three Boeing 747-400BCF converted freighters dry

leased from Cathay Pacific.

• During 2016, Air Hong Kong operated six flights per week

services to Bangkok, Ho Chi Minh City, Osaka, Penang

(via Ho Chi Minh City), Seoul, Shanghai, Singapore, Taipei

and Tokyo and five flights per week services to Beijing,

Manila and Nagoya.

• On-time performance was 86% within 15 minutes.

• Compared with 2015, capacity increased by 0.1% to 777

million available tonne kilometres. The load factor

decreased by 1.2 percentage points to 65.3%. Revenue

tonne kilometres decreased by 1.6% to 508 million.

• Air Hong Kong recorded a marginal increase in profit for

2016 compared with 2015.

Asia Miles Limited (“AML”)

• AML, a wholly owned subsidiary, manages the Cathay

Pacific Group’s reward programme. It has nearly nine

million members.

• In 2016, AML recorded an increase in profit compared

with 2015, due to an increase in business volume.

Cathay Pacific Catering Services (H.K.) Limited

(“CPCS”) and kitchens outside Hong Kong

• CPCS, a wholly owned subsidiary, operates the principal

flight kitchen in Hong Kong.

• CPCS provides flight catering services to 45

international airlines in Hong Kong. It produced 30.2

million meals and handled 73,000 flights in 2016

(representing a daily average of 83,000 meals and 200

flights and an increase of 2.5% and 2.0% respectively

over 2015). CPCS had a 66.6% share of the flight catering

market in Hong Kong in 2016.

• Increased business volume resulted in higher revenue.

This was offset by increases in direct labour and

overhead costs, which led to a decrease in profit in 2016.

• An expanded facility with 40% additional capacity

commenced operations in the first quarter of 2017.

• Outside Hong Kong, profits decreased.

Cathay Pacific Services Limited (“CPSL”)

• CPSL, a wholly owned subsidiary, operates the Group’s

cargo terminal at Hong Kong International Airport. The

terminal’s annual handling capacity is 2.6 million tonnes.

• At the end of 2016, CPSL provided cargo handling

services to 15 airlines. Seven airlines became new

customers in 2016.

• CPSL handled 1.8 million tonnes of cargo in 2016, 51.3%

of which were transshipments. Export and import

shipments accounted for 31.1% and 17.6% respectively

of the total.

• The financial results in 2016 improved compared with

2015. This was due to an increase in the number of

customers and effective management of operating

costs.

14 15

Annual Report 2016

2016 in Review

Hong Kong Airport Services Limited (“HAS”)

• HAS, a wholly owned subsidiary, provides ramp and

passenger handling services at Hong Kong International

Airport. It provides ground services to 22 airlines,

including Cathay Pacific and Cathay Dragon.

• In 2016, HAS had 44% and 20% market shares in ramp

and passenger handling businesses respectively at

Hong Kong International Airport.

• In 2016, the number of customers for passenger

handling was 20 and the number of customers for ramp

handling was 20. Passenger handling flights increased by

1.2% in 2016. Ramp handling flights decreased by 0.3%.

• The 2016 financial results were worse than the 2015

results. HAS stopped providing services to some airlines.

This was necessary in order to maintain services to the

remaining airlines in a period of labour shortage.

• With fewer customers, HAS improved the quality of its

services and operations. There were year on year

reductions of over 30% in delays to aircraft and in the

staff injury rate.

Air China Limited (“Air China”)

• Air China, in which Cathay Pacific had a 20.13% interest

at 31st December 2016, is the national flag carrier and

leading provider of passenger, cargo and other airline-

related services in Mainland China. On 10th March 2017,

the procedures for Air China’s registration of the new A

shares were completed. As a consequence, Cathay

Pacific’s shareholding in Air China has been diluted from

20.13% to 18.13% .

• At 31st December 2016, Air China operated 262

domestic and 116 international (including regional) routes

to 41 countries and regions, including 64 overseas cities,

three regional cities and 109 domestic cities.

• We are represented on the Board of Directors of

AirChinaandequityaccountforourshareofAirChina’s

results.

• Our share of Air China’s results is based on its financial

statements drawn up three months in arrear.

Consequently, our 2016 results include Air China’s

results for the 12 months ended 30th September 2016,

adjusted for any significant events or transactions in the

period from 1st October 2016 to 31st December 2016.

• For the 12 months ended 30th September 2016, Air

China’s results improved, principally as a result of low fuel

prices and strong passenger demand, partly offset by

the adverse effect of the devaluation of the Renminbi.

Air China Cargo Co., Ltd. (“Air China Cargo”)

• Air China Cargo, in which Cathay Pacific owns an equity

and an economic interest, is the leading provider of air

cargo services in Mainland China. It has its headquarters

in Beijing. Its main operating base is in Shanghai Pudong.

• At 31st December 2016, Air China Cargo operated 15

freighters. It flies to 10 cities in Mainland China and 11

cities outside Mainland China. Taking into account its

rights to carry cargo in the bellies of Air China’s

passenger aircraft, Air China Cargo has connections to

more than 170 destinations.

• Air China Cargo’s 2016 financial results were better than

those of 2015. Savings from lower fuel prices were

partially offset by unrealised exchange losses on loans

denominated in United States dollars and lower yield in

the highly competitive air cargo market.

We care about our passengers’

experience at every stage of their

journey with us, from the moment they

plan their travel through to arriving at

their destination in better shape.

Life Well

Travelled

100

2012 2013 2014 2015 2016

Load factor by region

North Asia

Southwest

Pacic and

South Africa

Southeast

Asia

Europe

North

America

India, Middle East,

Pakistan and

Sri Lanka

HK cents

Passenger load factor and yield

YieldPassenger load factor

Cathay Pacific Airways Limited

Cathay Pacific and Cathay Dragon carried 34.3 million passengers in 2016, an increase of

0.8% compared to 2015. Revenue decreased by 8.4% to HK$66,926 million. The load factor

decreased by 1.2 percentage points to 84.5%. Capacity increased by 2.4%, reflecting the

introduction of new routes (to Madrid and London Gatwick) and increased frequencies on

some other routes. Yield decreased by 9.2%, to HK54.1 cents. The operating environment for

our passenger business was difficult in 2016, with a number of factors adversely affecting its

performance. Intense and increasing competition with other airlines was the most important.

Other airlines significantly increased capacity. There were more direct flights between

Mainland China and international destinations. Competition from low cost carriers increased.

Three economic factors were also important, the reduced rate of economic growth in

Mainland China, a reduction in the number of visitors to Hong Kong and the strength of the

Hong Kong dollar. Hong Kong dollar strength made Hong Kong an expensive destination and

caused revenues earned in other currencies to be reduced on conversion into Hong Kong

dollars. All these factors put severe competitive pressure on yields. We benefited from low

fuel prices, but the benefit was reduced by fuel hedging losses, largely incurred on hedges

put in place when the fuel price was much higher than today. Corporate demand for premium

class travel weakened considerably, especially on long-haul routes. Economy class demand

was stable, but yield was under pressure.

Review of Operations Passenger Services

18 19

Annual Report 2016

Review of Operations Passenger Services

Available seat kilometres (“ASK”), load factor and yield by region for

Cathay Pacific and Cathay Dragon passenger services for 2016 were as follows:

ASK (million) Load factor (%) Yield

2016 2015 Change 2016 2015 Change Change

India, Middle East and Sri Lanka 9,172 10,127 -9.4% 79.3 82.9 -3.6%pt -6.8%

Southwest Pacific and South Africa 19,702 19,350 +1.8% 87.8 89.3 -1.5%pt -12.0%

Southeast Asia 21,151 20,641 +2.5% 84.2 83.2 +1.0%pt -8.0%

Europe 25,958 23,969 +8.3% 86.6 88.5 -1.9%pt -12.8%

North Asia 30,802 30,267 +1.8% 79.5 80.6 -1.1%pt -7.4%

North America 39,301 38,326 +2.5% 86.8 88.4 -1.6%pt -8.9%

Overall 146,086 142,680 +2.4% 84.5 85.7 -1.2%pt -9.2%

Home market – Hong Kong and Pearl River

Delta

• Passenger volume grew slightly, but at the expense of yield.

Promotional pricing benefited the premium class load factor.

• Fewer Hong Kong passengers travelled to Japan in 2016

than in 2015, due to the strength of the yen. More

passengers travelled to Korea in 2016 than in 2015, when

demand was adversely affected by concerns over middle

east respiratory syndrome.

• In February 2016, the suspension of Hong Kong fuel

surcharges adversely affected yield. In September, we

re-imposed fuel surcharges on tickets booked outside

Hong Kong and the Philippines. Yield was also adversely

affected by strong competition and overcapacity in Asia.

• Corporate travel originating in Hong Kong was below

expectations, particularly to London and New York. The

number of corporate travellers declined for the first time

since 2009, when business was affected by the global

financial crisis. The decline prompted us to sell premium

class tickets on a promotional basis to leisure travellers.

• Transit traffic between Japan and the Pearl River Delta

was adversely affected by the introduction of direct

services. Transit traffic between North America (on the

one hand) and Southeast Asia and the Pearl River Delta

(on the other hand) grew.

India, Middle East and Sri Lanka

• The performance of our India routes was reasonable in

2016. However, increased competition adversely affected

demand for travel between North America and North Asia

(on the one hand) and India (on the other hand).

• Low oil prices adversely affected Middle Eastern economies.

• Cathay Pacific stopped flying to Doha in February 2016, but

still offers codeshare services with Qatar Airways on this route.

• Demand on the Colombo route was strong.

Southwest Pacific and South Africa

• There was a slight increase in passenger numbers on

Southwest Pacific routes. Yield was adversely affected by

the weakness of the Australian dollar and by overcapacity

in the market.

• Transit traffic between Mainland China and Australia was

adversely affected by the availability of additional cheap

direct flights.

• In October 2016, we started to use Airbus A350-900

aircraft on the Auckland route. One of the flights on this

route was operated by larger Boeing 777-300ER aircraft.

• From October 2017 to March 2018, we will replace the

current tagged service between Cairns and Brisbane by

providing direct flights to both destinations. The service to

Brisbane will have 11 flights per week and the service to

Cairns will have three flights per week.

• Cathay Pacific will introduce a three-times-weekly

passenger service to Christchurch between December

2017 and February 2018.

• The strategic agreement between Cathay Pacific and Air

New Zealand in relation to the Auckland route has been

extended until 31st October 2019.

• Demand for travel between Johannesburg (on the one

hand) and Japan and Mainland China (on the other hand)

remained strong.

Southeast Asia

• The performance of our Southeast Asian routes was

satisfactory. We carried more passengers despite strong

competition and the depreciation of local currencies.

Yield on these routes was affected by overcapacity and

intense competition.

• From October 2016 to March 2017, Cathay Pacific

reduced flights to Bangkok from 63 to 56 per week.

Cathay Pacific Airways Limited

Review of Operations Passenger Services

• From September 2016, Cathay Dragon increased the

frequency of its Phnom Penh service from 12 to 14

flights per week. It reduced the frequency of its services

to Kota Kinabalu from seven to five flights per week from

May 2016 and of its Clark service from four to three

flights per week from March 2016. In October 2016 a

fourth weekly Clark flight was restored.

• In November 2016, Cathay Dragon stopped the tagged

flight between Kathmandu and Dhaka, providing direct

services to both destinations instead.

• Cathay Pacific will stop flying to Kuala Lumpur in May

2017. Cathay Dragon will operate this four-times-daily

service instead.

Europe

• We increased capacity to Europe in 2016. This reflected the

introduction of new routes (Madrid and London Gatwick).

The use of A350 aircraft reduced capacity on some routes.

• Our London and Manchester routes were adversely

affected by the weakness of sterling and strong

competition. Passenger volumes numbers were maintained.

• There was some recovery in demand for travel to Europe

in 2016. Premium class demand from leisure travellers

benefited from promotions. But demand for corporate

travel weakened.

• Increases in capacity by Middle Eastern carriers on routes

between Mainland China and Europe affected yield.

• In 2016, Cathay Pacific introduced passenger services

to Madrid (in June) and London Gatwick (in September).

Both services have been well received. In June 2017, we

will increase the frequency of the Gatwick service from

four flights per week to daily and the Manchester service

from four to five flights per week. In December 2017, a

sixth weekly flight will be added to the Manchester route.

• In October 2017, the service on the Madrid route will

increase from four to five flights per week.

• In December 2017, an 11th weekly service to Paris

will be restored.

• Cathay Pacific will introduce a four-times-weekly

passenger service to Tel Aviv in March 2017.

• Cathay Pacific will introduce a four-times-weekly

passenger service to Barcelona between July and

October 2017.

North Asia

• Demand for travel between Mainland China and Taiwan

fell sharply in the second half of 2016. Demand for travel

between Taiwan (on the one hand) and Japan and Korea

(on the other hand) also fell. Yield was under pressure

due to increased capacity.

• Demand for travel to Japan was adversely affected by

the strength of the Japanese yen. Transit traffic between

Japan and Mainland China (including the Pearl River

Delta) was adversely affected by the introduction of

direct services. In July and August 2016, we increased

our services to Sapporo from five times per week to daily.

In November 2016, we stopped our service to Hiroshima.

• More passengers went to Korea in 2016 than in 2015,

when demand was adversely affected by concerns over

middle east respiratory syndrome. Strong competition

put pressure on yield.

• In May 2016, Cathay Dragon increased the frequency of

its Wenzhou service from seven to 10 flights per week.

From May to October 2016, it increased the frequency of

its Wuhan service from 11 to 12 flights per week and

used bigger aircraft on the Xi’an route.

North America

• Revenue from United States routes declined in 2016.

Passenger numbers did not increase as much as capacity.

A reduction in corporate travel affected premium class

revenue, especially on the New York route.

• Competition intensified as Mainland China carriers

operated more direct flights to the United States, which

put pressure on yield.

• Our Boston service has been doing well since its

introduction in 2015. From May to August 2016 we

increased the number of flights per week from four to

five. Daily flights will start at the end of March 2017.

• Demand on our Canada routes was stable. To meet high

summer demand, two flights were added per week on the

Toronto route between July and August 2016. We will

operate a twice daily service on this route between June

and September 2017. In April 2017, we will increase the

number of flights to Vancouver from 14 to 17 per week.

• In October 2017, four flights will be added per week to

San Francisco, so that this service will become three-

times-daily. The service will be operated by Airbus

A350-900 aircraft.

• In October 2017, the number of flights on the Los

Angeles route will be reduced from 28 to 21 per week.

10,000

5,000

15,000

20,000

25,000

30,000

2012 2013 2014 2015 2016

4,000

8,000

12,000

20,000

16,000

2012 2013 2014 2015 2016

Capacity – cargo and mail ATK

HK$ million

Revenue

Million tonne

kilometres

20 21

Annual Report 2016

Cathay Pacific and Cathay Dragon carried 1.9 million tonnes of cargo and mail in 2016, an

increase of 3.1% compared to 2015. The cargo revenue of Cathay Pacific and Cathay

Dragon was HK$17,024 million, a decrease of 15.2% compared to the previous year. This

mainly reflected the suspension of Hong Kong fuel surcharges. Capacity for Cathay Pacific

and Cathay Dragon increased by 0.6%. The load factor increased by 0.2 percentage points.

Strong competition, overcapacity and the suspension of Hong Kong fuel surcharges put

significant pressure on yield, which decreased by 16.3% to HK$1.59. The market was very

weak in the first quarter. Tonnage recovered from the second quarter, becoming seasonally

strong in the fourth quarter. We managed freighter capacity in line with demand and carried

a higher proportion of cargo in the bellies of our passenger aircraft.

Review of Operations Cargo Services • Loyalty and Reward Programmes

Available tonne kilometres (“ATK”), load factor and yield for Cathay Pacific and

Cathay Dragon cargo services for 2016 were as follows:

ATK (million) Load factor (%) Yield

2016 2015 Change 2016 2015 Change Change

Cathay Pacific and Cathay Dragon 16,572 16,481 +0.6% 64.4 64.2 +0.2%pt -16.3%

• Strong competition, overcapacity and the suspension of

Hong Kong fuel surcharges put significant pressure on

yield. The market was very weak in the first quarter.

Tonnage recovered from the second quarter, becoming

seasonally strong in the fourth quarter.

• Shipments of pharmaceutical products and mail, the

yield on which is above average, increased by 11% and

8% respectively in 2016.

• Exports from Hong Kong and Mainland China increased

in the second half of the year, resulting in high load

factors on North American routes. However, the

weakness of the Renminbi adversely affected the yield

from exports from Mainland China.

• Northeast Asia exports of electronics, machinery and

perishable goods were steady. Other shipments within

Asia grew.

Cathay Pacific Airways Limited

• In November 2016, we introduced a twice-weekly service

to Portland, Oregon, our 18th cargo destination in the

Americas. The service was introduced to cater for

growing demand to move goods from the Pacific

Northwest to Asia.

• In November 2016, we introduced a weekly service to

Brisbane West Wellcamp, principally to carry agricultural

products grown in one of Australia’s most productive

regions.

• In April 2016, we started to operate additional services to

the Indian sub-continent in response to strong demand.

However, yield was under pressure. Airport congestion at

Dhaka limited shipments in and out of the city at some

points in the year.

• Shipments of perishable products from the Americas to

Asia grew strongly.

• In the last week of September 2016, before the long

national holiday in Mainland China, we shipped a record

weekly tonnage of cargo. We maximised the number of

flights in the last quarter of the year to meet peak

seasonal demand, but yield was down.

• In May 2016, we signed a joint business agreement with

Lufthansa Cargo AG in relation to cargo routes between

Hong Kong and Europe. The agreement came into effect

in the first quarter of 2017.

• Four Boeing 747-400F freighter aircraft were delivered to

Boeing in 2016.

• We took delivery of our 14th and final Boeing 747-8F

freighter in August 2016.

Loyalty and reward programmes

The Marco Polo Club

• The Marco Polo Club loyalty programme provides

benefits and services to the frequent flyers of Cathay

Pacific and Cathay Dragon. It has approximately one

million members.

• Members of the Club contribute to almost a quarter of

the revenues of Cathay Pacific and Cathay Dragon.

• In April 2016, the basis on which club points are earned

by club members was changed. Cabin class, fare class

and distance travelled are now taken into consideration.

The new basis is in line with that used by other loyalty

programmes. It reflects better the contributions which

our passengers make to the revenues of our airlines.

• The new basis for earning points does not change the

benefits available to qualifying members of the club.

Silver members (and above) continue to have unlimited

access to lounges when flying on Cathay Pacific or

Cathay Dragon and all members are entitled to priority

boarding and check-in.

Asia Miles

• Asia Miles is a leading travel and lifestyle rewards

programme in Asia. It has nearly nine million members

and over 700 partners worldwide, including 25 airlines,

more than 150 hotel brands and restaurants and

retail shops.

• There was a 7% increase in redemptions by Asia Miles

members on Cathay Pacific and Cathay Dragon flights

in 2016.

• Marco Polo Club members are also members of

Asia Miles.

Antitrust proceedings

Cathay Pacific remains the subject of antitrust proceedings

in various jurisdictions. The outcomes are subject to

uncertainties. Cathay Pacific is not in a position to assess

the full potential liabilities but makes provisions based on

relevant facts and circumstances in line with accounting

policy 20 set out on page 109.

Review of Operations Cargo Services • Loyalty and Reward Programmes

22 23

Annual Report 2016

Sustainable development

We apply sustainable development principles when doing

business. We take environmental and social considerations

into account when making business decisions. It is our

policy to comply with environmental and social regulations

and to educate our employees, engage with others and set

targets in relation to environmental and social matters. We

encourage our staff to mitigate or reduce the environmental

and social impact of the decisions which they make.

We operate an environmental management system which is

based on ISO14001 certification. The system is audited

once a year externally and twice a year internally.

2016 Sustainable Development Review

Opportunities for improvement are identified during these

audits.

We engage with the communities in which we operate and

involve our employees in doing so. We prioritise our

community activities but maintain flexibility in order to

respond to specific local needs.

Our people are one of our greatest assets. We are proud of

the high-quality service which they give and are committed

to providing them with the best possible working and career

environment. This enables us to attract, develop and retain

the best people.

Performance updates

2016 2015 Change

Environment

GHG emissions Million tonnes of CO

e 17.2 17.1 +0.6%

GHG emissions per ATK Grammes of CO

e 565 569 -0.7%

Electricity consumption MWh 42,001 42,490 -1.2%

Paper consumption Tonnes 2,355 2,270 +3.7%

Paper recycled (office and inflight) Tonnes 1,931 1,888 +2.3%

Metal recycled (office and inflight) Kg 42,326 38,415 +10.2%

Plastic recycled (office and inflight) Kg 44,800 41,706 +7.4%

People

Totalworkforce Number 26,674 26,824 -0.6%

By location

HongKong % 71.5 71.1 +0.4%pt

Outport % 28.5 28.9 -0.4%pt

By employment type

Flightcrew % 14.6 14.2 +0.4%pt

Cabincrew % 45.8 46.3 -0.5%pt

Groundstaff % 39.6 39.5 +0.1%pt

By gender

Female % 61.3 61.8 -0.5%pt

Male % 38.7 38.2 +0.5%pt

Data for Cathay Pacific and Cathay Dragon is presented. Full indicator tables will be provided in Cathay Pacific’s Sustainable

Development Report at www.cathaypacific.com/sdreport.

Awards and Recognitions in 2016

• Cathay Pacific is a constituent of the FTSE4Good

Index and the Hang Seng Corporate Sustainability

Index.

• Cathay Pacific has received the Caring Company Logo

from the Hong Kong Council of Social Service every year

since 2003 in recognition of its good corporate

citizenship. Cathay Dragon has received the same

recognition every year since 2005.

Cathay Pacific Airways Limited

2016 Sustainable Development Review

2016 Highlights

Environment

• In October 2016, an agreement to implement a carbon

offset and reduction scheme for international aviation

was reached by states attending the International Civil

Aviation Organization (ICAO)’s 39th assembly. Cathay

Pacific has been involved in discussions about the

scheme since 2008. We participate in an ICAO task force

which leads the aviation industry’s work in developing

proposals for a fair, equitable and effective global

agreement on emissions.

• Cathay Pacific engages with regulators and groups (the

IATA Environment Committee, the Airlines Advisory

Group on Global Market-Based Measures, the

Sustainable Aviation Fuel Users Group, the Roundtable

on Sustainable Biomaterials and the Association of Asia

Pacific Airlines) involved in shaping climate change and

aviation policy as part of its climate change strategy. The

aim is to increase awareness of climate change and to

develop appropriate solutions for the aviation industry.

• In compliance with the European Union’s Emissions

Trading Scheme, our 2016 emissions data from intra-EU

flights were reported on by an external auditor in January

2017 and our emissions report was submitted to the UK

Environment Agency in February 2017. Cathay Pacific’s

overall greenhouse gas emissions data for 2016 were

reported on by an external auditor.

• All our Airbus A350-900 aircraft are being flown on their

delivery flights from Toulouse using fuel containing 10%

biofuel. 10 Airbus A350-900 aircraft were delivered in

2016 and 12 more aircraft are scheduled to be delivered

by the end of 2017. Biofuel reduces carbon emissions

from aircraft by 60-80% when compared to fossil fuel.

• We have started to use Sedex (the Supplier Ethical Data

Exchange) in order to obtain information about our

suppliers.

• Unopened food items from inbound Cathay Pacific

flights to Hong Kong have been collected by Feeding

Hong Kong, a non-profit organisation which provides

surplus food to Hong Kong charities for distribution to

people in need. More than 195 tonnes of surplus food

were donated during 2016.

• We donated 2,445 kilograms of surplus food from our

canteens at Cathay City in 2016 to Food Angel. Food

Angel makes surplus food into hot meals for

underprivileged families in Hong Kong.

• In March 2016, Cathay Pacific participated in WWF’s

annual Earth Hour activity. We switched off all

nonessential lighting in our buildings and on billboards

outside Cathay City.

• A staff photo competition called “Our Planet, Our Future”

was held in June 2016. Staff were encouraged to submit

photos celebrating the environment on World

Environment Day.

• Our retiring Airbus A340 aircraft are being dealt with

under PAMELA (Airbus’ Process for Advanced

Management of End-of-Life Aircraft). This enables old

aircraft to be dismantled (and disposed of or recycled) in

a sustainable manner.

• Our online Sustainable Development Report 2015,

entitled “Together for Tomorrow” was published

in September 2016 and is available at

www.cathaypacific.com/sdreport. The Sustainable

Development Report 2016 is scheduled to be published

in July 2017.

• In June 2016, Cathay Pacific signed the United for

Wildlife Transport Taskforce Buckingham Palace

Declaration. The Declaration aims to reduce the illegal

trafficking of wildlife with the support of aviation and

shipping industry companies and organisations.

• In June 2016, Cathay Pacific decided not to carry

shark fins.

Contribution to the community

• In January 2016, Hong Kong SAR Chief Executive CY

Leung was the guest of honour on a community flight

organised by Cathay Pacific. The 90-minute flight on a

Boeing 777-300 aircraft was a special treat for 250

residents from less-advantaged families in Hong Kong.

Most of the participants had never flown before.

• Starting in March 2016, 300 young people took part in

the 2016 three month “I Can Fly” programme. They

received training in aviation matters and participated in

social service projects. The top 100 participants visited

aviation facilities in Singapore and Adelaide. Over 3,700

students have participated in this programme since it

started in 2003.

24 25

Annual Report 2016

2016 Sustainable Development Review

• We held a 24 hour Hackathon in October 2016 for the

local youth. It demonstrated our efforts to foster

innovation and to generate ideas to improve services to

passengers.

• Cathay Pacific supports UNICEF through its “Change for

Good” inflight fundraising programme. Our passengers

contributed HK$13.9 million in 2015 to help improve the

lives of vulnerable children. Since its introduction in 1991,

more than HK$165 million has been raised through the

programme.

• A percentage of the “Change for Good” donations are

passed to the Cathay Pacific Wheelchair Bank, which

raises funds to provide specially adapted wheelchairs for

children with neuromuscular diseases. Since its

formation, the bank has raised more than HK$16 million,

benefiting more than 490 children.

• In July 2016, 11 Cathay Pacific staff went to Birgunj and

Kathmandu in Nepal and in December 2016, 14 staff

visited Chongqing in Mainland China, to see how

“Change for Good” donations were being applied.

• The Cathay Pacific Volunteers, made up of around 1,400

Cathay Pacific staff, help the local community in Hong

Kong. Their “English on Air” programme has helped more

than 2,400 students to improve their conversational

English skills. They sort unopened and shelf stable food

from inflight meal carts to be given to families in need. In

2016, Cathay Pacific Volunteers contributed more than

1,300 hours of voluntary service to support the local

community.

• In October 2016, 300 Cathay Pacific staff flew on our last

Boeing 747-400 passenger flight, over Hong Kong

harbour. Each of them contributed a minimum of HK$747

in order to do so. HK$200,000 was raised for the Hong

Kong Breast Cancer Foundation.

• We organised tours of our headquarters at Hong Kong

International Airport for around 10,000 visitors in 2016.

• In April 2016, Cathay Dragon organised an aviation

career workshop for 200 young people.

• The Cathay Dragon aviation certificate programme is

organised with the Hong Kong Air Cadet Corps and the

Scout Association of Hong Kong. Participants gain first

hand knowledge of the Hong Kong aviation industry and

are mentored by Cathay Dragon pilots. In 2016, Cathay

Dragon pilots mentored 40 participants over nine

months. To date, over 200 participants have graduated

from the programme. Almost half of the graduates have

started aviation-related careers.

• In December 2016, Cathay Pacific donated

approximately 6,000 used blankets to the Society for the

Prevention of Cruelty to Animals to help animals stay

warm over the winter.

Commitment to staff

• At 31st December 2016, the Cathay Pacific Group

employed more than 33,800 people worldwide. Around

26,200 of these people are based in Hong Kong. Cathay

Dragon employs more than 3,300 people.

• In 2016, Cathay Pacific recruited more than 1,000 staff,

including around 320 cabin crew and around 230 pilots.

Cathay Dragon recruited around 110 cabin crew and 10

pilots.

• In 2016, 74 cadets graduated from the Cathay Pacific

cadet pilot programme and 11 cadets graduated from

the Cathay Dragon cadet pilot programme.

• In 2016, 10 graduates (out of more than 400 applicants)

were selected to join our IT graduate trainee programme.

• In 2016, we introduced a careers website. It enables

those inside and outside the Group to register interest

and to search and apply for jobs.

• We regularly review our human resources and

remuneration policies in the light of legislation, industry

practice, market conditions and the performance of

individuals and the Group.

• We are reviewing productivity and expenditure.

• In May 2016, Cathay Pacific introduced “Work Well Done”,

which encourages recognition of the contributions

which our people make to our business.

• Our annual Betsy awards are given to frontline staff who

display exceptional customer service. We have

introduced Niki awards, for staff who have made

exceptional contributions behind the scenes.

We continually invest in our products and services,

both on the ground and in the air, enabling our

customers to enjoy a Life Well Travelled.

Inspiring

journey

Cathay Pacific Airways Limited

The Cathay Pacific Group reported an attributable loss of HK$575 million in 2016 compared

with a profit of HK$6,000 million in 2015.

The operating environment for our airlines was difficult in 2016, with a number of factors

adversely affecting their performance. Intense and increasing competition with other

airlines was the most important. Other airlines significantly increased capacity. There were

more direct flights between Mainland China and international destinations. Competition

from low cost carriers increased. Overcapacity in the market was a particular competitive

problem for our cargo business. Three economic factors were also important, the reduced

rate of economic growth in Mainland China, a reduction in the number of visitors to Hong

Kong and the strength of the Hong Kong dollar. Hong Kong dollar strength made Hong Kong

an expensive destination and caused revenues earned in other currencies to be reduced

on conversion into Hong Kong dollars. All these factors put severe competitive pressure

on yields. We benefited from low fuel prices, but the benefit was reduced by fuel hedging

losses, largely incurred on hedges put in place when the fuel price was much higher

than today.

The contribution from the Group’s subsidiary and associated companies was satisfactory.

Financial Review

Revenue

Group

Cathay Pacific and

Cathay Dragon

2016

HK$M

2015

HK$M

2016

HK$M

2015

HK$M

Passenger services 66,926 73,047 66,926 73,047

Cargo services 20,063 23,122 17,024 20,079

Catering, recoveries and other services 5,762 6,173 5,067 5,590

Total revenue 92,751 102,342 89,017 98,716

2012 2013 2014 2015 2016

Revenue load factor

Breakeven load factor

Cathay Pacic and Cathay Dragon:

revenue and breakeven load factor

20,000

40,000

60,000

80,000

100,000

120,000

3,000

9,000

6,000

12,000

15,000

18,000

200

400

600

1,000

800

1,200

2012 2013 2014 2015 2016

HK$ million

Revenue

Passengers in ‘000

Cargo in ‘000 tonnes

Cathay Pacic and Cathay Dragon:

passengers and cargo carried

Cargo and mail carried

Passengers carried

Catering, recoveries and other services

Cargo services

Passenger services

1H12 2H12 1H13 2H13 1H14 2H14 1H15 2H15 1H16 2H16

28 29

Annual Report 2016

Financial Review

• Group revenue decreased by 9.4% in 2016 compared

with 2015.

Cathay Pacific and Cathay Dragon

• Passenger revenue decreased by 8.4% to HK$66,926

million. The number of revenue passengers carried

increased by 0.8% to 34.3 million. Revenue passenger

kilometres increased by 0.9%.

• The passenger load factor decreased by 1.2 percentage

points to 84.5%. Available seat kilometres increased by

2.4%.

• Passenger yield decreased by 9.2% to HK¢54.1.

• First and business class revenues decreased by 6.6%

and the load factor increased from 71.8% to 73.2%.

• Premium economy and economy class revenues

decreased by 9.2% and the load factor decreased from

88.3% to 86.5%.

• Cargo revenue decreased by 15.2% to HK$17,024 million.

There was a 0.6% increase in capacity.

• The cargo load factor increased by 0.2 percentage

points. Cargo yield decreased by 16.3% to HK$1.59.

• The revenue load factor decreased by 1.6 percentage

points to 79.5%. The breakeven load factor was 82.9%.

• The annualised effect on revenue of changes in yield and

load factor is set out in the table below:

HK$M

+ 1 percentage point in passenger load factor 790

+ 1 percentage point in cargo and mail load factor 264

+ HK¢1 in passenger yield 1,235

+ HK¢1 in cargo and mail yield 107

Fuel, including

hedging

losses

Net nance

charges

Commissions

Others

Sta

Inight service and

passenger expenses

Landing,

parking

and route

expenses

Aircraft

maintenance

Depreciation,

amortisation

and operating

leases

Total operating expenses

14%

21%

16%

30%

120

140

160

100 30

2012 2013 2014 2015 2016

US$ per barrel

(jet fuel)

Barrels

in million

Fuel price and consumption

Into wing price – before hedging

Into wing price – after hedging

Uplifted volume

Cathay Pacific Airways Limited

Financial Review

Operating expenses

Group Cathay Pacific and Cathay Dragon

2016

HK$M

2015

HK$M Change

2016

HK$M

2015

HK$M Change

Staff 19,770 18,990 +4.1% 17,607 17,028 +3.4%

Inflight service and passenger expenses 4,734 4,713 +0.4% 4,734 4,713 +0.4%

Landing, parking and route expenses 14,985 14,675 +2.1% 14,704 14,406 +2.1%

Fuel, including hedging losses 27,953 32,968 -15.2% 27,551 32,475 -15.2%

Aircraft maintenance 8,856 7,504 +18.0% 8,453 7,168 +17.9%

Aircraft depreciation and operating leases 10,551 10,883 -3.1% 10,406 10,724 -3.0%

Other depreciation, amortisation and operating

leases 2,457 2,310 +6.4% 1,841 1,712 +7.5%

Commissions 700 798 -12.3% 700 798 -12.3%

Others 3,270 2,837 +15.3% 4,941 4,222 +17.0%

Operating expenses 93,276 95,678 -2.5% 90,937 93,246 -2.5%

Net finance charges 1,301 1,164 +11.8% 1,125 1,007 +11.7%

Total operating expenses 94,577 96,842 -2.3% 92,062 94,253 -2.3%

• The Group’s total operating expenses decreased by

2.3% to HK$94,577 million.

• The combined cost per ATK (with fuel) of Cathay Pacific

and Cathay Dragon decreased from HK$3.14 to HK$3.02.

30 31

Annual Report 2016

Financial Review

Cathay Pacific and Cathay Dragon operating results analysis

2016

HK$M

2015

HK$M

Airlines’ (loss)/profit before taxation (3,045) 4,463

Taxation (318) (891)

Airlines’ (loss)/profit after taxation (3,363) 3,572

Share of profits from subsidiaries and associates 2,788 2,428

(Loss)/profit attributable to the shareholders of Cathay Pacific (575) 6,000

The changes in the airlines’ (loss)/profit before taxation can be analysed as follows:

HK$M

2015 airlines’ profit before taxation 4,463

Decrease of revenue (9,699) – Passenger revenue decreased due to a 9.2% decrease in yield and

a 1.2% points decrease in load factor, offset in part by a 0.8%

increase in passengers carried.

– Cargo revenue decreased due to a 16.3% decrease in yield, offset

in part by a 0.2% points increase in load factor and a 3.1% increase

in cargo and mail tonnage carried.

Decrease/(increase) of costs:

– Fuel, including hedging losses 4,924 – Fuel costs decreased due to a 21.1% decrease in the average

into-plane fuel price, offset in part by a 0.8% increase in

consumption.

– Aircraft maintenance (1,285) – Increased mainly due to an increase in operational capacity, higher

engine maintenance charge rates, fleet retirement costs and more

programmes to improve aircraft availability.

– Depreciation, amortisation and

operating leases

189 – Decreased mainly due to the retirement of aircraft.

– Staff (579) – Increased mainly due to increases in headcount and salaries.

– All other operating expenses, including

inflight service, landing and parking,

commissions, net finance charges and

others

(1,058) – Increased mainly due to increased landing and parking rates (from

September 2016) and the absence of an exceptional credit in 2015

resulting from the refund of a fine by the European Commission.

2016 airlines’ loss before taxation (3,045)

Fuel expenditure and hedging

A breakdown of the Group’s fuel cost is shown below:

2016

HK$M

2015

HK$M

Gross fuel cost 19,497 24,494

Fuel hedging losses 8,456 8,474

Fuel cost 27,953 32,968

Fuel consumption in 2016 was 43.9 million barrels (2015: 43.5 million barrels).

10%

20%

30%

70%

60%

40%

50%

$50 $60 $70 $80 $90 $100 $110 $120 $130

2017 2018

8.04

15.88

16.86

42.71

53.79

0.51

24.66

35.11

45.98

16.55

Percentage of consumption subject to hedging contracts

Fuel hedging exposure

Brent (US$/barrel)

1H2019

Total assets

Buildings

and other

equipment

Intangible

assets

Aircraft and

equipment

Current

assets

Long-term

investments

and others

53%

18%

16%

Cathay Pacific Airways Limited

Financial Review

Taxation

• The tax charge decreased by HK$660 million to HK$497

million, principally due to an increase in deferred tax

assets as a result of an increase in future tax credits and

a decrease in deferred tax charges mainly reflecting a

decrease in liability in respect of accelerated

depreciation for tax purposes.

Dividends

• Dividends paid for the year are HK$197 million,

representing a negative dividend cover of 2.9 times.

No second interim dividend is proposed.

• Dividends per share decreased from HK$0.53 to

HK$0.05.

Assets

• Total assets at 31st December 2016 were

HK$177,421 million.

• During the year, additions to property, plant and

equipment were HK$14,250 million, comprising

HK$12,127 million in respect of aircraft and related

equipment, HK$1,535 million in respect of buildings and

HK$588 million in respect of other equipment.

• The Group’s policy is to reduce exposure to fuel price risk

by hedging a percentage of its expected fuel

consumption. The Group uses fuel derivatives which are

economically equivalent to forward contracts to achieve

its desired hedging position. The chart above indicates

the estimated percentage of projected consumption by

year covered by hedging transactions at various Brent

strike prices.

• The Group does not speculate on oil prices but uses

hedging to manage the risk of increases in oil prices and

therefore its fuel costs. Hedging is not risk free and the

strategy is to not be 100% hedged. The current hedging

position reflects certain assumptions made at the time

of hedging. Those assumptions were invalidated by the

steep fall in oil prices in 2015 and produced the fuel

hedging losses that have been recorded and disclosed.

The Group will benefit from lower oil prices on the

unhedged share of the fuel requirements but the size of

this benefit is not expected to be as large as the benefit

to airlines which either do not hedge or hedged less than

the Group.

• The Group’s fuel hedging exposure at 31st December

2016 is set out in the chart below:

10,000

30,000

50,000

40,000

20,000

Borrowings before and after derivatives

HK$ million

HKD J PY USD Others

Before derivatives

After derivatives

Others include EUR and SGD.

20,000

60,000

80,000

100,000

0.2

0.6

0.8

1.0

40,000 0.4

2012 2013 2014 2015 2016

HK$ million

Net debt and equity

Funds attributable to the shareholders of Cathay Pacic

Net borrowings

Net debt/equity ratio

Times

100

2012 2013 2014 2015 2016

Interest rate prole: borrowings

Fixed

Floating

32 33

Annual Report 2016

Financial Review

Borrowings and capital

• Borrowings increased by 11.2% to HK$70,169 million

at the end of 2016 from HK$63,105 million at the end

of 2015.

• Borrowings are mainly denominated in United States

dollars, Hong Kong dollars, Japanese yen and Euros, and

are fully repayable by 2027, with 39.3% currently at fixed

rates of interest after taking into account derivative

transactions.

• Liquid funds, 58.1% of which are denominated in United

States dollars, decreased by 1.7% to HK$20,290 million.

• Net borrowings (after liquid funds) increased by 17.5% to

HK$49,879 million.

• Funds attributable to the shareholders of Cathay Pacific

increased by 15.5% to HK$55,365 million. This was in

part due to unrealised hedging gains of HK$3,571 million

recognised in the cash flow hedge reserve.

• The net debt/equity ratio increased from 0.89 times to

0.90 times.

Cathay Pacific Airways Limited

Executive Directors

SLOSAR, John Robert

, aged 60, has been a Director of

the Company since July 2007 and its Chairman since March

2014. He was appointed Chief Operating Officer in July

2007 and Chief Executive of the Company in March 2011.

He is also Chairman of John Swire & Sons (H.K.) Limited,

Swire Pacific Limited, Swire Properties Limited and Hong

Kong Aircraft Engineering Company Limited and a Director

of The Hongkong and Shanghai Banking Corporation

Limited and Air China Limited. He joined the Swire group in

1980 and has worked with the group in Hong Kong, the

United States and Thailand.

CHU, Kwok Leung Ivan

, aged 55, has been a Director of

the Company since March 2011. He was appointed Director

Service Delivery in September 2008, Chief Operating

Officer in March 2011 and Chief Executive of the Company

in March 2014. He is also a Director of John Swire & Sons

(H.K.) Limited and Swire Pacific Limited. He joined the Swire

group in 1984 and has worked with the group in Hong Kong,

Mainland China, Taiwan, Thailand and Australia. He is also

Chairman of Hong Kong Dragon Airlines Limited.

HOGG, Rupert Bruce Grantham Trower

, aged 55, has

been a Director of the Company since March 2014. He was

appointed Director Cargo in September 2008, Director

Sales and Marketing in August 2010 and Chief Operating

Officer in March 2014. He joined the Swire group in 1986

and has worked with the group in Hong Kong, Southeast

Asia, Australia and the United Kingdom. He is also Chairman

of AHK Air Hong Kong Limited and a Director of Hong Kong

Dragon Airlines Limited.

MURRAY, Martin James

, aged 50, has been Finance

Director of the Company since November 2011. 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 1995 and has worked with the

group in Hong Kong, the United States, Singapore

andAustralia.

YAU, Ying Wah (Algernon), aged 58, has been a Director of

the Company since September 2015. He has been Chief

Executive Officer of Hong Kong Dragon Airlines Limited

since July 2014. He was previously Chief Executive Officer

of Cathay Pacific Services Limited, which operates the

Cathay Pacific Cargo Terminal at Hong Kong International

Airport. He joined the Company in 1982 and worked in a

number of airport-related positions.

Directors and Officers

Non-Executive Directors

CAI, Jianjiang, aged 53, has been a Director of the

Company since November 2009 and Deputy Chairman

since March 2014. He is General Manager of China

NationalAviationHoldingCompanyandChairmanofAir

China Limited.

CUBBON, Martin

, aged 59, has been a Director of the

Company since January 2015. He was previously a Director

of the Company from September 1998 to May 2009. He is

also Corporate Development and 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 1986.

SONG, Zhiyong, aged 52, has been a Director of the

Company since March 2014. He is a Director and President

of Air China Limited.

SWIRE, Merlin Bingham

, aged 43, has been a Director of

the Company since June 2010. He is also Deputy Chairman

and Chief Executive and a shareholder of John Swire & Sons

Limited and a Director of Swire Pacific Limited, Swire

Properties Limited and Hong Kong Aircraft Engineering

Company Limited. He joined the Swire group in 1997 and

has worked with the group in Hong Kong, Australia,

Mainland China and London. He is brother to Samuel Swire,

a Non-Executive Director of the Company.

SWIRE, Samuel Compton

, aged 37, has been a Director

of the Company since January 2015. He is also a Director

and shareholder of John Swire & Sons Limited and a

Director of Swire Pacific Limited. He joined the Swire group

in 2003 and has worked with the group in Hong Kong,

Singapore, Mainland China, Sri Lanka and London. He is

brother to Merlin Swire, a Non-Executive Director of

theCompany.

XIAO, Feng*, aged 48, has been a Director of the Company

since January 2017. He is Chief Financial Officer of Air China

Limited.

ZHAO, Xiaohang, aged 55, has been a Director of the

Company since June 2011. He is Vice President of Air China

Limited, Chairman of Dalian Airlines Company Limited and a

Director of China National Aviation Corporation (Group)

Limited and China National Aviation Company Limited.

34 35

Annual Report 2016

Directors and Officers

Independent Non-Executive Directors

HARRISON, John Barrie*, aged 60, has been a Director of

the Company since May 2015. He is an Independent Non-

Executive Director of AIA Group Limited, Hong Kong

Exchanges and Clearing Limited, The London Metal

Exchange Limited, LME Clear Limited and BW Group Limited

and Vice Chairman of BW LPG Limited. He was Chairman

and Chief Executive Officer of KPMG, China and Hong Kong

and Chairman of KPMG Asia Pacific from 2003 to 2009 and

was Deputy Chairman of KPMG International from 2008

until his retirement from KPMG in September 2010.

LEE, Irene Yun Lien

*, aged 63, has been a Director of the

Company since January 2010. She is Chairman of Hysan

Development Company Limited, an Independent Non-

Executive Director of CLP Holdings Limited, Noble Group

Limited, HSBC Holdings plc, The Hongkong and Shanghai

Banking Corporation Limited and Hang Seng Bank Limited.

She was a member of the Australian Government Takeovers

Panel from March 2001 until March 2010.

TUNG, Lieh Cheung Andrew

, aged 52, has been a Director

of the Company since May 2015. He is an Executive Director

of Orient Overseas (International) Limited and Director and

Chief Executive Officer of Orient Overseas Container Line

Limited. He is also an Independent Non-Executive Director

of Standard Chartered Bank (Hong Kong) Limited.

WONG, Tung Shun Peter*, aged 65, has been a Director of

the Company since May 2009. He is currently Deputy

Chairman and Chief Executive of The Hongkong and

Shanghai Banking Corporation Limited, a Group Managing

Director and a member of the Group Management Board

ofHSBCHoldingsplc,aNon-ExecutiveDirectorof

HangSengBankLimitedandViceChairmanofBankof

Communications Co., Ltd. He is also President of the

HongKongInstituteofBankersandamemberofthe

Exchange Fund Advisory Committee of Hong Kong

Monetary Authority.

Executive Officers

CHENG, Ka Kui Arnold, aged 47, has been Director

Corporate Affairs since July 2016. He joined the Company

in 1992.

CHENG, Ting Yat Dane, aged 53, has been Director Sales

and Marketing since July 2014. He joined the Company in

1986.

GIBBS, Christopher Patrick, aged 55, has been

Engineering Director since January 2007. He joined the

Company in 1992.

GINNS, James William

, aged 48, has been Director

Service Delivery since August 2014. He joined the Swire

group in 1991.

LARGE, Simon Richard St. John

, aged 47, has been

Director Cargo since August 2015. He joined the Swire

group in 1991.

LOO, Kar Pui Paul, aged 48, has been Director Corporate

Development & IT since June 2016. He joined the Company

in 1991.

OWEN, Tom William

, aged 48, has been Director People

since August 2015. He joined the Swire group in 1995.

THOMPSON, Anna Louise

, aged 48, has been Director

Flight Operations since April 2015. She joined the Swire

group in 1990.

Company Secretary

FU, Yat Hung David

, aged 53, has been Company

Secretary since January 2006. He joined the Swire group in

1988. He is a member of the Takeovers and Mergers Panel

and the Takeovers Appeal Committee of the Securities and

Futures Commission of Hong Kong. He is also a member of

the Standing Committee on Company Law Reform.

Employees of the John Swire & Sons Limited group

Member of the Remuneration Committee

Member of the Audit Committee

Cathay Pacific Airways Limited

We submit our report and the audited financial statements

for the year ended 31st December 2016 which are on pages

62 to 109.

Principal activities

Cathay Pacific Airways Limited (the “Company” or “Cathay

Pacific”) is managed and controlled in Hong Kong. As well as

operating scheduled airline services, the Company and its

subsidiaries (collectively referred to as the “Group”) are

engaged in other related areas including airline catering,

aircraft handling, aircraft engineering and cargo terminal

operations. 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 103 and 104.

Consolidated financial statements

The consolidated financial statements incorporate the

financial statements of the Company and its subsidiaries

together with the Group’s interests in joint ventures and

associates. The financial performance of the Group for the

year ended 31st December 2016 and the financial position

of the Group and the Company at that date are set out in the

financial statements on pages 62 to 109. Details of the joint

ventures and associates are provided under note 10 to the

financial statements.

Dividends

The first interim dividend of HK$0.05 per share was paid on

4th October 2016, representing a distribution of HK$197

million. The Directors decided not to declare a second

interim dividend for the year ended 31st December 2016.

Directors’ Report

Closure of register of members

To facilitate the processing of proxy voting for the annual

general meeting to be held on 17th May 2017, the register

of members will be closed from 12th May 2017 to 17th

May 2017, both days inclusive, during which period no

transfer of shares will be effected. In order to be entitled to

attend and vote at the annual general meeting, all transfer

forms accompanied by the relevant share 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,

11thMay2017.

Business review and performance

A fair review of the Group’s business, a description of the

principal risks and uncertainties facing the Group,

particulars of important events affecting the Group that

have occurred since the end of the financial year and an

indication of the likely future development of the Group’s

business (including, in each case to the extent necessary

for an understanding of the development, performance or

position of the Group’s business, key performance

indicators) are provided in the sections of this annual report

headed Chairman’s Letter, 2016 in Review, Review of

Operations and Financial Review and in the notes to the

financial statements. To the extent necessary for an

understanding of the development, performance or

position of the Group’s business, a discussion of the

Group’s environmental policies and performance and an

account of the Group’s key relationships with its employees,

customers and suppliers and others that have a significant

impact on the Group and on which the Group’s success

depends are provided in the section of this annual report

headed 2016 in Review. To the extent necessary for an

understanding of the development, performance or

position of the Group’s business, a discussion of the

Group’s compliance with the relevant laws and regulations

that have a significant impact on the Group is provided in

the sections of this annual report headed 2016 in Review,

Corporate Governance Report and Directors’ Report.

36 37

Annual Report 2016

Directors’ Report

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 page 65 and in note 21 to the financial

statements, respectively.

Accounting policies

The principal accounting policies are set out on pages 105

to 109.

Environmental, Social and Governance

The Company complied with all the applicable provisions

set out in the Environmental, Social and Governance

Reporting Guide contained in Appendix 27 to the Listing

Rules for the year covered by the annual report.

Donations

During the year, the Company and its subsidiaries made

charitable donations amounting to HK$12 million in direct

payments and a further HK$8 million in the form of

discounts on airline travel.

Property, plant and equipment

Movements of property, plant and equipment are shown in

note 8 to the financial statements. Details of aircraft

acquisitions are set out on page 13.

Bank and other borrowings

The net bank loans and other borrowings, including

obligations under finance leases, of the Group are shown in

note 12 to the financial statements.

Share capital

There was no purchase, sale or redemption by the

Company, or any of its subsidiaries, of the Company’s

shares during the year and the Group has not adopted any

share option scheme.

At 31st December 2016, 3,933,844,572 shares were in issue

(31st December 2015: 3,933,844,572 shares). There has

been no movement in share capital during the year.

Capital commitments and contingencies

The details of capital commitments and contingent

liabilities of the Group at 31st December 2016 are set out in

note 28 to the financial statements.

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, John Slosar, Ivan Chu, Martin

Cubbon, Rupert Hogg, Martin Murray, Merlin Swire and

Samuel Swire are interested in the JSSHK Services

Agreement (as defined below). Merlin Swire and Samuel

Swire are also so interested as shareholders of Swire.

IanShiuwassointerestedasadirectorandanemployee

of the Swire group until his resignation with effect from

1stJanuary2017.

Particulars of the fees paid and the expenses reimbursed

for the year ended 31st December 2016 are set out below

and also given in note 27 to the financial statements.

Significant contracts

Contracts between the Group and Hong Kong Aircraft

Engineering Company Limited (“HAECO”) and its subsidiary,

Taikoo (Xiamen) Aircraft Engineering Company Limited

(“TAECO”), for the maintenance and overhaul of aircraft and

related equipment accounted for approximately 3.5% of the

Group’s operating expenses in 2016. 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.

Cathay Pacific Airways Limited

Directors’ Report

Continuing connected transactions

During the year ended 31st December 2016, the Group had

the following continuing connected transactions, details of

which are set out below:

(a) 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

procuring for the Company and its subsidiary, joint

venture 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 2017 to 31st December 2019 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 45% of the number of issued shares

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, 1st October 2010, 14th November 2013 and

19thAugust2016werepublished.

For the year ended 31st December 2016, no service fee

was payable by the Company to JSSHK under the JSSHK

Services Agreement and expenses of HK$161 million

were reimbursed at cost.

(b) Pursuant to a framework agreement dated 13th

November 2013 (“HAECO Framework Agreement”) with

HAECO and HAECO ITM Limited (“HXITM”), services

(being maintenance and related services in respect of

aircraft, aircraft engines and aircraft parts and

components and including inventory technical

management services and the secondment of

personnel) are provided by HAECO and its subsidiaries

(“HAECO group”) to the Group and vice versa and by

HXITM to the HAECO group and vice versa. Payment is

made in cash within 30 days of receipt of invoices. The

term of the HAECO Framework Agreement is for 10 years

ending on 31st December 2022.

HAECO and HXITM are connected persons of the

Company by virtue of them being subsidiaries of Swire

Pacific, one of the Company’s substantial shareholders.

The transactions under the HAECO Framework

Agreement are continuing connected transactions

in respect of which an announcement dated

13thNovember2013waspublished,acirculardated

3rdDecember2013wassenttoshareholdersandan

extraordinary general meeting of the Company was held

on 31st December 2013.

For the year ended 31st December 2016 and under the

HAECO Framework Agreement, the amounts payable by

the Group to the HAECO group totalled HK$3,288 million;

and the amounts payable by the HAECO group to the

Group totalled HK$34 million.

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.

38 39

Annual Report 2016

Directors’ Report

The current term of the Air China Framework Agreement

is for three years ending on 31st December 2019 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.

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,

10th September 2010, 26th September 2013 and 30th

August 2016 were published.

For the year ended 31st December 2016 and under the

Air China Framework Agreement, the amounts payable

by the Group to the Air China group totalled HK$346

million; and the amounts payable by the Air China group

to the Group totalled HK$269 million.

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) on normal commercial terms or better; and

that are fair and reasonable and in the interests of the

shareholders of the Company as a whole.

The Auditors of the Company were engaged to report on

the Group’s continuing connected transactions in

accordance with the Hong Kong Standard on Assurance

Engagements 3000 (Revised) “Assurance Engagements

Other Than Audits or Reviews of Historical Financial

Information” and with reference to Practice Note 740

“Auditor’s Letter on Continuing Connected Transactions

under the Hong Kong Listing Rules” issued by the Hong

Kong Institute of Certified Public Accountants. The Auditors

have issued their unqualified letter containing their findings

and conclusions in respect of the continuing connected

transactions disclosed by the Group in accordance with

Chapter 14A of the Listing Rules, which states that:

(a) nothing has come to their attention that causes them to

believe that the disclosed continuing connected

transactions have not been approved by the Board of

theCompany;

(b) nothing has come to their attention that causes them to

believe that the transactions were not, in all material

respects, in accordance with the pricing policies of the

Group if the transactions involve provision of goods or

services by the Group;

believe that the transactions were not entered into, in all

material respects, in accordance with the relevant

agreements governing such transactions; and

(d) nothing has come to their attention that causes them to

believe that the disclosed continuing connected

transactions have exceeded the relevant annual caps.

A copy of the Auditors’ letter has been provided by the

Company to the Stock Exchange.

Major customers and suppliers

8% of sales and 26% of purchases during the year were

attributable to the Group’s five largest customers and

suppliers respectively. 2% of sales were made to the

Group’s largest customer and 8% of purchases were made

from the Group’s largest supplier.

No Director, any of their close associates or any shareholder

who, to the knowledge of the Directors, owns more than 5%

of the number of issued shares of the Company has an

interest in the Group’s five largest suppliers.

Directors

Xiao Feng was appointed as a Director with effect from 1st

January 2017. All the other present Directors of the

Company whose names are listed in the section of this

annual report headed Directors and Officers served

throughout the year. Fan Cheng and Ian Shiu resigned as

Directors with effect from 1st January 2017.

The Company has received from all of its Independent

Non-Executive Directors confirmation of their

independence pursuant to Listing Rule 3.13 and considers

all of them to be independent.

Cathay Pacific Airways Limited

Directors’ Report

The Company has been granted by the Stock Exchange a

waiver from strict compliance with Rule 3.10A of the Listing

Rules, which requires that an issuer must appoint

Independent Non-Executive Directors representing at least

one-third of the Board.

Article 93 of the Company’s Articles of Association

provides for all Directors to retire at the third annual general

meeting following their election by ordinary resolution. In

accordance therewith, John Slosar, Ivan Chu, Rupert Hogg,

Song Zhiyong and Merlin Swire retire this year and, being

eligible, offer themselves for re-election. Xiao Feng, having

been appointed as a Director of the Company under Article

91 since the last annual general meeting, also retires and,

being eligible, offers himself 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 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 or re-election. No Director has a

service contract with the Company which is not

determinable by the employer 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$3.1 million. They

received no other emoluments from the Group.

Directors’ interests

At 31st December 2016, the register maintained under

Section 352 of the Securities and Futures Ordinance (“SFO”)

showed that a Director held the following interest in the

shares of Cathay Pacific Airways Limited:

Capacity No. of shares

Percentage of

voting shares (%)

Ian Shiu Personal 1,000 0.00003

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).

Neither during nor prior to the year under review has any

right been granted to, or exercised by, any Director of the

Company, or to or by the spouse or minor child of any

Director, to subscribe for shares, warrants or debentures of

the Company.

Other than as stated in this report, no transaction,

arrangement or contract of significance to which the Group

was a party and in which a Director or an entity connected

with a Director is or was materially interested, either directly

or indirectly, subsisted during or at the end of the year.

Directors’ interests in competing business

Pursuant to Rule 8.10 of the Listing Rules, John Slosar, Cai

Jianjiang, Fan Cheng, Ian Shiu and Song Zhiyong 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 of subsidiaries

The names of all directors who have served on the boards

of the subsidiaries of the Company during the year ended

31st December 2016 or during the period from 1st January

2017 to the date of this Report are available on the

Company’s website www.cathaypacific.com.

40 41

Annual Report 2016

Directors’ Report

Permitted indemnity

Subject to the Companies Ordinance (Cap. 622 of the Laws

of Hong Kong), every Director is entitled under the

Company’s Articles of Association to be indemnified out of

the assets of the Company against all costs, charges,

expenses, losses and liabilities which he or she may sustain

or incur in or about the execution or discharge of his or her

duties and/or the exercise of his or her powers and/or

otherwise in relation to or in connection with his or her

duties, powers or office. To the extent permitted by such

Ordinance, the Company has taken out insurance against

the liability and costs associated with defending any

proceedings which may be brought against directors of

companies in the Group.

Substantial shareholders

The register of interests in shares and short positions

maintained under Section 336 of the SFO shows that at 31st

December 2016 the Company had been notified of the

following interests in the shares of the Company held by

substantial shareholders and other persons:

Long position No. of shares

Percentage of

voting shares (%) Type of interest (Note)

1. Air China Limited 2,949,997,987 74.99 Attributable interest (a)

2. China National Aviation Holding Company 2,949,997,987 74.99 Attributable interest (b)

3. Swire Pacific Limited 2,949,997,987 74.99 Attributable interest (a)

4. John Swire & Sons Limited 2,949,997,987 74.99 Attributable interest (c)

5. Kingboard Chemical Holdings Limited 197,026,000 5.01 Attributable interest (d)

Note: At 31st December 2016:

(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 2,949,997,987 shares of the Company,

comprising:

(i) 1,770,238,000 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 2,949,997,987 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 2,949,997,987 shares of the Company by virtue of the Swire

group being interested in 55.00% of the equity of Swire Pacific and controlling 63.75% of the voting rights attached to shares in Swire Pacific.

(d) Kingboard Chemical Holdings Limited is deemed to be interested in a total of 197,026,000 shares of the Company, comprising 15,485,000 shares held

directly and 181,541,000 shares held by its subsidiaries.

Public float

From information that is publicly available to the Company

and within the knowledge of its Directors at the date of this

report, at least 25% of the Company’s total number of

issued shares are held by the public.

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

John Slosar

Chairman

Hong Kong, 15th March 2017

Whether they travel with Cathay Pacic or Cathay Dragon,

customers can be assured of receiving the Cathay Pacic

Group’s signature Service Straight From The Heart.

Heartfelt

service

Cathay Pacific Airways Limited

Governance Culture

Cathay Pacific is committed to ensuring that its affairs are

conducted in accordance with high ethical standards. This

reflects its belief that, in the achievement of its long-term

objectives, it is imperative to act with probity, transparency

and accountability. By so acting, Cathay Pacific believes

that shareholder wealth will be maximised in the long term

and that its employees, those with whom it does business

and the communities in which it operates will all benefit.

Corporate governance is the process by which the Board

instructs management of the Group to conduct its affairs

with a view to ensuring that its objectives are met. The

Board is committed to maintaining and developing robust

corporate governance practices that are intended to

ensure:

• satisfactory and sustainable returns to shareholders

• that the interests of those who deal with the Company

are safeguarded

• that overall business risk is understood and managed

appropriately

• the delivery of high-quality products and services to the

satisfaction of customers and

• that high standards of ethics are maintained.

Corporate Governance Statement

The Corporate Governance Code (the “CG Code”) as

published by The Stock Exchange of Hong Kong Limited

sets out the principles of good corporate governance and

provides two levels of recommendation:

• code provisions, with which issuers are expected to

comply, but with which they may choose not to comply,

provided they give considered reasons for non-

compliance

• recommended best practices, with which issuers are

encouraged to comply, but which are provided for

guidance only.

Corporate Governance Report

The Company supports the principles-based approach of

the CG Code and the flexibility this provides for the

adoption of corporate policies and procedures which

recognise the individuality of companies. Cathay Pacific has

adopted its own corporate governance code which is

available on its website www.cathaypacific.com. Corporate

governance does not stand still; it evolves with each

business and operating environment. The Company is

always ready to learn and adopt best practices.

The Company complied with all the code provisions set out

in the CG Code contained in Appendix 14 to the Rules

Governing the Listing of Securities on The Stock Exchange

of Hong Kong Limited (the “Listing Rules”) throughout the

year covered by the annual report with the following

exceptions which it believes do not benefit shareholders:

• Sections A.5.1 to A.5.4 of the CG Code in respect of the

establishment, terms of reference and resources of a

nomination committee. The Board has considered the

merits of establishing a nomination committee but has

concluded that it is in the best interests of the Company

and potential new appointees that the Board collectively

reviews and approves the appointment of any new

Director as this allows a more informed and balanced

decision to be made by the Board as to suitability for

the role.

The Board of Directors

Role of the Board

The Company is governed by a Board of Directors, which

has responsibility for strategic leadership and control of the

Group designed to maximise shareholder value, while taking

due account of the interests of those with whom the Group

does business and others.

Responsibility for achieving the Company’s objectives and

running the business on a day-to-day basis is delegated to

management. The Board exercises a number of reserved

powers which include:

• maintaining and promoting the culture of the Company

• formulation of long-term strategy

44 45

Annual Report 2016

Corporate Governance Report

• approving public announcements, including financial

statements

• committing to major acquisitions, divestments and

capital projects

• authorising significant changes to the capital structure

and material borrowings

• any issue, or buy-back, of equity securities under the

relevant general mandates

• approving treasury policy

• setting dividend policy

• approving appointments to the Board

• reviewing the board diversity policy with a view to the

Board having a balance of skills, experience and diversity

of perspectives appropriate to the Company’s

businesses

• ensuring that appropriate management development

and succession plans are in place

• setting the Group remuneration policy

• approving annual budgets and forecasts

• reviewing operational and financial performance

• reviewing the effectiveness of the Group’s risk

management and internal control systems

• ensuring the adequacy of the resources, staff

qualifications and experience, training programmes and

budget of the Company’s accounting, internal audit and

financial reporting functions.

To assist it in fulfilling its duties, the Board has established

the Board Safety Review Committee, the Executive

Committee, the Finance Committee, the Remuneration

Committee and the Audit Committee, the latter two and the

Board Safety Review Committee with the participation of

Independent Non-Executive Directors.

Chairman and Chief Executive

The CG Code requires that the roles of Chairman and Chief

Executive be separate and not performed by the same

individual to ensure there is a clear division of

responsibilities between the running of the Board and the

executives who run the business.

John Slosar, the Chairman, is responsible for:

• leadership of the Board

• setting its agenda and taking into account any matters

proposed by other Directors for inclusion in the agenda

• facilitating effective contributions from and dialogue with

all Directors and constructive relations between them

• ensuring that all Directors are properly briefed on issues

arising at Board meetings and that they receive accurate,

timely and clear information

• obtaining consensus amongst the Directors

• ensuring, through the Board, that good corporate

governance practices and procedures are followed.

Ivan Chu, the Chief Executive, is responsible for

implementing the policies and strategies set by the Board in

order to ensure the successful day-to-day management of

the Group’s business.

Throughout the year, there was a clear division of

responsibilities between the Chairman and the Chief

Executive.

Board Composition

The Board is structured with a view to ensuring it is of a high

calibre and has a balance of key skills and knowledge so

that it works effectively as a team and individuals or groups

do not dominate decision-making.

The Board comprises the Chairman, four other Executive

Directors and eleven Non-Executive Directors. Their

biographical details are set out in the section of this annual

report headed Directors and Officers and are posted on the

Company’s website.

Cathay Pacific Airways Limited

Corporate Governance Report

Ivan Chu, Martin Cubbon, Rupert Hogg, Martin Murray and

John Slosar are directors and/or employees of the Swire

group. Ian Shiu was a director and an employee of the Swire

group. Merlin Swire and Samuel Swire are shareholders,

directors and employees of Swire.

The Non-Executive Directors bring independent advice,

judgement and, through constructive challenge, scrutiny of

executives and review of performance and risks. The Audit

and Remuneration Committees of the Board comprise only

Non-Executive Directors.

The Board considers that four of the eleven Non-Executive

Directors are independent in character and judgement and

fulfil the independence guidelines set out in Rule 3.13 of the

Listing Rules. Confirmation has been received from all

Independent Non-Executive Directors that they are

independent as set out in Rule 3.13 of the Listing Rules.

The Independent Non-Executive Directors:

• provide open and objective challenge to management

and other Board members

• raise intelligent questions and challenge constructively

and with vigour

• bring outside knowledge of the businesses and markets

in which the Group operates, providing informed insight

and responses to management.

The Company has been granted by the Stock Exchange a

waiver from strict compliance with Rule 3.10A of the Listing

Rules, which requires that an issuer must appoint

Independent Non-Executive Directors representing at least

one-third of the Board.

Appointment and Re-election

Potential new Directors are identified and considered for

appointment by the Board. A Director appointed by the

Board is subject to election by shareholders at the first

annual general meeting after his or her appointment, and all

Executive and Non-Executive Directors are subject to

re-election by shareholders every three years.

Potential new Board members are identified on the basis of

skills and experience which, in the opinion of the Directors,

will enable them to make a positive contribution to the

performance of the Board.

Full details of changes in the Board during the year and to

the date of this report are provided in the section of this

annual report headed Directors’ Report.

Board Diversity

The Board has a board diversity policy, which is available on

the Company’s website.

In order to achieve a diversity of perspectives among

members of the Board, it is the policy of the Company to

consider a number of factors when deciding on

appointments to the Board and the continuation of those

appointments. Such factors include gender, age, cultural

and educational background, ethnicity, professional

experience, skills, knowledge, length of service and the

legitimate interests of the Company’s principal

shareholders.

Responsibilities of Directors

On appointment, the Directors receive information about

the Group including:

• the role of the Board and the matters reserved for its

attention

• the role and terms of reference of Board Committees

• the Group’s corporate governance practices and

procedures

• the powers delegated to management and

• the latest financial information.

Directors update their skills, knowledge and familiarity with

the Group through their participation at meetings of the

Board and its committees and through regular meetings

with management. Directors are regularly updated by the

Company Secretary on their legal and other duties as

Directors of a listed company.

46 47

Annual Report 2016

Corporate Governance Report

Through the Company Secretary, Directors are able to

obtain appropriate professional training and advice.

Each Director ensures that he/she can give sufficient time

and attention to the affairs of the Group. All Directors

disclose to the Board on their first appointment their

interests as a Director or otherwise in other companies or

organisations and such declarations of interests are

updated regularly.

Details of Directors’ other appointments are shown in their

biographies in the section of this annual report headed

Directors and Officers.

Board Processes

All committees of the Board follow the same processes as

the full Board.

The dates of the 2016 Board meetings were determined in

2015 and any amendments to this schedule were notified to

Directors at least 14 days before regular meetings. Suitable

arrangements are in place to allow Directors to include

items in the agenda for regular Board meetings.

The Board met five times in 2016. The attendance of

individual Directors at meetings of the Board and its

committees is set out in the table on page 48. Average

attendance at Board meetings was 85%. All Directors

attended Board meetings in person or through electronic

means of communication during the year.

Agendas and accompanying Board papers are circulated

with sufficient time to allow the Directors to prepare before

meetings.

The Chairman takes the lead to ensure that the Board acts

in the best interests of the Company, that there is effective

communication with the shareholders and that their views

are communicated to the Board as a whole.

Board decisions are made by vote at Board meetings and

supplemented by the circulation of written resolutions

between Board meetings.

Minutes of Board meetings are taken by the Company

Secretary and, together with any supporting papers, are

made available to all Directors. The minutes record the

matters considered by the Board, the decisions reached,

and any concerns raised or dissenting views expressed by

Directors. Draft and final versions of the minutes are sent to

all Directors for their comment and records respectively.

Board meetings are structured so as to encourage open

discussion, frank debate and active participation by

Directors in meetings.

A typical Board meeting would consist of:

• review of a report by the Chief Executive on the results

since the last meeting and an explanation of changes in

the business environment and their impact on budgets

and the longer-term plan

• the raising of new initiatives and ideas

• the presentation of papers to support decisions

requiring Board approval

• an update of legal and compliance matters for Directors’

consideration

• any declarations of interest.

The executive management provides the Board with such

information and explanations as are necessary to enable

Directors to make an informed assessment of the financial

and other information put before the Board. Queries raised

by Directors are answered fully and promptly.

When necessary, the Independent Non-Executive Directors

meet privately to discuss matters which are their specific

responsibility.

The Chairman meets at least annually with the Non-

Executive Directors without the Executive Directors being

present.

Cathay Pacific Airways Limited

Corporate Governance Report

Meetings Attended/Held

Continuous

Professional

Development

Board

Audit

Committee

Remuneration

Committee

Finance

Committee

Board Safety

Review

Committee

2016

Annual

General

Meeting

Type of

Training (Note)

Executive Directors

John Slosar – Chairman 5/5 2/2 √ a

Ivan Chu 5/5 11/11 2/2 √ a

Rupert Hogg 5/5 7/11 2/2 √ a

Martin Murray 5/5 11/11 √ a

Algernon Yau 5/5 2/2 √ a

Non-Executive Directors

Cai Jianjiang 3/5 0/2 X a

Martin Cubbon 5/5 3/4 7/11 2/2 √ a

Fan Cheng (resigned on

31stDecember2016) 2/5 0/4 0/11 0/2 X a

Ian Shiu (resigned on

31stDecember2016) 5/5 2/2 √ a

Song Zhiyong 0/5 0/2 X a

Merlin Swire 5/5 2/2 √ a

Samuel Swire 5/5 2/2 2/2 √ a

Xiao Feng (appointed on

1stJanuary2017) N/A N/A a

Zhao Xiaohang 3/5 0/11 0/2 X a

Independent Non-Executive

Directors

John Harrison 5/5 4/4 2/2 √ a

Irene Lee 5/5 4/4 2/2 2/2 √ a

Andrew Tung 5/5 2/2 2/2 √ a

Peter Wong 4/5 2/4 0/2 √ a

Average attendance 85% 65% 100% 55% 69% 76%

Note:

a: All the Directors received training materials, including from the Company’s external legal advisor, about matters relevant to their duties as directors. They

also kept abreast of matters relevant to their role as directors by such means as attendance at seminars and conferences and reading and viewing

materials about financial, commercial, economic, legal, regulatory and business affairs.

48 49

Annual Report 2016

Corporate Governance Report

Continuous Professional Development

All Directors named above have received the training

referred to above and have been provided with “A Guide on

Directors’ Duties” issued by the Companies Registry and

“Guidelines for Directors” and “Guide for Independent

Non-Executive Directors” issued by the Hong Kong Institute

of Directors. The Company makes available continuous

professional development for all Directors at the expense of

the Company so as to develop and refresh their knowledge

and skills.

Directors’ and Officers’ Insurance

The Company has arranged appropriate insurance cover

in respect of potential legal actions against its Directors

and Officers.

Conflicts of Interest

If a Director has a material conflict of interest in relation to a

transaction or proposal to be considered by the Board, the

individual is required to declare such interest and abstains

from voting. The matter is considered at a Board meeting

and voted on by Directors who have no material interest in

the transaction.

Delegation by the Board

Responsibility for delivering the Company’s strategies and

objectives, as established by the Board, and responsibility

for day-to-day management is delegated to the Chief

Executive. The Chief Executive has been given clear

guidelines and directions as to his powers and, in particular,

the circumstances under which he should report back to,

and obtain prior approval from, the Board before making

commitments on behalf of the Company.

The Board monitors management’s performance against

the achievement of financial and non-financial measures,

the principal items monitored being:

• detailed monthly management accounts consisting of

statements of profit or loss, financial position and cash

flows compared to budget, together with forecasts

• internal and external audit reports

• feedback from external parties such as customers,

others with whom the Group does business, trade

associations and service providers.

Securities Transactions

The Company has adopted a code of conduct (the

“Securities Code”) regarding securities transactions by

Directors and Officers on terms no less exacting than the

required standard set out in the Model Code for Securities

Transactions by Directors of Listed Issuers contained in

Appendix 10 to the Listing Rules. These rules are available

on the Company’s website.

A copy of the Securities Code has been sent to each

Director of the Company and will be sent to each Director

twice annually, immediately before the two financial period

ends, with a reminder that the Director cannot deal in the

securities and derivatives of the Company during the

blackout period before the Group’s interim and annual

results have been published, and that all their dealings must

be conducted in accordance with the Securities Code.

Under the Securities Code, Directors and senior executives

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 the Directors of the

Company have confirmed that they have complied with the

required standard set out in the Securities Code.

Directors’ interests at 31st December 2016 in the shares of

the Company and its associated corporations (within the

meaning of Part XV of the Securities and Futures Ordinance)

are set out in the section of this annual report headed

Directors’ Report.

Board Safety Review Committee

The Board Safety Review Committee reviews and reports to

the Board on safety issues. It met twice during the year and

comprises its Chairman (Dr. David King) and all the Non-

Executive Directors and Independent Non-Executive

Directors of the Company. Four Executive Directors also

attend as observers.

Cathay Pacific Airways Limited

Corporate Governance Report

Executive Committee

The Executive Committee is chaired by the Chief Executive

and comprises three Executive Directors (Rupert Hogg,

Martin Murray and Algernon Yau) and five Non-Executive

Directors (Cai Jianjiang, Martin Cubbon, Song Zhiyong,

XiaoFengandZhaoXiaohang).Itisresponsibletothe

Board for overseeing and setting the strategic direction of

the Company.

Management Committee

The Management Committee meets monthly and is

responsible to the Board for overseeing the day-to-day

operation of the Company. It is chaired by the Chief

Executive and comprises three Executive Directors (Rupert

Hogg, Martin Murray and Algernon Yau) and all eight

Executive Officers (Arnold Cheng, Dane Cheng, Christopher

Gibbs, James Ginns, Simon Large, Paul Loo, Tom Owen and

Anna Thompson).

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 Chief Executive and comprises two

Executive Directors (Rupert Hogg and Martin Murray), three

Non-Executive Directors (Martin Cubbon, Xiao Feng and

Zhao Xiaohang), one Executive Officer (Paul Loo), the

Manager Financial Services (Alexander Kinloch), the

Manager Treasury (Susan Ng) and an independent

representative from the financial community. Reports

on its decisions and recommendations are presented at

Board meetings.

Remuneration Committee

Full details of the remuneration of the Directors and

Executive Officers are provided in note 25 to the financial

statements.

The Remuneration Committee comprises three Non-

Executive Directors (Irene Lee, Samuel Swire and Andrew

Tung). Two of the Committee Members are Independent

Non-Executive Directors, one of whom, Irene Lee, is

Chairman. All the members served for the whole of 2016.

The Remuneration Committee reviews and approves the

management’s remuneration proposals with reference to

the Board’s corporate goals and objectives.

The Remuneration Committee exercises the powers of the

Board to determine the remuneration packages of individual

Executive Directors and individual members of senior

management (including salaries, bonuses, benefits in kind

and the terms on which they participate in any provident

fund or other retirement benefit scheme), taking into

consideration salaries paid by comparable companies, time

commitments and responsibilities and employment

conditions elsewhere in the group.

The terms of reference of the Remuneration Committee

have been reviewed with reference to the CG Code and are

posted on the Company’s website.

A Services Agreement exists between the Company and

JSSHK, a wholly-owned subsidiary of John Swire & Sons

Limited, which is the parent company of the Swire group.

This agreement has been considered in detail and approved

by the Independent Non-Executive Directors of the

Company. Under the terms of the agreement, staff at

various levels, including Executive Directors and Executive

Officers, are seconded to the Company. These staff report

to and take instructions from the Board of the Company but

remain employees of the Swire group.

In order to be able to attract and retain staff of suitable

calibre, the Swire group provides a competitive

remuneration package. This typically comprises salary,

housing, retirement benefits, leave passage and education

allowances and, after three years’ service, a bonus related

to the overall profit of the Swire Pacific group. The provision

of housing facilitates 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 Swire Pacific overall, those

profits are influenced to a significant extent by the results of

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, given its substantial equity interest

in 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.

50 51

Annual Report 2016

Corporate Governance Report

A number of Directors and senior staff with specialist skills

are employed directly by the Company on terms similar to

those applicable to the staff referred to above.

The Remuneration Committee reviewed the structure and

levels of remuneration paid to Executive Directors and

Executive Officers at its meeting in October 2016. At this

meeting the Committee considered a report prepared for it

by Mercer Limited, an independent firm of consultants,

which confirmed that the remuneration of the Company’s

Executive Directors and Executive Officers, as disclosed in

note 25 to the financial statements, was comparable with

that paid to equivalent executives in peer group companies.

No Director takes part in any discussion about his or her

own remuneration.

The following fee levels have been approved by the Board:

2016

HK$

2017

HK$

Director’s Fee 575,000 575,000

Fee for Audit

CommitteeChairman 260,000 260,000

Fee for Audit

CommitteeMember 180,000 180,000

Fee for Remuneration

CommitteeChairman 80,000 80,000

Fee for Remuneration

CommitteeMember 58,000 58,000

Accountability and Audit

Financial Reporting

The Board acknowledges its responsibility for:

• the proper stewardship of the Company’s affairs, to

ensure the integrity of financial information

• preparing annual and interim financial statements and

other related information that give a true and fair view of

the Group’s affairs and of its results and cash flows for

the relevant periods, in accordance with Hong Kong

Financial Reporting Standards and the Hong Kong

Companies Ordinance

• selecting appropriate accounting policies and ensuring

that these are consistently applied

• making judgements and estimates that are prudent and

reasonable; and

• ensuring that the application of the going concern

assumption is appropriate.

Risk Management and Internal Control

The Board acknowledges its responsibility to establish,

maintain and review the effectiveness of the Group’s risk

management and internal control systems. This

responsibility is primarily fulfilled on its behalf by the Audit

Committee as discussed on pages 52 and 53.

The foundation of strong risk management and internal

control systems is dependent on the ethics and culture of

the organisation, the quality and competence of its

personnel, the direction provided by the Board, and the

effectiveness of management.

Since profits are, in part, the reward for successful risk

taking in business, the risk management and internal control

systems are designed to manage rather than eliminate the

risk of failure to achieve business objectives, and can only

provide reasonable and not absolute assurance against

material misstatement or loss.

The key components of the Group’s control structure are

as follows:

Culture: The Board believes that good governance reflects

the culture of an organisation. This is more significant than

any written procedures.

The Company aims at all times to act ethically and with

integrity, and to instil this behaviour in all its employees by

example from the Board down. The Company has a Code of

Conduct, which is posted on its internal intranet site.

The Company is committed to developing and maintaining

high professional and ethical standards. These are reflected

in the rigorous selection process and career development

plans for all employees. The organisation prides itself on

being a long-term employer which instils in individuals, as

they progress through the Group, a thorough understanding

of the Company’s ways of thinking and acting.

Channels of communication are clearly established,

allowing employees a means of communicating their views

upwards with a willingness on the part of more senior

personnel to listen. Employees are aware that, whenever the

unexpected occurs, attention should be given not only to

the event itself, but also to determining the cause.

Cathay Pacific Airways Limited

Corporate Governance Report

Through the Company’s Code of Conduct, employees are

encouraged (and instructed as to how) to report control

deficiencies or suspicions of impropriety to those who are

in a position to take necessary action.

Risk assessment: The Board of Directors and the

management each have a responsibility to identify and

analyse the risks underlying the achievement of business

objectives, and to determine how such risks should be

managed and mitigated.

Management structure: The Group has a clear

organisational structure that, to the extent required,

delegates the day-to-day responsibility for the design,

documentation and implementation of procedures and

monitoring of risk. Individuals appreciate where they will be

held accountable in this process.

A control self-assessment process requires management

to assess, through the use of detailed questionnaires, the

adequacy and effectiveness of risk management and

internal controls over the reliability of financial reporting,

the effectiveness and efficiency of operations and

compliance with applicable laws and regulations. This

process and its results are reviewed by internal auditors and

form part of the Audit Committee’s annual assessment of

control effectiveness.

Controls and review: The control environment comprises

policies and procedures intended to ensure that relevant

management directives are carried out and actions that

may be needed to address risks are taken. These may

include approvals and verifications, reviews, safeguarding

of assets and segregation of duties. Control activities can

be divided into operations, financial reporting and

compliance, although there may, on occasion, be some

overlap between them. The typical control activities include:

• analytical reviews: for example, conducting reviews of

actual performance versus budgets, forecasts, prior

periods and competitors

• direct functional or activity management: reviews of

performance reports, conducted by managers in charge

of functions or activities

• information-processing: performing controls intended

to check the authorisation of transactions and the

accuracy and completeness of their reporting, for

example, exception reports

• physical controls: ensuring equipment, inventories,

securities and other assets are safeguarded and

subjected to periodic checks

• performance indicators: carrying out analyses of

different sets of data, operational and financial,

examining the relationships between them, and taking

corrective action where necessary

• segregation of duties: dividing and segregating duties

among different people, with a view to strengthening

checks and minimising the risk of errors and abuse.

The Company has in place effective processes and

systems for the identification, capture and reporting of

operational, financial and compliance-related information in

a form and time-frame intended to ensure that staff carry

out their designated responsibilities.

Internal audit: The Internal Audit Department performs

regular reviews of key risk areas and monitors compliance

with Group accounting, financial and operational

procedures. The role of Internal Audit is discussed further

on page 54.

Audit Committee

The Audit Committee, consisting of five Non-Executive

Directors (Irene Lee, Martin Cubbon, John Harrison, Peter

Wong and Xiao Feng), assists the Board in discharging its

responsibilities for corporate governance and financial

reporting. Three of the Committee members are

Independent Non-Executive Directors, one of whom, Irene

Lee, is Chairman. Xiao Feng succeeded Fan Cheng as a

member of the Audit Committee with effect from 1st

January 2017. All the other members served for the whole

of 2016.

The terms of reference of the Audit Committee follow the

guidelines set out by the Hong Kong Institute of Certified

Public Accountants and comply with the CG Code. They are

available on the Company’s website.

The Audit Committee met four times in 2016. Regular

attendees at the meetings are the Finance Director, the

Manager Internal Audit and the external auditors. The Audit

Committee meets at least twice a year with the external

auditors without the presence of management. Each

meeting receives written reports from the external auditors

and Internal Audit.

52 53

Annual Report 2016

Corporate Governance Report

The work of the Committee during 2016 included reviews of

the following matters:

• the completeness, accuracy and integrity of formal

announcements relating to the Group’s performance

including the 2015 annual and 2016 interim reports and

announcements, with recommendations to the Board

for approval

• the Group’s compliance with regulatory and statutory

requirements

• the Group’s risk management and internal control

systems

• the Group’s risk management processes

• the approval of the 2017 annual Internal Audit

programme and review of progress on the 2016

programme

• periodic reports from Internal Audit and progress in

resolving any matters identified in them

• significant accounting and audit issues

• the Company’s policy regarding connected transactions

and the nature of such transactions

• the relationship with the external auditors as discussed

on page 54

• the Company’s compliance with the CG Code

• the Company’s fuel hedging policy and foreign currency

exchange risk policy.

In 2017, the Committee has reviewed, and recommended to

the Board for approval, the 2016 financial statements.

Assessing the Effectiveness of Risk

Management and Internal Control Systems

On behalf of the Board, the Audit Committee reviews

annually the continued effectiveness of the Group’s risk

management and internal control systems dealing with risk

and financial accounting and reporting, the effectiveness

and efficiency of operations, compliance with laws and

regulations, and risk management functions.

This assessment considers:

• the scope and quality of management’s ongoing

monitoring of risks and of the risk management and

internal control systems, the work and effectiveness of

Internal Audit and the assurances provided by the

Finance Director

• the changes in the nature and extent of significant risks

since the previous review and the Group’s ability to

respond to changes in its business and the external

environment

• the extent and frequency with which the results of

monitoring are communicated, enabling the Committee

to build up a cumulative assessment of the state of

control in the Group and the effectiveness with which

risk is being managed

• the incidence of any significant control failings or

weaknesses that have been identified at any time during

the period and the extent to which they have resulted in

unforeseen outcomes or contingencies that have had,

could have had, or may in the future have, a material

impact on the Company’s financial performance or

condition

• the effectiveness of the Company’s processes in relation

to financial reporting and statutory and regulatory

compliance

• areas of risk identified by management

• significant risks reported by Internal Audit

• work programmes proposed by both Internal Audit

and the external auditors

• significant issues arising from internal and external

audit reports

• the results of management’s control self assessment

exercise.

As a result of the above review, the Board confirms, and

management has also confirmed to the Board, that the

Group’s risk management and internal control systems are

effective and adequate and have complied with the CG

Code provisions on risk management and internal control

throughout the year and up to the date of this annual report.

Cathay Pacific Airways Limited

Corporate Governance Report

Expenditure Control Committee

The Expenditure Control Committee meets monthly to

evaluate and approve non-routine expenditure. It is chaired

by one Executive Director (Rupert Hogg) and includes one

other Executive Director (Martin Murray) and two Executive

Officers (Paul Loo and Tom Owen).

Company Secretary

The Company Secretary is an employee of the Company

and is appointed by the Board. The Company Secretary is

responsible for facilitating the Board’s processes and

communications among Board members, with shareholders

and with management. The Company Secretary undertakes

at least 15 hours of relevant professional training annually to

update his skills and knowledge.

Internal Audit Department

The Internal Audit Department assists the Audit Committee

in carrying out the analysis and independent appraisal of

the adequacy and effectiveness of the Group’s risk

management and internal control systems. 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 Manager Internal Audit 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 audited departments. A

summary of major audit findings and recommendations

aimed at resolving material internal control defects is

reported quarterly to the Board and reviewed by the Audit

Committee. As a key criterion of assessing the adequacy

and effectiveness of the Group’s risk management and

internal control systems, the Board and the Audit

Committee actively monitor the number and seriousness of

findings raised by the Internal Audit Department and also

the corrective actions taken by relevant departments.

The annual Internal Audit work plan and resources are

reviewed and agreed with the Audit Committee.

Detailed control guidelines have been set and made

available to all employees of the Company about the

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.

External Auditors

The Audit Committee acts as a point of contact,

independent from management, with the external auditors

(the “auditors”). The auditors have direct access to the

Chairman of the Audit Committee, who meets with them

periodically without management present.

The Audit Committee’s duties in relation to the auditors

include:

• recommending to the Board, for approval by

shareholders, the auditors’ appointment

• approval of the auditors’ terms of engagement

• consideration of the letters of representation to be

provided to the auditors in respect of the interim and

annual financial statements

• review of reports and other ad-hoc papers from the

auditors

• annual appraisal of the quality and effectiveness of

the auditors

• assessment of the auditors’ independence and

objectivity, including the monitoring of non-audit

services provided, with a view to ensuring that their

independence and objectivity is not, and is not seen to

be, compromised

• approval of audit and non-audit fees.

54 55

Annual Report 2016

Corporate Governance Report

Auditors’ Independence

Independence of the auditors is of critical importance to the

Audit Committee, the Board and shareholders. The auditors

write annually to the members of the Audit Committee

confirming that they are independent accountants within

the meaning of Section 290 of the Code of Ethics for

Professional Accountants of the Hong Kong Institute of

Certified Public Accountants and that they are not aware of

any matters which may reasonably be thought to bear on

their independence. The Audit Committee assesses the

independence of the auditors by considering and

discussing each such letter (and having regard to the fees

payable to the auditors for audit and non-audit work and

the nature of the non-audit work) at a meeting of the

AuditCommittee.

Provision of Non-audit Services

In deciding whether the auditors should provide non-audit

services the following key principles are considered:

• the auditors should not audit their own firm’s work

• the auditors should not make management decisions

• the auditors’ independence should not be impaired

• quality of service.

In addition, any services which may be considered to be in

conflict with the role of the auditors must be submitted to

the Audit Committee for approval prior to engagement,

regardless of the amounts involved.

In 2016 the total remuneration paid to the external auditors

was HK$22 million, being HK$15 million for audit, HK$6

million for tax advice and HK$1 million for other professional

services.

Inside Information

With respect to procedures and internal controls for the

handling and dissemination of inside information, the

Company:

• is required to disclose inside information as soon as

reasonably practicable in accordance with the Securities

and Futures Ordinance and the Listing Rules

• conducts its affairs with close regard to the “Guidelines

on Disclosure of Inside Information” issued by the

Securities and Futures Commission

• has included in its Corporate Code of Conduct a strict

prohibition on the unauthorised use of confidential or

inside information

• ensures, through its own internal reporting processes

and the consideration of their outcome by senior

management, the appropriate handling and

dissemination of inside information.

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 eight Safety Action Groups, relating

to Flight Operations, Engineering, Cabin, Operational Ramp,

Security, Fatigue, Flight Data and Occupational Health &

Safety. It is chaired by the General Manager Group Safety &

Security and comprises directors, general managers and

senior management of all operational departments.

Dr. David King, Chairman of the Board Safety Review

Committee also attends Airline Safety Review Committee

meetings four times per year.

Shareholders

Communication with Shareholders and Investors

The Board and senior management recognise their

responsibility to represent the interests of all shareholders

and to maximise shareholder value. Communication with

shareholders and accountability to shareholders is a high

priority of the Company.

The methods used to communicate with shareholders

include the following:

• The Finance Director makes himself available for

meetings with major shareholders, investors and

analysts over two-month periods immediately after the

announcement of the interim and annual results and at

certain other times during the year. In addition, the

Finance Director attended regular meetings with

analysts and investors in Hong Kong, analyst briefings,

investor group briefings, overseas roadshows and

investor conferences during the year.

Cathay Pacific Airways Limited

Corporate Governance Report

• through the Company’s website. This includes electronic

copies of financial reports, audio webcasts of analyst

presentations given at the time of the interim and annual

results announcements, slides of presentations given at

investor conferences, latest news, public

announcements and general information about the

Group’s businesses

• through publication of interim and annual reports

• through the Annual General Meeting as discussed below.

Shareholders may send their enquiries and concerns to the

Board by post or email at ir@cathaypacific.com. The

relevant contact details are set out in the section of this

annual report headed Corporate and Shareholder

Information.

The Annual General Meeting

The Annual General Meeting is an important forum in which

to engage with shareholders. The most recent Annual

General Meeting was held on 11th May 2016. The meeting

was open to all shareholders and to the press. The Directors

who attended the meeting are shown in the table on

page 48.

At the Annual General Meeting, separate resolutions were

proposed for each issue and were voted on by poll.

The procedures for conducting a poll were explained at

the meeting prior to the polls being taken. The agenda

items were:

• receiving the report of the Directors and the audited

financial statements for the year ended 31st December

2015

• re-electing Directors

• re-appointing the auditors and authorising the Directors

to set their remuneration

• a general mandate authorising the Directors to make

on-market share buy-backs

• a general mandate authorising the Directors to allot and

issue shares up to 20% of the number of shares then in

issue, provided that the aggregate number of the shares

so allotted wholly for cash would not exceed 5% of the

number of the shares then in issue.

Minutes of the meeting together with voting results are

available on the Company’s website.

Shareholder engagement

Pursuant to Article 95 of the Company’s Articles of

Association, if a shareholder wishes to propose a person

other than a retiring Director for election as a Director at a

general meeting, he or she should deposit a written notice

of nomination at the registered office of the Company within

the 7-day period commencing on and including the day

after the despatch of the notice of the meeting. The

procedures for nominating candidates to stand for election

as Directors at general meetings are set out in the

Corporate Governance Section of the Company’s website.

If they wish to propose a resolution relating to other matters

to be considered at a general meeting, shareholders are

requested to follow the requirements and procedures set

out in the Corporate Governance Section of the Company’s

website.

Shareholder(s) representing at least 5% of the total voting

rights of all members may request the Board to convene a

general meeting. The objects of the meeting must be stated

in the related requisition deposited at the Company’s

registered office. Detailed requirements and procedures

are set out in the Corporate Governance Section of the

Company’s website.

Other information for shareholders

Key shareholder dates for 2017 are set out in the section of

this annual report headed Corporate and Shareholder

Information.

No amendment has been made to the Company’s Articles

of Association during the year.

57 57

Annual Report 2016

To the shareholders of

Cathay Pacific Airways Limited

(Incorporated in Hong Kong with

limited liability)

Report on the audit of the consolidated

financial statements

Opinion

We have audited the consolidated financial statements of

Cathay Pacific Airways Limited and its subsidiaries

(together “the Group”) set out on pages 62 to 109, which

comprise the consolidated statement of financial position

as at 31st December 2016, the consolidated statement of

profit or loss and other comprehensive income, the

consolidated statement of changes in equity and the

consolidated statement of cash flows for the year then

ended and notes to the consolidated financial statements,

including a summary of significant accounting policies.

In our opinion, the consolidated financial statements give a

true and fair view of the consolidated financial position of

the Group as at 31st December 2016 and of its consolidated

financial performance and its consolidated cash flows for

the year then ended in accordance with Hong Kong

Financial Reporting Standards (“HKFRSs”) issued by the

Hong Kong Institute of Certified Public Accountants

(“HKICPA”) and have been properly prepared in compliance

with the Hong Kong Companies Ordinance.

Independent Auditor’s Report

Basis of opinion

We conducted our audit in accordance with Hong Kong

Standards on Auditing (“HKSAs”) issued by the HKICPA.

Our responsibilities under those standards are further

described in the Auditor’s responsibilities for the audit of

the consolidated financial statements section of our report.

We are independent of the Group in accordance with the

HKICPA’s Code of Ethics for Professional Accountants (“the

Code”) and we have fulfilled our other ethical responsibilities

in accordance with the Code. We believe that the audit

evidence we have obtained is sufficient and appropriate to

provide a basis for our opinion.

Key audit matters

Key audit matters are those matters that, in our professional

judgement, were of most significance in our audit of the

consolidated financial statements for the current period.

These matters were addressed in the context of our audit of

the consolidated financial statements as a whole, and in

forming our opinion thereon, and we do not provide a

separate opinion on these matters.

Cathay Pacific Airways Limited

Independent Auditor’s Report

Revenue recognition

Refer to accounting policy 16 and note 1 to the consolidated financial statements

The Key Audit Matter How the matter was addressed in our audit

Passenger and cargo sales are recognised as revenue when the

related transportation service is provided. The value of the sales

for which the related transportation service has not yet been

provided at the end of the reporting period is recorded as

unearned transportation revenue in the consolidated statement

of financial position.

The fair value of programme awards under the Group’s customer

loyalty programme, Asia Miles, is also deferred and included in

unearned transportation revenue. This deferred revenue arises

as members of the programme accumulate Asia Miles by

travelling on the Group’s flights or when the Group sells Asia

Miles to participating partners in the programme. The deferred

revenue is recognised as income when the related goods or

services are provided subsequent to the redemption of the Asia

Miles. Management estimates the unit fair value of Asia Miles.

The Group maintains sophisticated information technology (“IT”)

systems in order to track the point of service provision for each

sale and also to track the issuance and subsequent redemption

and utilisation of Asia Miles.

We identified revenue recognition as a key audit matter because

revenue is one of the Group’s key performance indicators and it

involves complicated IT systems and an estimation of fair value,

all of which give rise to an inherent risk that revenue could be

recorded in the incorrect period or could be subject to

manipulation to meet targets or expectations.

Our audit procedures to assess revenue recognition included

the following:

• assessingthedesign,implementationandoperating

effectiveness of management’s general IT controls and key

application controls over the Group’s IT systems which

govern revenue recognition, including access controls,

controls over program changes, interfaces between different

systems and key manual internal controls over revenue

recognition;

• performinganalyticalproceduresonpassengerandcargo

revenue and unearned transportation revenue by developing

an expectation for each type of revenue using independent

inputs and information generated from the Group’s IT

systems and comparing such expectations with recorded

revenue;

• inspectingunderlyingdocumentationforanyjournalentries

which were considered to be material or met other specified

risk-based criteria;

• assessingmanagement’sestimateoftheunitfairvalueof

Asia Miles, with reference to the prices for third party Asia

Miles sales and flight redemption values and by discussing

alternatives with management and assessing whether or not

there was an indication of management bias;

• inspectingthekeytermsandconditionsofcontractswith

major partners of the Asia Miles program to assess if there

were any terms and conditions that may have affected the

accounting treatment of the related Asia Miles.

Hedge accounting

Refer to accounting policy 10 and notes 11, 13, 16, 19 and 29 to the consolidated financial statements

The Key Audit Matter How the matter was addressed in our audit

The Group enters into derivative financial instrument contracts in

order to manage its exposure to fuel price risk, foreign currency

risk and interest rate risk, which arise during the normal course of

its business. These contracts gave rise to derivative financial

assets of HK$2,176 million and derivative financial liabilities of

HK$9,849 million as at 31st December 2016. Hedge accounting

under HKFRSs is applied for a majority of these arrangements.

We identified hedge accounting (including the valuation of

hedging instruments) as a key audit matter because hedge

accounting can be complex and the Group has entered into a

large number of hedging contracts, necessitating a

sophisticated system to record and track each contract and

calculate the related valuations at each financial reporting date

and because the valuation of hedging instruments and

consideration of hedge effectiveness can involve a significant

degree of both complexity and management judgement and is

subject to an inherent risk of error.

Our audit procedures to assess hedge accounting included the

following:

• assessingthedesign,implementationandoperating

effectiveness of management’s key internal controls over

derivative financial instruments and the related hedge

accounting;

• requestingwrittenconfirmationsfromcontract

counterparties for derivative financial instruments that

existed at the reporting date on a sample basis;

• inspectingmanagement’shedgedocumentationand

contracts, on a sample basis, for the purposes of considering

whether the related accounting treatment was in accordance

with the requirements of the prevailing accounting standards;

• re-performingcalculationsofhedgeeffectivenessona

sample basis;

• engagingourfinancialinstrumentsvaluationspecialiststo

re-perform year end valuations of derivative financial

instruments on a sample basis and compare these valuations

with those recorded by the Group.

58 59

Annual Report 2016

Independent Auditor’s Report

Assessment of provisions for taxation, litigation and claims

Refer to accounting policy 20 and notes 4, 19 and 28 to the consolidated financial statements

The Key Audit Matter How the matter was addressed in our audit

The Group operates in various jurisdictions and, during the

normal course of its business, has received queries from and

has disputes with various taxation authorities. The Group is

also the subject of legal actions in respect of antitrust

proceedings in certain jurisdictions as outlined in note 28(e)

to the consolidated financial statements.

Provisions are made for possible or actual taxation, litigation

and claims. The amount recorded at 31st December 2016,

which represented management’s best estimates of the

amounts likely to be required to settle these matters, totalled

HK$1,126 million and is included within the balance of other

payables classified as current liabilities in note 19 to the

consolidated financial statements.

We identified the assessment of provisions for taxation,

litigation and claims as a key audit matter because the

estimates on which these provisions are based involve a

significant degree of management judgement in interpreting

the various relevant rules, regulations and practices and in

considering precedents in the various jurisdiction and

because determining the level of provisions may be subject

to a degree of management bias.

Our audit procedures to assess the provisions for taxation, litigation

and claims included the following:

• engagingourinternaltaxspecialistsinHongKongandthe

relevant overseas jurisdictions to assess the Group’s provisions

for potential exposure to each material tax dispute by discussing

with management to understand the dispute and reviewing

correspondence with the relevant tax authorities to understand

the relevant associated risks;

• discussingthestatusandpotentialexposuresinrespectof

significant litigation and claims with the Group’s internal legal

counsel and obtaining letters regarding the progress of litigation

and claims from the Group’s external legal counsel, including their

views on the likely outcome of each litigation or claim and the

magnitude of potential exposure;

• challengingtheassumptionsandcriticaljudgementsmadeby

management which impacted their estimations of the provisions

required, considering judgements previously made by the

taxation authorities in the relevant jurisdictions and any relevant

opinions given by third party advisors and assessing whether

there was an indication of management bias;

• performingaretrospectivereviewofprovisionsfortaxation,

litigation and claims to evaluate whether the judgement and

decisions made by management in estimating provisions in the

prior year indicated possible management bias.

Assessing the carrying value of aircraft and related equipment

Refer to accounting policy 5 and note 8 to the consolidated financial statements

The Key Audit Matter How the matter was addressed in our audit

The carrying value of the Group’s aircraft and related

equipment as at 31st December 2016 was HK$93,987

million and the related depreciation charge for the year

ended 31st December 2016 was HK$7,179 million.

Estimated useful lives, residual values and the carrying

value of aircraft and related equipment are reviewed

annually taking into consideration factors such as changes

in fleet composition, current and forecast market values

and technical factors which may affect the useful life

expectancy of the assets and, therefore, could have a

material impact on any impairment charges or the

depreciation charge for the year.

We identified the assessment of the carrying value of aircraft

and related equipment as a key audit matter because of its

significance to the consolidated financial statements and

because applying the Group’s accounting policies in this

area involves a significant degree of judgement by

management in considering the nature, timing and likelihood

of changes to the factors noted above, which may affect the

carrying value of the Group’s aircraft and related equipment,

the depreciation charge and any impairment charges for the

current and future years.

Our audit procedures to assess the carrying value of aircraft and

related equipment included the following:

• assessingtheestimatedusefullivesandresidualvaluesof

aircraft and related equipment with reference to the Group’s

historical experience and future operating plans including future

acquisitions and retirement of aircraft, policies adopted by other

comparable airlines and our knowledge of the airline industry;

• challenginganychangestotheestimatedusefullivesand

residual values of aircraft by considering external information

such as third party quotations, recent sales data for similar

aircraft or actual sales agreements the Group entered into which

might lead to an adjustment to the remaining useful lives or

residual values;

• discussingindicatorsofpossibleimpairmentofaircraftand

related equipment with management of the Group’s finance team

and engineering team and, where such indications were

identified, assessing whether management had performed

impairment testing in accordance with the requirements of the

prevailing accounting standards;

• challengingtheassumptionsandcriticaljudgementsusedby

management in their impairment assessments by considering

aircraft valuation reports published by third party specialists and

comparing management’s past estimates and plans to the

current year’s estimates and plans taking into account recent

developments in the airline industry and market conditions.

Cathay Pacific Airways Limited

Independent Auditor’s Report

Assessing aircraft maintenance provisions

Refer to accounting policy 6 and notes 13 and 19 to the consolidated financial statements

The Key Audit Matter How the matter was addressed in our audit

The Group operated 57 aircraft held under external operating

leases as at 31st December 2016. Under the terms of the

operating lease arrangements, the Group is contractually

committed to return the aircraft to the lessors in a certain

condition agreed with the lessors at the inception of each lease.

Management estimates the maintenance costs and the costs

associated with the restitution of life-limited parts at the end of

each reporting period and accrues such costs over the lease

term. The calculation of such costs includes a number of variable

factors and assumptions, including the anticipated utilisation of

the aircraft, cost of maintenance and the lifespan of the life-

limited parts.

Maintenance provisions for aircraft maintenance costs totalled

HK$2,204 million as at 31st December 2016 and are included

within other long-term payables and trade and other payables in

the consolidated statement of financial position.

We have identified assessing aircraft maintenance provisions as

a key audit matter because of the inherent level of complex and

subjective management judgements required in assessing the

variable factors and assumptions in order to quantify the

provision amounts.

Our audit procedures to assess aircraft maintenance provisions

included the following:

• assessingthedesign,implementationandoperating

effectiveness of management’s key internal controls over

accounting for maintenance provisions for aircraft held under

operating leases;

• evaluatingtheprovisioningmodel,methodologyandkey

assumptions adopted by management in estimating the

provisions and any changes therein by reviewing the terms of

the operating leases and comparing assumptions to contract

terms, information from the lessors and the Group’s

maintenance cost experience;

• discussingwithmanagersintheengineeringdepartment

responsible for aircraft engineering the utilisation pattern and

expected useful lives of life-limited parts of the aircraft and

considering the consistency of the provisions with the

engineering department’s assessment of the condition of

aircraft;

• performingaretrospectivereviewofaircraftmaintenance

provisions to evaluate whether the judgement and decisions

made by management in estimating the provisions in the

prior year indicated possible management bias.

Information other than the consolidated financial

statements and auditor’s report thereon

The Directors are responsible for the other information. The

other information comprises all the information included in

the annual report other than the consolidated financial

statements and our auditor’s report thereon.

Our opinion on the consolidated financial statements does

not cover the other information and we do not express any

form of assurance conclusion thereon.

In connection with our audit of the consolidated financial

statements, our responsibility is to read the other

information and, in doing so, consider whether the other

information is materially inconsistent with the consolidated

financial statements or our knowledge obtained in the audit

or otherwise appears to be materially misstated. If, based

on the work we have performed, we conclude that there is a

material misstatement of this other information, we are

required to report that fact. We have nothing to report in

this regard.

Responsibilities of the directors for the

consolidated financial statements

The Directors are responsible for the preparation of the

consolidated financial statements that give a true and fair

view in accordance with HKFRSs issued by the HKICPA 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.

In preparing the consolidated financial statements, the

Directors are responsible for assessing the Group’s ability

to continue as a going concern, disclosing, as applicable,

matters related to going concern and using the going

concern basis of accounting unless the Directors either

intend to liquidate the Group or to cease operations, or have

no realistic alternative but to do so.

The Directors are assisted by the Audit Committee in

discharging their responsibilities for overseeing the Group’s

financial reporting process.

Auditor’s responsibilities for the audit of the

consolidated financial statements

Our objectives are to obtain reasonable assurance about

whether the consolidated financial statements as a whole

are free from material misstatement, whether due to fraud

or error, and to issue an auditor’s report that includes our

opinion. This report is made solely to you, as a body, in

60 61

Annual Report 2016

Independent Auditor’s Report

accordance with section 405 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.

Reasonable assurance is a high level of assurance, but is

not a guarantee that an audit conducted in accordance with

HKSAs will always detect a material misstatement when it

exists. Misstatements can arise from fraud or error and are

considered material if, individually or in the aggregate, they

could reasonably be expected to influence the economic

decisions of users taken on the basis of these consolidated

financial statements.

As part of an audit in accordance with HKSAs, we exercise

professional judgement and maintain professional

scepticism throughout the audit. We also:

• Identifyandassesstherisksofmaterialmisstatementof

the consolidated financial statements, whether due to

fraud or error, design and perform audit procedures

responsive to those risks and obtain audit evidence that

is sufficient and appropriate to provide a basis for our

opinion. The risk of not detecting a material

misstatement resulting from fraud is higher than for one

resulting from error, as fraud may involve collusion,

forgery, intentional omissions, misrepresentations or the

override of internal control.

• Obtainanunderstandingofinternalcontrolrelevantto

the audit 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

Group’s internal control.

• Evaluatetheappropriatenessofaccountingpolicies

used and the reasonableness of accounting estimates

and related disclosures made by the Directors.

• ConcludeontheappropriatenessoftheDirectors’useof

the going concern basis of accounting and, based on the

audit evidence obtained, whether a material uncertainty

exists related to events or conditions that may cast

significant doubt on the Group’s ability to continue as a

going concern. If we conclude that a material uncertainty

exists, we are required to draw attention in our auditor’s

report to the related disclosures in the consolidated

financial statements or, if such disclosures are inadequate,

to modify our opinion. Our conclusions are based on the

audit evidence obtained up to the date of our auditor’s

report. However, future events or conditions may cause

the Group to cease to continue as a going concern.

• Evaluatetheoverallpresentation,structureandcontent

of the consolidated financial statements, including the

disclosures, and whether the consolidated financial

statements represent the underlying transactions and

events in a manner that achieves fair presentation.

• Obtainsufficientappropriateauditevidenceregarding

the financial information of the entities or business

activities within the Group to express an opinion on the

consolidated financial statements. We are responsible

for the direction, supervision and performance of the

Group audit. We remain solely responsible for our audit

opinion.

We communicate with the Audit Committee regarding,

among other matters, the planned scope and timing of the

audit and significant audit findings, including any significant

deficiencies in internal control that we identify during

our audit.

We also provide the Audit Committee with a statement that

we have complied with relevant ethical requirements

regarding independence and communicate with them all

relationships and other matters that may reasonably be

thought to bear on our independence and, where

applicable, related safeguards.

From the matters communicated with the Audit Committee,

we determine those matters that were of most significance

in the audit of the consolidated financial statements of the

current period and are therefore the key audit matters. We

describe these matters in our auditor’s report unless law or

regulation precludes public disclosure about the matter or

when, in extremely rare circumstances, we determine that a

matter should not be communicated in our report because

the adverse consequences of doing so would reasonably

be expected to outweigh the public interest benefits of

such communication.

The engagement partner on the audit resulting in this

independent auditor’s report is Nicholas James Debnam.

KPMG

Certified Public Accountants

8th Floor, Prince’s Building

10 Chater Road

Central, Hong Kong

15th March 2017

Cathay Pacific Airways Limited

Note

2016

HK$M

2015

HK$M

2016

US$M

2015

US$M

Revenue

Passengerservices 66,926 73,047 8,580 9,365

Cargoservices 20,063 23,122 2,572 2,964

Catering,recoveriesandotherservices 5,762 6,173 739 792

Total revenue 92,751 102,342 11,891 13,121

Expenses

Staff (19,770) (18,990) (2,534) (2,435)

Inflightserviceandpassengerexpenses (4,734) (4,713) (607) (604)

Landing,parkingandrouteexpenses (14,985) (14,675) (1,921) (1,882)

Fuel,includinghedginglosses (27,953) (32,968) (3,584) (4,227)

Aircraftmaintenance (8,856) (7,504) (1,135) (962)

Aircraftdepreciationandoperatingleases (10,551) (10,883) (1,353) (1,395)

Otherdepreciation,amortisationandoperatingleases (2,457) (2,310) (315) (296)

Commissions (700) (798) (90) (102)

Others (3,270) (2,837) (419) (364)

Operating expenses (93,276) (95,678) (11,958) (12,267)

Operating (loss)/profit 2 (525) 6,664 (67) 854

Financecharges (1,561) (1,380) (200) (177)

Financeincome 260 216 33 28

Net finance charges 3 (1,301) (1,164) (167) (149)

Share of profits of associates 2,049 1,965 263 252

Profit before taxation 223 7,465 29 957

Taxation 4 (497) (1,157) (64) (148)

(Loss)/profit for the year (274) 6,308 (35) 809

Non-controlling interests (301) (308) (39) (40)

(Loss)/profit attributable to the shareholders of Cathay Pacific (575) 6,000 (74) 769

(Loss)/profit for the year (274) 6,308 (35) 809

Other comprehensive income

Itemsthatwillnotbereclassifiedtoprofitorloss:

Definedbenefitplans 606 (210) 78 (27)

Itemsthatmaybereclassifiedsubsequentlytoprofitorloss:

Cashflowhedges 9,690 (5,417) 1,242 (694)

Revaluationofavailable-for-salefinancialassets 178 (321) 23 (41)

Shareofothercomprehensiveincomeofassociates 334 (741) 43 (95)

Exchangedifferencesontranslationofforeignoperations (1,536) (1,060) (197) (136)

Other comprehensive income for the year, net of taxation 5 9,272 (7,749) 1,189 (993)

Total comprehensive income for the year 8,998 (1,441) 1,154 (184)

Total comprehensive income attributable to

ShareholdersofCathayPacific 8,697 (1,749) 1,115 (224)

Non-controllinginterests 301 308 39 40

8,998 (1,441) 1,154 (184)

(Loss)/earnings per share (basic and diluted) 6 (14.6)¢ 152.5¢ (1.9)¢ 19.6¢

The financial statements 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 66 to 104 and the principal accounting policies on pages 105 to 109 form part of these financial statements.

Consolidated Statement of Profit or Loss and

Other Comprehensive Income

for the year ended 31st December 2016

62 63

Annual Report 2016

Note

2016

HK$M

2015

HK$M

2016

US$M

2015

US$M

ASSETS AND LIABILITIES

Non-current assets and liabilities

Property, plant and equipment 8 106,456 100,552 13,648 12,891

Intangible assets 9 10,934 10,606 1,402 1,360

Investments in associates 10 23,298 22,878 2,987 2,933

Other long-term receivables and investments 11 4,604 5,069 590 650

Deferred tax assets 15 737 497 94 64

146,029 139,602 18,721 17,898

Long-term liabilities 12 (58,906) (49,867) (7,552) (6,393)

Other long-term payables 13 (7,517) (15,838) (964) (2,031)

Deferred tax liabilities 15 (11,380) (9,278) (1,458) (1,190)

(77,803) (74,983) (9,974) (9,614)

Net non-current assets 68,226 64,619 8,747 8,284

Current assets and liabilities

Stock 1,514 1,366 194 175

Trade, other receivables and other assets 16 9,557 9,715 1,225 1,246

Assets held for sale 17 31 1,497 4 192

Liquid funds 18 20,290 20,647 2,602 2,647

31,392 33,225 4,025 4,260

Current portion of long-term liabilities (11,263) (13,782) (1,444) (1,767)

Related pledged security deposits – 544 – 70

Net current portion of long-term liabilities 12 (11,263) (13,238) (1,444) (1,697)

Trade and other payables 19 (19,104) (23,025) (2,449) (2,952)

Unearned transportation revenue (12,926) (13,012) (1,657) (1,668)

Taxation (707) (502) (91) (65)

Dividend payable to non-controlling interests (92) – (12) –

(44,092) (49,777) (5,653) (6,382)

Net current liabilities (12,700) (16,552) (1,628) (2,122)

Total assets less current liabilities 133,329 123,050 17,093 15,776

Net assets 55,526 48,067 7,119 6,162

CAPITAL AND RESERVES

Share capital and other statutory capital reserves 20 17,106 17,106 2,193 2,193

Other reserves 21 38,259 30,821 4,905 3,951

Funds attributable to the shareholders of Cathay Pacific 55,365 47,927 7,098 6,144

Non-controlling interests 161 140 21 18

Total equity 55,526 48,067 7,119 6,162

The financial statements 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 66 to 104 and the principal accounting policies on pages 105 to 109 form part of these financial statements.

John Slosar Irene Lee

Director Director

Hong Kong, 15th March 2017

Consolidated Statement of Financial Position

at 31st December 2016

Cathay Pacific Airways Limited

Note

2016

HK$M

2015

HK$M

2016

US$M

2015

US$M

Operating activities

Cashgeneratedfromoperations 22 7,701 17,137 987 2,197

Interestreceived 189 152 24 20

Netinterestpaid (1,032) (825) (132) (106)

Taxpaid (750) (469) (96) (60)

Net cash inflow from operating activities 6,108 15,995 783 2,051

Investing activities

Netdecrease/(increase)inliquidfundsotherthancashand

cashequivalents 3,013 (2,521) 386 (323)

Proceedsfromscrap/salesofproperty,plantandequipment 23 515 3 66

Proceedsfromsalesofassetsheldforsale 1,769 192 227 24

Disposalofasubsidiary 23 – 83 – 11

Proceedsfromdisposaloflong-terminvestment 62 – 8 –

Net(increase)/decreaseinotherlong-termreceivablesand

investments (105) 54 (14) 7

Paymentsforproperty,plantandequipmentand

intangibleassets (14,886) (13,179) (1,908) (1,690)

Dividendsreceivedfromassociates 422 280 54 36

Repayments of loans to associates 19 – 2 –

Loanstoassociates (12) (77) (1) (10)

Net cash outflow from investing activities (9,695) (14,653) (1,243) (1,879)

Financing activities

Newfinancing 20,146 8,268 2,582 1,060

Netcashbenefitfromfinancingarrangements 894 – 115 –

Loanandfinanceleaserepayments (13,346) (10,050) (1,711) (1,289)

Securitydepositsplaced (23) (44) (3) (6)

Dividendspaid–totheshareholdersofCathayPacific (1,259) (2,046) (161) (262)

– to non-controlling interests (188) (283) (24) (36)

Net cash inflow/(outflow) from financing activities 6,224 (4,155) 798 (533)

Increase/(decrease) in cash and cash equivalents 2,637 (2,813) 338 (361)

Cash and cash equivalents at 1st January 7,207 10,211 924 1,309

Effect of exchange differences (66) (191) (8) (24)

Cash and cash equivalents at 31st December 24 9,778 7,207 1,254 924

The financial statements 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 66 to 104 and the principal accounting policies on pages 105 to 109 form part of these financial statements.

Consolidated Statement of Cash Flows

for the year ended 31st December 2016

64 65

Annual Report 2016

Attributable to the shareholders of Cathay Pacific

capital

HK$M

Retained

profit

HK$M

Investment

revaluation

reserve

HK$M

Cash flow

hedge

reserve

HK$M

Others

HK$M

Tot al

HK$M

Non-

controlling

interests

HK$M

Tot al

equity

HK$M

At 1st January 2016 17,106 45,900 730 (15,545) (264) 47,927 140 48,067

(Loss)/profit for the year – (575) – – – (575) 301 (274)

Other comprehensive income – 606 178 9,690 (1,202) 9,272 – 9,272

Total comprehensive income

for the year – 31 178 9,690 (1,202) 8,697 301 8,998

2015 second interim dividend – (1,062) – – – (1,062) – (1,062)

2016 first interim dividend – (197) – – – (197) – (197)

Dividends paid/payable to

non-controllinginterests – – – – – – (280) (280)

– (1,228) 178 9,690 (1,202) 7,438 21 7,459

At 31st December 2016 17,106 44,672 908 (5,855) (1,466) 55,365 161 55,526

At 1st January 2015 17,106 42,156 1,051 (10,128) 1,537 51,722 131 51,853

Profit for the year – 6,000 – – – 6,000 308 6,308

Other comprehensive income – (210) (321) (5,417) (1,801) (7,749) – (7,749)

Total comprehensive income

for the year – 5,790 (321) (5,417) (1,801) (1,749) 308 (1,441)

2014 second interim dividend – (1,023) – – – (1,023) – (1,023)

2015 first interim dividend – (1,023) – – – (1,023) – (1,023)

Dividends paid to

non-controllinginterests – – – – – – (283) (283)

Disposal of a subsidiary (note 23) – – – – – – (16) (16)

– 3,744 (321) (5,417) (1,801) (3,795) 9 (3,786)

At 31st December 2015 17,106 45,900 730 (15,545) (264) 47,927 140 48,067

The notes on pages 66 to 104 and the principal accounting policies on pages 105 to 109 form part of these financial statements.

Consolidated Statement of Changes in Equity

for the year ended 31st December 2016

Cathay Pacific Airways Limited

1. Segment information

(a) Segment results

Airline business Non-airline business Unallocated Tot al

2016

HK$M

2015

HK$M

2016

HK$M

2015

HK$M

2016

HK$M

2015

HK$M

2016

HK$M

2015

HK$M

Profit or loss

Sales to external

customers 91,478 101,199 1,273 1,143 92,751 102,342

Inter-segment sales 9 8 3,598 3,478 3,607 3,486

Segment revenue 91,487 101,207 4,871 4,621 96,358 105,828

Segment (loss)/profit (986) 6,402 461 262 (525) 6,664

Net finance charges (1,160) (1,040) (141) (124) (1,301) (1,164)

(2,146) 5,362 320 138 (1,826) 5,500

Share of profits of

associates 2,049 1,965 2,049 1,965

Profit before taxation 223 7,465

Taxation (464) (1,037) (33) (120) (497) (1,157)

(Loss)/profit for the

year (274) 6,308

Other segment

information

Depreciation and

amortisation 8,101 8,408 449 451 8,550 8,859

Purchase of property,

plantand

equipmentand

intangibleassets 13,805 11,888 1,330 1,291 15,135 13,179

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, aircraft ramp handling services and cargo terminal operations. The unallocated

results represent the Group’s share of profits of associates.

The major revenue earning asset is the aircraft fleet which is used for both 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 Financial Statements

Statement of Profit or Loss and

Other Comprehensive Income

66 67

Annual Report 2016

1. Segment information (continued)

(b) Geographical information

2016

HK$M

2015

HK$M

Revenue by origin of sale:

North Asia

–HongKongandMainlandChina 46,957 51,443

–Japan,KoreaandTaiwan 8,766 9,445

India, Middle East and Sri Lanka 3,693 4,442

Southwest Pacific and South Africa 5,607 6,456

Southeast Asia 7,669 8,611

Europe 8,031 8,485

North America 12,028 13,460

92,751 102,342

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 the

Group’s 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 are not disclosed.

2. Operating (loss)/profit

2016

HK$M

2015

HK$M

Operating (loss)/profit has been arrived at after charging/(crediting):

Depreciation of property, plant and equipment

–leased 2,003 2,234

–owned 6,032 6,153

Amortisation of intangible assets 515 472

Operating lease rentals

–landandbuildings 1,022 969

–aircraftandrelatedequipment 3,372 3,318

–others 64 47

Provision for impairment of assets held for sale 24 4

Gain on disposal of assets held for sale (232) (4)

Loss/(gain) on disposal of property, plant and equipment, net 272 (49)

Loss on disposal of intangible assets 42 –

Gain on disposal of long-term investment (3) –

Gain on disposal of a subsidiary – (106)

Cost of stock expensed 2,181 2,002

Exchange differences, net 306 320

Auditors’ remuneration 15 14

Net losses on financial assets and liabilities classified as held for trading 36 192

Dividend income from unlisted investments (17) (484)

Dividend income from listed investments (6) (5)

Notes to the Financial Statements Statement of Profit or Loss and Other Comprehensive Income

Cathay Pacific Airways Limited

Notes to the Financial Statements Statement of Profit or Loss and Other Comprehensive Income

3. Net finance charges

2016

HK$M

2015

HK$M

Net interest charges comprise:

–obligationsunderfinanceleasesstatedatamortisedcost 475 457

–interestincomeonrelatedsecuritydeposits,notesandzerocouponbonds (2) (18)

473 439

–bankloansandoverdrafts

–whollyrepayablewithinfiveyears 235 127

–notwhollyrepayablewithinfiveyears 439 358

–otherloans

–whollyrepayablewithinfiveyears 101 101

–notwhollyrepayablewithinfiveyears 16 16

–otherlong-termreceivables (19) (22)

1,245 1,019

Income from liquid funds:

–fundswithinvestmentmanagersandotherliquidinvestmentsatfairvalue

throughprofitorloss (83) (41)

–bankdepositsandothers (155) (128)

(238) (169)

Fair value change:

–gainonobligationsunderfinanceleasesdesignatedasatfairvalue

throughprofitorloss (18) (157)

–lossonfinancialderivatives 312 471

294 314

1,301 1,164

Finance income and charges relating to defeasance arrangements have been netted off in the above figures.

Included in the fair value change in respect of financial derivatives are net losses from derivatives that are classified as

held for trading of HK$36 million (2015: net losses of HK$192 million).

4. Taxation

2016

HK$M

2015

HK$M

Current tax expenses

–HongKongprofitstax 165 170

–overseastax 195 197

–underprovisionsforprioryears 272 63

Deferred tax (credit)/charge

–originationandreversaloftemporarydifferences(note15) (135) 727

497 1,157

68 69

Annual Report 2016

4. Taxation (continued)

Hong Kong profits tax is calculated at 16.5% (2015: 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 the status of negotiations (see note 28(d) to

the financial statements).

A reconciliation between tax charge and accounting profit at applicable tax rates is as follows:

2016

HK$M

2015

HK$M

Consolidated profit before taxation 223 7,465

Notional tax calculated at Hong Kong profits tax rate of 16.5% (2015: 16.5%) (37) (1,232)

Expenses not deductible for tax purposes (198) (364)

Tax under provisions arising from prior years (272) (63)

Effect of different tax rates in other countries 699 282

Recognition of (tax losses not recognised)/tax losses previously not recognised (780) 49

Income not subject to tax 91 171

Tax charge (497) (1,157)

Further information on deferred taxation is shown in note 15 to the financial statements.

5. Other comprehensive income

2016

HK$M

2015

HK$M

Defined benefit plans

–remeasurementsgain/(loss)recognisedduringtheyear 687 (243)

–deferredtaxation(note15) (81) 33

Cash flow hedges

–gain/(loss)recognisedduringtheyear 3,571 (13,780)

–losstransferredtoprofitorloss(note21) 7,404 7,473

–deferredtaxation(note15) (1,285) 890

Revaluation of available-for-sale financial assets

–gainrecognisedduringtheyear 178 161

–reclassifiedtoprofitorloss – (482)

Share of other comprehensive income of associates 334 (741)

Exchange differences on translation of foreign operations

–lossrecognisedduringtheyear (1,536) (1,075)

–reclassifiedtoprofitorloss – 15

Other comprehensive income for the year 9,272 (7,749)

Notes to the Financial Statements Statement of Profit or Loss and Other Comprehensive Income

Cathay Pacific Airways Limited

6. (Loss)/earnings per share (basic and diluted)

Loss per share is calculated by dividing the loss attributable to the shareholders of Cathay Pacific of HK$575 million

(2015: a profit of HK$6,000 million) by the daily weighted average number of shares in issue throughout the year of

3,934 million (2015: 3,934 million) shares.

7. Dividends

2016

HK$M

2015

HK$M

First interim dividend paid on 4th October 2016 of HK$0.05 per share

(2015:firstinterimdividendofHK$0.26pershare) 197 1,023

No second interim dividend proposed

(2015:secondinterimdividendofHK$0.27pershare) – 1,062

197 2,085

Notes to the Financial Statements Statement of Profit or Loss and Other Comprehensive Income

70 71

Annual Report 2016

Notes to the Financial Statements

Statement of Financial Position

8. Property, plant and equipment

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

Tot al

HK$M

Group

Cost

At 1st January 2016 93,177 45,998 4,125 478 12,123 1,456 157,357

Additions 9,446 2,681 588 – 499 1,036 14,250

Disposals (2,567) – (414) – (181) – (3,162)

Reclassification to assets held for sale (2,984) – – – – – (2,984)

Transfers 3,526 (3,526) 478 (478) 61 (61) –

At 31st December 2016 100,598 45,153 4,777 – 12,502 2,431 165,461

At 1st January 2015 88,290 51,897 4,082 478 11,747 460 156,954

Exchange differences (1) – – – – – (1)

Additions 10,489 – 527 – 407 996 12,419

Disposals (5,126) – (250) – – – (5,376)

Disposal of a subsidiary – – (36) – – – (36)

Reclassification to assets held for sale (6,374) – (198) – (31) – (6,603)

Transfers 5,899 (5,899) – – – – –

At 31st December 2015 93,177 45,998 4,125 478 12,123 1,456 157,357

Accumulated depreciation

andimpairment

At 1st January 2016 38,124 11,752 2,523 420 3,986 – 56,805

Charge for the year 5,176 2,003 319 – 537 – 8,035

Disposals (2,338) – (381) – (163) – (2,882)

Reclassification to assets held for sale (2,953) – – – – – (2,953)

Transfers 2,566 (2,566) 420 (420) – – –

At 31st December 2016 40,575 11,189 2,881 – 4,360 – 59,005

At 1st January 2015 38,417 13,505 2,638 412 3,511 – 58,483

Charge for the year 5,339 2,226 312 8 502 – 8,387

Disposals (4,710) – (237) – – – (4,947)

Disposal of a subsidiary – – (31) – – – (31)

Reclassification to assets held for sale (4,901) – (159) – (27) – (5,087)

Transfers 3,979 (3,979) – – – – –

At 31st December 2015 38,124 11,752 2,523 420 3,986 – 56,805

Net book value

At 31st December 2016 60,023 33,964 1,896 – 8,142 2,431 106,456

At 31st December 2015 55,053 34,246 1,602 58 8,137 1,456 100,552

Cathay Pacific Airways Limited

Notes to the Financial Statements Statement of Financial Position

8. Property, plant and equipment (continued)

(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 11 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.

(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 partially fixed and partially floating and

subleasing is not allowed. At 31st December 2016, 13 Airbus A330-300s (2015: 13), one Boeing 747-400BCF

(2015: one), 23 Boeing 777-300ERs (2015: 23), 10 Airbus A320-200s (2015: 10), six Airbus A321-200s (2015: six),

two Airbus A350-900s (2015: nil) and two A300-600Fs (2015: two) 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$18,665 million (2015: HK$18,831 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 at 31st December 2016 for each of

the following periods are as follows:

2016

HK$M

2015

HK$M

Aircraft and related equipment:

–withinoneyear 3,639 3,673

–afteroneyearbutwithintwoyears 3,242 3,581

–aftertwoyearsbutwithinfiveyears 7,939 8,308

–afterfiveyears 5,655 7,786

20,475 23,348

Buildings and other equipment:

–withinoneyear 795 769

–afteroneyearbutwithintwoyears 640 600

–aftertwoyearsbutwithinfiveyears 644 922

–afterfiveyears 465 410

2,544 2,701

23,019 26,049

As at the year end, advance payments included in owned aircraft and related equipment amounted to HK$3,560

million (2015: HK$3,697 million) for the Group. 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 in note 12 to the

financial statements.

72 73

Annual Report 2016

8. Property, plant and equipment (continued)

(e) No impairment loss was recognised for the year ended 31st December 2016 (2015: nil). During the year, a number of

aircraft have been transferred to assets held for sale. The fair value on which the recoverable amount is based is

categorised as a Level 2 measurement.

9. Intangible assets

Goodwill

HK$M

Computer

software

HK$M

Others

HK$M

Tot al

HK$M

Cost

At 1st January 2016 7,666 4,498 253 12,417

Additions – 885 – 885

Disposals – (79) – (79)

At 31st December 2016 7,666 5,304 253 13,223

At 1st January 2015 7,666 3,738 253 11,657

Additions – 760 – 760

At 31st December 2015 7,666 4,498 253 12,417

Accumulated amortisation

At 1st January 2016 – 1,806 5 1,811

Charge for the year – 511 4 515

Disposals – (37) – (37)

At 31st December 2016 – 2,280 9 2,289

At 1st January 2015 – 1,338 1 1,339

Charge for the year – 468 4 472

At 31st December 2015 – 1,806 5 1,811

Net book value

At 31st December 2016 7,666 3,024 244 10,934

At 31st December 2015 7,666 2,692 248 10,606

The carrying amount of goodwill allocated to the airline operations is HK$7,627 million (2015: 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 of 1.0% to 3.0% (2015: 1.0% to 3.0%) which does

not exceed the long-term average growth rate for the business in which the CGU operates. The discount rates used of

approximately 7.9% (2015: 8.0%) are pre-tax and reflect the specific risks 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 Financial Statements Statement of Financial Position

Cathay Pacific Airways Limited

10. Investments in associates

2016

HK$M

2015

HK$M

Share of net assets

–listedinHongKong 16,141 15,282

–unlisted 2,139 2,241

Goodwill 3,629 3,882

21,909 21,405

Loans due from associates 1,389 1,473

23,298 22,878

At 31st December 2016, the market value of the Hong Kong listed shares is HK$13,037 million (2015: HK$16,092 million).

At 31st December 2016, included in the loans due from associates is a loan of HK$1,094 million (2015: HK$1,170 million)

which is unsecured and interest-free (2015: interest-bearing at 2.0% per annum) and repayable before 23rd March 2019.

Terms are subject to review annually.

Air China is considered material to the Group and the share of assets and liabilities and results is summarised as below:

2016

HK$M

2015

HK$M

Gross amounts of the associate’s

–currentassets 23,869 25,706

–non-currentassets 231,516 237,315

–currentliabilities (75,267) (66,060)

–non-currentliabilities (97,149) (116,086)

Revenue 119,795 130,432

Profit from continuing operations 9,402 8,909

Other comprehensive income (689) (1,594)

Total comprehensive income 8,713 7,315

Dividend received from the associate 334 175

Reconciled to the Group’s interests in the associate

–grossamountsofnetassetsoftheassociate 82,969 80,875

–Group’sshareofnetassetsoftheassociateateffectiveinterest

(2016:20.13%;2015:20.13%) 16,702 16,280

–effectofcrossshareholdingandothers (561) (998)

–goodwill 3,629 3,882

19,770 19,164

Air China is a strategic partner for the Group and the national flag carrier and a leading provider of passenger, cargo and

other airline-related services in Mainland China.

Notes to the Financial Statements Statement of Financial Position

74 75

Annual Report 2016

Notes to the Financial Statements Statement of Financial Position

10. Investments in associates (continued)

Aggregate information of associates that are not individually material

2016

HK$M

2015

HK$M

Aggregate carrying amount of individually immaterial associates 3,528 3,714

Aggregate amounts of the Group’s share of those associates

–profitfromcontinuingoperations 105 139

–othercomprehensiveincome (196) (164)

–totalcomprehensiveincome (91) (25)

Principal associates are listed on page 104.

11. Other long-term receivables and investments

2016

HK$M

2015

HK$M

Equity investments at fair value

–listedinHongKong 553 433

–unlisted 631 584

Leasehold land rental prepayments 1,258 1,301

Loans and other receivables 843 1,118

Derivative financial assets – long-term portion 1,319 1,633

4,604 5,069

Leasehold land is held under medium-term leases in Hong Kong with a total unamortised value of HK$1,301 million

(2015: HK$1,344 million).

At 31st December 2016, total derivative financial assets of the Group which did not qualify for hedge accounting

amounted to HK$1,160 million (2015: HK$1,222 million). The balance is included in above, except for HK$5 million

(2015: HK$33 million) which is included in trade, other receivables and other assets.

Cathay Pacific Airways Limited

Notes to the Financial Statements Statement of Financial Position

12. Long-term liabilities

2016 2015

Note

Current

HK$M

Non-current

HK$M

Current

HK$M

Non-current

HK$M

Long-term loans (a) 7,217 36,125 9,164 26,438

Obligations under finance leases (b) 4,046 22,781 4,074 23,429

11,263 58,906 13,238 49,867

(a) Long-term loans

2016

HK$M

2015

HK$M

Bank loans

–secured 25,227 22,213

–unsecured 13,094 9,780

Other loans

–unsecured 5,021 3,609

43,342 35,602

Amount due within one year included under current liabilities (7,217) (9,164)

36,125 26,438

Repayable as follows:

Bank loans

–withinoneyear 5,378 8,833

–afteroneyearbutwithintwoyears 3,116 4,616

–aftertwoyearsbutwithinfiveyears 19,831 9,060

–afterfiveyears 9,996 9,484

38,321 31,993

Other loans

–withinoneyear 1,839 331

–afteroneyearbutwithintwoyears 866 1,870

–aftertwoyearsbutwithinfiveyears 1,802 894

–afterfiveyears 514 514

5,021 3,609

Amount due within one year included under current liabilities (7,217) (9,164)

36,125 26,438

Borrowings other than bank loans are repayable on various dates up to 2022 at an interest rate of 3.4% per annum

while bank loans are repayable up to 2027.

Long-term loans of the Group not wholly repayable within five years amounted to HK$24,211 million (2015:

HK$21,615 million).

At 31st December 2016, the Group had long-term loans totalling HK$35,765 million (2015: HK$33,703 million) which

were defeased by funds and other investments. Accordingly, these liabilities and the related funds, as well as related

expenditure and income, have been defeased in the financial statements.

76 77

Annual Report 2016

12. 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 2017 to 2027. The reconciliation of future lease payments and their carrying value under these

finance leases is as follows:

2016

HK$M

2015

HK$M

Future payments 29,668 30,898

Interest charges relating to future periods (2,841) (2,851)

Present value of future payments 26,827 28,047

Securitydeposits,notesandzerocouponbonds – (544)

Amounts due within one year included under current liabilities (4,046) (4,074)

22,781 23,429

The present value of future payments is repayable as follows:

2016

HK$M

2015

HK$M

Within one year 4,046 4,618

After one year but within two years 3,922 3,845

After two years but within five years 9,143 9,707

After five years 9,716 9,877

26,827 28,047

The future lease payment profile is disclosed in note 29 to the financial statements.

At 31st December 2016, the Group had nil (2015: HK$215 million) obligations under finance leases which were

defeased by funds and other investments. Accordingly these liabilities and the related funds, as well as related

expenditure and income, have been defeased in the financial statements.

At 31st December 2016, the Group had financial liabilities designated as at fair value through profit or loss of

HK$2,227 million (2015: HK$2,593 million).

13. Other long-term payables

2016

HK$M

2015

HK$M

Deferred liabilities 2,805 2,390

Derivative financial liabilities

–long-termportion 4,169 12,415

Retirement benefit liabilities (note 14) 543 1,033

7,517 15,838

At 31st December 2016, the Group had a maintenance provision of HK$2,204 million (2015: HK$1,561 million) for

returning the aircraft under operating leases to certain maintenance conditions. The provision is included in above,

except for HK$3 million (2015: HK$3 million) which is included in trade and other payables.

At 31st December 2016, total derivative financial liabilities of the Group which did not qualify for hedge accounting

amounted to HK$32 million (2015: HK$175 million). The balance is included in above, except for HK$2 million

(2015: HK$147 million) which is included in trade and other payables.

Notes to the Financial Statements Statement of Financial Position

Cathay Pacific Airways Limited

14. 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 separate trustee-administered funds.

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

A defined benefit scheme is a retirement plan that defines the benefit that an employee will receive on retirement,

usually dependent on one or more factors such as age, years of service and compensation. The Group has an

obligation to provide participating employees with these benefits.

The Swire Group Retirement Benefit Scheme (“SGRBS”) in Hong Kong, in which the Company, Cathay Pacific

Catering Services (H.K.) Limited (“CPCS”) and Vogue Laundry Service Limited (“Vogue”) 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, CPCS and Vogue 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 majority of the Group’s schemes are final salary guarantee lump sum defined benefit plans.

Contributions to the defined benefit retirement schemes are made in accordance with the funding rates

recommended by independent qualified actuaries to ensure that the plans will be able to meet their liabilities as they

become due. The funding rates are subject to annual review and are determined by taking into consideration the

difference between the market values of the plans’ assets and the present value of accrued past service liabilities,

on an on-going basis, as computed by reference to actuarial valuations. The principal schemes in Hong Kong are

valued annually by qualified actuaries for funding purposes under the provision of Hong Kong’s Occupational

Retirement Schemes Ordinance.

For the year ended 31st December 2016, disclosures are based on valuations prepared by Mercer (Hong Kong)

Limited at 31st December 2015, which were updated at 31st December 2016 by Cannon Trustees Limited, the main

administration manager of the Group’s defined benefit schemes. For the year ended 31st December 2015,

disclosures are based on valuations prepared by Mercer (Hong Kong) Limited at 31st December 2015.

Through its defined benefit retirement schemes the Group is exposed to a number of risks, the most significant of

which is market risk.

Market risk embodies the potential for losses and gains and includes price risk, interest rate risk and currency risk

as well as factors specific to an individual investment or its issuer or risk specific to a certain market. Market risk is

managed principally through diversification of the investments by the investment managers appointed. Investment

managers are governed by agreements that stipulate the performance objective of the investments, which is

referenced to a recognised benchmark and the predicated tracking error around this benchmark. An investment

committee monitors the overall market risk position on a quarterly basis.

Notes to the Financial Statements Statement of Financial Position

78 79

Annual Report 2016

14. Retirement benefits (continued)

The Group’s obligations are 93.5% (2015: 88.4%) covered by the plan assets held by the trustees at

31st December 2016.

2016

HK$M

2015

HK$M

Net expenses recognised in the Group’s profit or loss:

Current service cost 315 331

Net interest cost 42 39

Total included in staff costs 357 370

Actual return/(loss) on plan assets 341 (64)

2016

HK$M

2015

HK$M

Net liabilities recognised in the statement of financial position:

Present value of funded obligations 8,301 8,912

Fair value of plan assets (7,758) (7,879)

Retirement benefit liabilities (note 13) 543 1,033

2016

HK$M

2015

HK$M

Movements in present value of funded obligations comprise:

At 1st January 8,912 8,961

Remeasurements:

–actuarialgainsarisingfromchangesinfinancialassumptions (218) (253)

–experience(gains)/losses (345) 209

Movements for the year

–currentservicecost 315 331

–interestexpense 259 262

–employeecontributions 3 4

–benefitspaid (613) (565)

–transfer (12) (7)

–disposalofasubsidiary – (30)

At 31st December 8,301 8,912

The weighted average duration of the defined benefit obligations is seven years (2015: seven years).

2016

HK$M

2015

HK$M

Movements in fair value of plan assets comprise:

At 1st January 7,879 8,372

Movements for the year

–return/(loss)onplanassetsexcludinginterestincome 124 (287)

–interestincome 217 223

–employeecontributions 3 4

–employercontributions 160 163

–benefitspaid (613) (565)

–transfer (12) (7)

–disposalofasubsidiary – (24)

At 31st December 7,758 7,879

There were no plan amendments, curtailments and settlements during the year.

Notes to the Financial Statements Statement of Financial Position

Cathay Pacific Airways Limited

14. Retirement benefits (continued)

2016

HK$M %

2015

HK$M %

Fair value of plan assets comprises:

Equities

–AsiaPacific 845 11 1,016 13

–Europe 471 6 460 6

–NorthAmerica 980 12 947 12

–others 993 13 709 9

Bonds

–Global 1,838 24 1,873 23

–Emergingmarkets 81 1 62 1

Absolute return funds 1,618 21 1,667 21

Cash 932 12 1,145 15

7,758 100 7,879 100

At 31st December 2016, the prices of 96% of equities and 45% of bonds were quoted on active markets (31st

December 2015: 95% and 38% respectively). The remainder of the prices were not quoted on active markets.

The plan assets are invested in the Swire Group Unitised Trust (“the Trust”). The Trust has three sub-funds in which

the assets are invested in accordance with separate and distinct investment policies and objectives. The Trust and

sub-funds are overseen by an investment committee, which meets four times a year.

The make-up of the Trust is the result of the asset allocation of each plan. The asset allocation of each plan targets

a mix of equities, bonds and absolute return funds.

The management of the assets within the sub-funds is delegated by the investment committee to a number of

reputable investment managers.

The contributions are calculated based upon funding recommendations arising from actuarial valuations.

The Group expects to make contributions of HK$159 million to the schemes in 2017.

2016 2015

SGRBS CPALRS SGRBS CPALRS

The significant actuarial assumptions are:

Discount rate 3.64% 3.64% 3.22% 3.22%

Expected rate of future salary increases 5.00% 3.04% 5.00% 3.06%

The sensitivity of the defined benefit obligations to changes in the actuarial assumptions are set out below. This

shows how the defined benefit obligations at 31st December 2016 would have (increased)/decreased as a result of

0.5% change in the actuarial assumptions:

Increase by 0.5% Decrease by 0.5%

2016

HK$M

2015

HK$M

2016

HK$M

2015

HK$M

Discount rate 251 282 (260) (298)

Expect rate of future salary increases (249) (323) 242 310

Notes to the Financial Statements Statement of Financial Position

80 81

Annual Report 2016

14. Retirement benefits (continued)

The above sensitivity analysis is based on a change in an assumption while holding all other assumptions constant.

In practice, this is unlikely to occur, and changes in some of the assumptions may be correlated. When calculating

the sensitivity of the defined benefit obligations to significant actuarial assumptions the same method has been

applied as when calculating the retirement benefit liability recognised within the statement of financial position.

(b) Defined contribution retirement schemes

A defined contribution scheme is a retirement plan under which the Group pays fixed contribution into a separate

entity. The Group has no legal or constructive obligations to pay further contributions.

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’s contribution, staff may elect to contribute from 0% to

10% of their monthly salary. During the year, there were no benefits forfeited in accordance with the schemes’ rules

(2015: nil) 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$30,000). Staff may elect to contribute more than the minimum as a voluntary contribution.

Contributions to defined contribution retirement schemes charged to the Group’s profit or loss were HK$1,202

million (2015: HK$1,134 million).

15. Deferred taxation

2016

HK$M

2015

HK$M

Deferred tax assets:

–provisions (136) (169)

–taxlosses (2,141) (1,591)

–cashflowhedges (819) (2,104)

–retirementbenefits (70) (127)

Deferred tax liabilities:

–acceleratedtaxdepreciation 4,366 4,063

–investmentsinassociates 882 779

Provision in respect of certain lease arrangements 8,561 7,930

10,643 8,781

The following amounts, determined after appropriate offsetting, are shown separately on the statement of financial

position:

2016

HK$M

2015

HK$M

Net deferred tax asset recognised in the statement of financial position (737) (497)

Net deferred tax liability recognised in the statement of financial position 11,380 9,278

10,643 8,781

Notes to the Financial Statements Statement of Financial Position

Cathay Pacific Airways Limited

15. Deferred taxation (continued)

2016

HK$M

2015

HK$M

Movements in deferred taxation comprise:

At 1st January 8,781 9,263

Movements for the year

–(credited)/chargedtoprofitorloss

–deferredtaxexpenses(note4) (135) 727

–operatingexpenses 60 59

–charged/(credited)toothercomprehensiveincome

–transferredtocashflowhedgereserve(note5) 1,285 (890)

–transferredtoretainedprofit(note5) 81 (33)

–initialcashbenefitfromleasearrangements 894 –

Current portion of provision in respect of certain lease arrangements included under

currentliabilities–taxation (323) (345)

At 31st December 10,643 8,781

Deferred tax assets are recognised in respect of tax losses carried forward to the extent that realisation of the related

tax benefits through future taxable profits is probable. The Group has unrecognised tax losses of HK$13,197 million

(2015: HK$9,654 million) to carry forward against future taxable income. These amounts are analysed as follows:

Group

Unrecognised tax losses

2016

HK$M

2015

HK$M

No expiry date 2,841 2,426

Expiring beyond 2021 10,356 7,228

13,197 9,654

The provision in respect of certain lease arrangements equates to payments which are expected to be made during the

years 2017 to 2026 (2015: 2017 to 2025) as follows:

2016

HK$M

2015

HK$M

After one year but within five years 2,705 2,373

After five years but within 10 years 5,147 5,557

After 10 years 709 –

8,561 7,930

16. Trade, other receivables and other assets

2016

HK$M

2015

HK$M

Trade debtors 5,595 5,360

Derivative financial assets – current portion 857 1,145

Other receivables and prepayments 3,042 3,083

Due from associates and other related companies 63 127

9,557 9,715

Notes to the Financial Statements Statement of Financial Position

82 83

Annual Report 2016

Notes to the Financial Statements Statement of Financial Position

16. Trade, other receivables and other assets (continued)

2016

HK$M

2015

HK$M

Analysis of trade debtors (net of allowance for doubtful debts) by invoice date:

Current 4,370 4,453

One to three months 705 522

More than three months 520 385

5,595 5,360

2016

HK$M

2015

HK$M

Analysis of trade debtors (net of allowance for doubtful debts) by age:

Current 5,074 5,038

One to three months overdue 395 167

More than three months overdue 126 155

5,595 5,360

The overdue trade debtors are not impaired and relate to a number of independent customers for whom there is no

recent history of default.

The movement in the provision for bad debts included in trade debtors during the year was as follows:

2016

HK$M

2015

HK$M

At 1st January 52 52

Amounts written back (3) –

At 31st December 49 52

17. Assets held for sale

2016

HK$M

2015

HK$M

Assets held for sale 31 1,497

An impairment loss amounting to HK$24 million was recognised for the year ended 31st December 2016 (2015:

HK$4 million). Impairment of assets held for sale is considered by writing down the carrying value to the estimated

recoverable amount of HK$565 million (2015: HK$62 million) which is the higher of the value in use and the fair value

less costs of disposal. The recoverable amount was determined based on the fair value less costs of disposal, using the

market comparison approach with reference to the estimated sales value at 31st December 2016 and 2015. The fair

value on which the recoverable amount is based is categorised as a Level 2 measurement.

Cathay Pacific Airways Limited

Notes to the Financial Statements Statement of Financial Position

18. Liquid funds

2016

HK$M

2015

HK$M

Short-term deposits and bank balances (note 24) 9,778 7,207

Short-term deposits maturing beyond three months when placed 5,556 7,715

Funds with investment managers

–debtsecuritieslistedoutsideHongKong 4,749 4,698

–bankdeposits 33 7

Other liquid investments

–debtsecuritieslistedoutsideHongKong 4 817

–bankdeposits 170 203

20,290 20,647

Included in other liquid investments are bank deposits of HK$170 million (2015: HK$203 million) and debt securities of

HK$4 million (2015: HK$134 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.

19. Trade and other payables

2016

HK$M

2015

HK$M

Trade creditors 5,061 5,341

Derivative financial liabilities – current portion 5,680 9,456

Other payables 8,024 7,732

Due to associates 175 227

Due to other related companies 164 269

19,104 23,025

At 31st December 2016, the Group had a provision of HK$1,126 million (2015: HK$1,418 million) for possible or actual

taxation, litigation and claims. The provision is included in above.

2016

HK$M

2015

HK$M

Analysis of trade creditors by age:

Current 4,854 5,023

One to three months overdue 196 308

More than three months overdue 11 10

5,061 5,341

The Group’s general payment terms are one to two months from the invoice date.

84 85

Annual Report 2016

20. Share capital

2016 2015

Number of shares HK$M Number of shares HK$M

Issued and fully paid

At 1st January and at 31st December 3,933,844,572 17,106 3,933,844,572 17,106

There was no purchase, sale or redemption by the Company, or any of its subsidiaries, of the Company’s shares during

the year. At 31st December 2016, 3,933,844,572 shares were in issue (31st December 2015: 3,933,844,572 shares).

21. Reserves

2016

HK$M

2015

HK$M

Retained profit 44,672 45,900

Investment revaluation reserve 908 730

Cash flow hedge reserve (5,855) (15,545)

Others (1,466) (264)

38,259 30,821

Retained

profit

HK$M

Investment

revaluation

reserve

HK$M

Cash flow

hedge

reserve

HK$M

Others

HK$M

Tot al

HK$M

Company

At 1st January 2016 38,295 346 (15,566) (1) 23,074

Loss for the year (1,426) – – – (1,426)

Other comprehensive income 574 58 9,734 – 10,366

Total comprehensive income for the year (852) 58 9,734 – 8,940

2015 second interim dividend (1,062) – – – (1,062)

2016 first interim dividend (197) – – – (197)

(2,111) 58 9,734 – 7,681

At 31st December 2016 36,184 404 (5,832) (1) 30,755

At 1st January 2015 34,952 792 (10,162) (1) 25,581

Profit for the year 5,579 – – – 5,579

Other comprehensive income (190) (446) (5,404) – (6,040)

Total comprehensive income for the year 5,389 (446) (5,404) – (461)

2014 second interim dividend (1,023) – – – (1,023)

2015 first interim dividend (1,023) – – – (1,023)

3,343 (446) (5,404) – (2,507)

At 31st December 2015 38,295 346 (15,566) (1) 23,074

Notes to the Financial Statements Statement of Financial Position

Cathay Pacific Airways Limited

21. Reserves (continued)

Distributable reserves of the Company at 31st December 2016 amounted to HK$36,184 million (2015: HK$38,295

million), as calculated under the provisions of Part 6 of the Hong Kong Companies Ordinance (Cap. 622).

The investment revaluation reserve comprises changes in the fair value of long-term investments.

Other reserves of the Group comprise negative exchange differences arising from revaluation of foreign investments

which amounted to HK$334 million (2015: positive reserve HK$1,202 million) and share of associate’s other negative

reserve of HK$1,132 million (2015: HK$1,466 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 loss transferred from the cash flow hedge reserve of the Group to profit or loss items was as follows:

2016

HK$M

2015

HK$M

Revenue 1,294 1,295

Fuel (8,423) (8,489)

Net finance charge (275) (279)

Net loss transferred to the profit or loss (note 5) (7,404) (7,473)

The cash flow hedge reserve of the Group is expected to be charged to operating profit or transferred to relevant assets

as noted below when the hedged transactions affect profit or loss or the relevant assets are recognised.

Total

HK$M

2017 (3,980)

2018 (2,899)

2019 (216)

2020 231

2021 238

Beyond 2021 771

(5,855)

The actual amount ultimately recognised in operating profit or transferred to relevant assets will depend upon the fair

values of the hedging instruments at the time that the hedged transactions affect profit or loss.

Notes to the Financial Statements Statement of Financial Position

86 87

Annual Report 2016

22. Reconciliation of operating (loss)/profit to cash generated from operations

2016

HK$M

2015

HK$M

Operating (loss)/profit (525) 6,664

Depreciation of property, plant and equipment 8,035 8,387

Amortisation of intangible assets 515 472

Provision for impairment of assets held for sale 24 4

Gain on disposal of assets held for sale (232) (4)

Loss/(gain) on disposal of property, plant and equipment, net 272 (49)

Loss on disposal of intangible assets 42 –

Gain on disposal of long-term investment (3) –

Gain on disposal of a subsidiary – (106)

Currency adjustments and other items not involving cash flows 7,427 7,791

(Increase)/decrease in stock (148) 223

Decrease in trade debtors, other receivables and other assets and

derivativefinancialassets 408 2,351

Decrease in net amounts due to related companies and associates (93) (8)

(Decrease)/increase in trade creditors, other payables, derivative financial liabilities and

deferredcreditorsincludingdeferredliabilitiesandlong-termfinancialderivatives (11,595) 5,526

(Decrease)/increase in unearned transportation revenue (86) 774

Non-operating movements in debtors and creditors 3,660 (14,888)

Cash generated from operations 7,701 17,137

23. Disposal of a subsidiary

2016

HK$M

2015

HK$M

Net liabilities disposed of:

Property, plant and equipment – 5

Trade, other receivables and other assets – 14

Trade and other payables – (18)

Others – (8)

Total net liabilities – (7)

Reversal of non-controlling interests – (16)

Gain on disposal – 106

Total consideration – 83

Analysis of net cash inflow from disposal of a subsidiary:

Sales proceeds – 125

Less liquid funds disposed of:

–short-termdeposits – (20)

–bankbalances – (22)

Net cash inflow from disposal of a subsidiary – 83

24. Analysis of cash and cash equivalents

2016

HK$M

2015

HK$M

Short-term deposits and bank balances (note 18) 9,778 7,207

Notes to the Financial Statements

Statement of Cash Flows

Cathay Pacific Airways Limited

Notes to the Financial Statements

Directors and Employees

25. Directors’ and executive officers’ remuneration

(a) Directors’ remuneration disclosed pursuant to section 383(1) of the Hong Kong Companies Ordinance and part 2 of

the Companies (Disclosure of Information about Benefit of Directors) Regulation is:

Cash Non-cash

Basic

salary/

Fees

(note i)

HK$’000

Bonus

(note ii)

HK$’000

Allowances

& benefits

HK$’000

Contributions

to retirement

schemes

HK$’000

Bonus

paid into

retirement

schemes

HK$’000

Other

benefits

HK$’000

Housing

benefits

HK$’000

2016

Total

HK$’000

2015

Tot al

HK$’000

Executive Directors

John Slosar 251 230 4 83 68 – 209 845 1,983

Christopher Pratt

(uptoMarch2014) – – – – – – – – 140

W.E. James Barrington

(uptoSeptember2015) – 1,332 – – 822 1 – 2,155 6,420

Ivan Chu 3,200 5,057 1,527 723 – – – 10,507 10,096

Rupert Hogg 2,736 2,320 617 903 1,046 – 4,392 12,014 11,117

Martin Murray 2,618 1,944 616 864 1,053 137 3,500 10,732 9,739

Algernon Yau

(fromSeptember2015) 1,992 1,024 869 299 – – – 4,184 1,051

Non-Executive Directors

Cai Jianjiang 575 – – – – – – 575 575

Martin Cubbon – – – – – – – – –

Fan Cheng

(uptoDecember2016) 755 – – – – – – 755 755

Ian Shiu

(uptoDecember2016) – – – – – – – – –

Song Zhiyong 575 – – – – – – 575 575

Merlin Swire – – – – – – – – –

Samuel Swire – – – – – – – – –

Xiao Feng

(fromJanuary2017) – – – – – – – – –

Zhao Xiaohang 575 – – – – – – 575 575

Independent Non-

Executive Directors

John Harrison

(fromMay2015) 755 – – – – – – 755 467

Irene Lee 915 – – – – – – 915 885

Jack So (up to May 2015) – – – – – – – – 320

Andrew Tung

(fromMay2015) 633 – – – – – – 633 392

Tung Chee Chen

(uptoMay2015) – – – – – – – – 243

Peter Wong 755 – – – – – – 755 755

2016 Total 16,335 11,907 3,633 2,872 2,989 138 8,101 45,975

2015 Total 16,214 10,382 4,808 3,343 3,360 325 7,656 46,088

(i) Independent Non-Executive Directors receive fees as members of the Board and its committees. Executive Directors receive salaries.

For Directors employed by the Swire group, the remuneration disclosed represents the amount charged to the Company.

(ii) Management bonus relates to services for 2015 and was paid in 2016. Other discretionary bonuses were paid in 2015 or 2016.

(iii) The total emoluments of Executive Directors are charged to the Group in accordance with the amount of time spent on its affairs.

88 89

Annual Report 2016

25. Directors’ and executive officers’ remuneration (continued)

(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

Other

benefits

HK$’000

Housing

benefits

HK$’000

2016

Total

HK$’000

2015

Tot al

HK$’000

Arnold Cheng

(fromJuly2016) 710 125 340 116 – – – 1,291 –

Dane Cheng 1,830 1,402 876 300 – – – 4,408 3,548

Philippe de Gentile-Williams

(uptoJuly2014) – – – – – – – – 1,127

Christopher Gibbs 2,532 1,919 1,485 388 – – – 6,324 5,703

James Ginns 1,801 1,158 2,750 592 852 84 – 7,237 6,137

Richard Hall

(uptoApril2015) – 309 – – – – – 309 2,841

Simon Large

(fromAugust2015) 1,685 471 1,942 556 357 156 846 6,013 2,156

Joseph Locandro

(uptoJune2016) 1,282 1,111 2,886 165 – – – 5,444 4,820

Paul Loo

(fromAugust2015) 1,742 926 883 286 – – – 3,837 1,093

Tom Owen

(fromAugust2015) 1,685 424 620 556 312 177 2,245 6,019 1,909

Nick Rhodes

(uptoJuly2015) – 1,178 – – 734 1 – 1,913 6,250

Anna Thompson

(fromApril2015) 1,702 865 2,003 561 656 155 – 5,942 3,116

James Tong

(uptoJuly2016) 954 1,236 377 157 – – – 2,724 3,379

James Woodrow

(uptoSeptember2015) – 1,059 – – 635 1 – 1,695 5,723

2016 Total 15,923 12,183 14,162 3,677 3,546 574 3,091 53,156

2015 Total 16,170 9,834 8,568 3,667 2,713 562 6,288 47,802

(i) Management bonus relates to services for 2015 and was paid in 2016. Other discretionary bonuses were paid in 2015 or 2016.

(ii) The total emoluments of Executive Officers are charged to the Group in accordance with the amount of time spent on its affairs.

26. Employee information

The five highest paid individuals of the Company included three Directors (2015: four) and two executive officers

(2015: one), whose emoluments are set out in note 25 above.

Notes to the Financial Statements Directors and Employees

Cathay Pacific Airways Limited

27. 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:

2016 2015

Associates

HK$M

Other related

parties

HK$M

Associates

HK$M

Other related

parties

HK$M

Revenue 280 24 240 19

Aircraft maintenance costs 989 2,297 1,102 2,140

Operating costs 732 – 761 –

Dividend income 422 1 280 11

Finance income 17 – 19 –

Property, plant and equipment purchase – 6 – 6

Other related parties are companies under control of a company which has a significant influence on the Group.

(i) Under the HAECO Framework Agreement with HAECO and HXITM, the Group paid fees to, and received fees

from, the HAECO group in respect of aircraft maintenance and related services. The amounts payable to the

HAECO group for the year ended 31st December 2016 totalled HK$3,288 million (2015: HK$3,246 million). The

amounts receivable from the HAECO group for the year ended 31st December 2016 totalled HK$34 million

(2015: HK$27 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 a definition of terms, please refer to the section of this annual report

headed Directors’ Report.

(ii) Under the Air China Framework Agreement with Air China dated 26th June 2008, the Group paid fees to, and

received fees from, the Air China group in respect of transactions between the Group on the one hand and the

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 the Air China group for the year ended 31st December 2016 totalled

HK$346 million (2015: HK$415 million). The amounts receivable from the Air China group for the year ended

31st December 2016 totalled HK$269 million (2015: HK$232 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 a definition of terms, please refer to the section of this annual report headed Directors’ Report.

Notes to the Financial Statements

Related Party Transactions

90 91

Annual Report 2016

27. Related party transactions (continued)

(b) The Company has 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 taxation, results of associates, non-controlling

interests, and any profits or losses on disposal of property, plant and equipment are paid annually. For the year

ended 31st December 2016, no (2015: HK$143 million) service fee was payable and expenses of HK$161 million

(2015: HK$209 million) were reimbursed at cost; in addition, HK$80 million (2015: HK$68 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 a

definition of terms, please refer to the section of this annual report headed Directors’ Report.

notes 16 and 19 to the financial statements. 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 2016 are

disclosed in note 28(b) to the financial statements.

(e) There were no material transactions with Directors and executive officers except for those relating to shareholdings

(as disclosed in the Directors’ Report and the Corporate Governance Report). Remuneration of Directors and

executive officers is disclosed in note 25 to the financial statements.

Notes to the Financial Statements Related Party Transactions

Cathay Pacific Airways Limited

28. Capital commitments and contingencies

(a) Outstanding capital commitments authorised at the year end but not provided for in the financial statements:

2016

HK$M

2015

HK$M

Authorised and contracted for 84,645 94,272

Authorised but not contracted for 6,842 5,096

91,487 99,368

Operating lease commitments are shown in note 8(b) to the financial statements.

(b) Guarantees in respect of lease obligations, bank loans and other liabilities outstanding at the year end:

2016

HK$M

2015

HK$M

Associates 4,031 4,776

Related parties – 1,186

Staff – 200

4,031 6,162

Related parties are companies under control of a company which has a significant influence on the Group.

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 remains the subject of antitrust proceedings in various jurisdictions. Except as otherwise noted

below, the proceedings are focused on issues relating to pricing and competition. The Company is represented by

legal counsel in connection with these matters.

The proceedings and civil actions, except as otherwise stated below, are ongoing and the outcomes are subject to

uncertainties. The Company is not in a position to assess the full potential liabilities but makes provisions based on

facts and circumstances in line with accounting policy 20 on page 109.

In November 2010, the European Commission issued a decision in its airfreight investigation finding that, amongst

other things, the Company and a number of other international cargo carriers agreed to cargo surcharge levels and

that such agreements infringed European competition law. The European Commission imposed a fine of Euros

57.12 million on the Company. However, the General Court delivered judgment in December 2015 annulling the

European Commission’s finding against the Company and the fine of Euros 57.12 million was refunded to the

Company in February 2016. The European Commission has informed the Company and the other airlines involved in

the case of its intention to issue a new decision.

The Company is a defendant in a number of civil claims, including class litigation and third party contribution claims,

in a number of countries including Canada, the United Kingdom, Germany, the Netherlands, Norway and Korea

alleging violations of applicable competition laws arising from the Company’s alleged conduct relating to its air

cargo operations. In addition, civil class action claims have been filed in Canada alleging violations of applicable

competition laws arising from the Company’s alleged conduct relating to certain of its passenger operations. The

Company is represented by legal counsel and is defending these actions, except as noted below.

The Company was involved in three putative class action cases filed in Canada, in which the plaintiffs alleged the

Company and other carriers that provide air cargo services fixed the prices of various air cargo charges and

surcharges in violation of the Canadian Competition Act. The Company reached an agreement to settle all three

actions in December 2015, by paying the plaintiffs CAD$6 million (approximately HK$34.9 million at the exchange

rate current at date of payment). The settlements, which were approved by the Courts in Ontario and British

Columbia in July 2016 and the Courts in Quebec in August 2016, will resolve claims by all putative class members in

all three actions.

Notes to the Financial Statements

Supplementary Information

92 93

Annual Report 2016

29. 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 Board.

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 prices

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”) which 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 28 to the financial

statements. Collateral and guarantees received in respect of credit terms granted at 31st December 2016 totalled

HK$1,331 million (2015: HK$1,373 million).

The movement in the provision for bad debts in respect of trade debtors during the year is set out in note 16 to the

financial statements.

(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 analysis has been performed on the same basis as for 2015. The undiscounted payment profile of

financial liabilities is outlined as follows:

2016

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 (8,232) (5,024) (24,094) (11,411) (48,761)

Obligations under finance leases (4,512) (4,424) (10,303) (10,429) (29,668)

Other long-term payables – (857) (1,073) (875) (2,805)

Trade and other payables (13,424) – – – (13,424)

Derivative financial liabilities, net (5,813) (4,035) (28) 3 (9,873)

Total (31,981) (14,340) (35,498) (22,712) (104,531)

Notes to the Financial Statements Supplementary Information

Cathay Pacific Airways Limited

29. Financial risk management (continued)

2015

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

Tot al

HK$M

Group

Bank and other loans (9,806) (7,148) (11,559) (10,945) (39,458)

Obligations under finance leases (4,470) (4,302) (10,917) (10,535) (30,224)

Other long-term payables – (312) (1,091) (987) (2,390)

Trade and other payables (13,569) – – – (13,569)

Derivative financial liabilities, net (9,331) (7,553) (4,917) 2 (21,799)

Total (37,176) (19,315) (28,484) (22,465) (107,440)

(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. 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.

The currencies giving rise to a risk of translation in the Group’s financial statements in 2016 are primarily United

States dollars, Euros, Australian dollars, Singapore dollars, Renminbi and Japanese yen (2015: United States

dollars, Euros, Australian dollars, Singapore dollars, Renminbi and Japanese yen).

At the reporting date, the exposure to these currencies was as follows:

2016

USD

HK$M

EUR

HK$M

AUD

HK$M

SGD

HK$M

RMB

HK$M

JPY

HK$M

Group

Loans due from associates 290 – – – 1,094 –

Trade debtors, other receivables and

prepayments 5,954 349 138 37 1,024 185

Liquid funds 11,797 111 58 977 955 96

Long-term loans (24,192) – – (1,341) – (1,717)

Obligations under finance leases (20,903) (1,710) – – – (3,379)

Trade creditors and other payables (13,639) (253) (109) (70) (566) (244)

Currency derivatives at notional value 13,509 343 (1,717) (56) (6,328) (502)

Net exposure (27,184) (1,160) (1,630) (453) (3,821) (5,561)

Notes to the Financial Statements Supplementary Information

94 95

Annual Report 2016

29. Financial risk management (continued)

2015

USD

HK$M

EUR

HK$M

AUD

HK$M

SGD

HK$M

RMB

HK$M

JPY

HK$M

Group

Loans due from associates 297 – – – 1,170 –

Trade debtors, other receivables and

prepayments 5,423 839 179 33 1,106 193

Liquid funds 15,880 128 97 464 767 100

Long-term loans (19,773) – – (1,370) – (1,894)

Obligations under finance leases (21,722) (1,953) – – – (2,899)

Trade creditors and other payables (26,052) (254) (139) (72) (624) (238)

Currency derivatives at notional value 20,854 (65) (2,630) (274) (8,579) (872)

Net exposure (25,093) (1,305) (2,493) (1,219) (6,160) (5,610)

In addition to the exposure shown above, the Group is exposed to currency risk from its future net operating

cash flows in foreign currencies, principally United States dollars, Renminbi, Australian dollars, New Taiwan

dollars, Euros, Pound sterling, Indian rupees, Japanese yen and Indonesian rupiahs.

Sensitivity analysis for foreign currency exposure

A five percent appreciation of the Hong Kong dollar against the following currencies at 31st December 2016

would have resulted in a change in profit or 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 has been performed on the same basis as for 2015.

2016

Net increase/(decrease)

in profit or loss

HK$M

Net increase in

other equity components

HK$M

United States dollars 1,614 (187)

Euros – 43

Australian dollars (4) 75

Singapore dollars (47) 69

Renminbi (117) 267

Japanese yen (2) 279

Net increase 1,444 546

2015

Net increase/(decrease)

in profit or loss

HK$M

Net increase in

other equity components

HK$M

United States dollars 1,287 6

Euros (22) 70

Australian dollars (7) 114

Singapore dollars (21) 81

Renminbi (111) 360

Japanese yen (3) 281

Net increase 1,123 912

Notes to the Financial Statements Supplementary Information

Cathay Pacific Airways Limited

29. Financial risk management (continued)

(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:

2016

HK$M

2015

HK$M

Fixed rate instruments

Loans receivable 469 536

Long-term loans (3,217) (2,972)

Obligations under finance leases (6,674) (7,427)

Interest rate and currency swaps (18,004) (21,005)

Net exposure (27,426) (30,868)

2016

HK$M

2015

HK$M

Variable rate instruments

Loans due from associates 1,384 1,467

Liquid funds 20,290 20,647

Long-term loans (40,125) (32,630)

Obligations under finance leases (20,153) (20,076)

Interest rate and currency swaps 19,140 22,070

Net exposure (19,464) (8,522)

Sensitivity analysis for interest rate exposure

An increase of 25 basis points in interest rates at the reporting date would have decreased profit or 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 or 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 has been performed on the same basis as for 2015.

2016 2015

Profit

or loss

HK$M

Other equity

components

HK$M

Profit

or loss

HK$M

Other equity

components

HK$M

Variable rate instruments (101) 106 (98) 149

Notes to the Financial Statements Supplementary Information

96 97

Annual Report 2016

29. Financial risk management (continued)

(iii) Fuel price risk

Fuel accounted for 29.6% of the Group’s total operating expenses (2015: 34.0%). 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 combination of contracts which generate payoffs in any particular range of fuel prices.

Sensitivity analysis for jet fuel price derivatives

An increase/(decrease) of five percent in the jet fuel price at the reporting date would have affected profit or

loss and other equity components for the year by the amounts shown below. These amounts represent the

change in fair value of fuel derivatives at the reporting date.

2016 2015

Net

increase/

(decrease) in

profit or loss

HK$M

Net

increase/

(decrease) in

other equity

components

HK$M

Net

increase/

(decrease) in

profit or loss

HK$M

Net

increase/

(decrease) in

other equity

components

HK$M

Increase in jet fuel price by 5% (11) 943 – 1,187

Decrease in jet fuel price by 5% 9 (939) – (1,187)

(d) Hedge accounting

The carrying values of financial assets/(liabilities) designated as cash flow hedges at 31st December 2016 were

as follows:

2016

HK$M

2015

HK$M

Foreign currency risk

–long-termliabilities(naturalhedge) (6,827) (6,662)

–foreigncurrencyforwardcontracts 883 1,442

Interest rate risk

–interestrateswaps (75) (290)

Fuel price risk

–fuelderivatives (9,610) (21,291)

(e) Fair values

The fair values of the following financial instruments differ from their carrying amounts shown in the statement of

financial position:

2016 2015

Carrying

amount

HK$M

Fair value

HK$M

Carrying

amount

HK$M

Fair value

HK$M

Loans receivable 469 494 536 575

Long-term loans (43,342) (45,291) (35,602) (37,202)

Obligations under finance leases (26,827) (27,639) (28,047) (28,904)

Pledged security deposits – – 544 671

Notes to the Financial Statements Supplementary Information

Cathay Pacific Airways Limited

Notes to the Financial Statements Supplementary Information

29. Financial risk management (continued)

These financial instruments are measured using quoted prices in active markets for similar assets or liabilities, or

using valuation techniques in which all significant inputs are based on observable market data. The most significant

inputs are market interest rates.

The carrying amounts of other financial assets and liabilities are considered to be reasonable approximations to

their fair values.

(f) Financial instruments carried at fair value

The following table presents the carrying value of financial instruments measured at fair value at 31st December

2016 across three levels of the fair value hierarchy defined in HKFRS 13 “Fair Value Measurement” 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 only unadjusted

quoted prices in active markets for identical assets or liabilities. Level 2 includes financial instruments with fair

values measured using inputs other than quoted prices within Level 1 that are observable for the asset or liability,

either directly or indirectly. The fair value has been determined based on quotes from market makers or discounted

cash flow valuation techniques in which all significant inputs are based on observable market data. The most

significant inputs are market interest rates, exchange rates and fuel price. Level 3 includes financial instruments

with fair values measured using discounted cash flow valuation techniques in which any significant input is not

based on observable market data.

2016 2015

Level 1

HK$M

Level 2

HK$M

Level 3

HK$M

Total

HK$M

Level 1

HK$M

Level 2

HK$M

Level 3

HK$M

Tot al

HK$M

Recurring fair value

measurement

Assets

Investments at fair value

–listed 553 – – 553 433 – – 433

–unlisted – – 631 631 – – 584 584

Liquid funds

–fundswithinvestment

managers – 4,749 – 4,749 – 4,698 – 4,698

–otherliquidinvestments – 4 – 4 – 817 – 817

Derivative financial assets – 2,176 – 2,176 – 2,778 – 2,778

553 6,929 631 8,113 433 8,293 584 9,310

Liabilities

Obligations under finance

leasesdesignatedasatfair

valuethroughprofitorloss – (2,227) – (2,227) – (2,593) – (2,593)

Derivative financial liabilities – (9,849) – (9,849) – (21,871) – (21,871)

– (12,076) – (12,076) – (24,464) – (24,464)

98 99

Annual Report 2016

Notes to the Financial Statements Supplementary Information

29. Financial risk management (continued)

There were no transfers between Level 1 and Level 2 or transfers into or out of Level 3 fair value hierarchy

classifications.

The fair value of the unlisted investments in Level 3 is determined using a discounted cash flow valuation technique.

The significant unobservable input used in the fair value measurement is the discount rate. Information about fair

value measurements using significant unobservable inputs (Level 3):

Unobservable inputs

Range of

unobservable

inputs

Relationship of unobservable

inputs to fair value

Possible

reasonable

change

Positive/(negative)

impact on valuation

(HK$M)

Unlisted investments

Discount rate 2016: 8.5-9.0%

(2015: 10.0%)

The higher the discount rate,

thelowerthefairvalue

2016: +/- 0.5%

(2015: +/- 0.5%)

2016: (17)/18

(2015: (11)/11)

The movement during the year in the balance of Level 3 fair value measurements is as follows:

2016

HK$M

2015

HK$M

Investments at fair value – unlisted

At 1st January 584 1,196

Disposals (11) (143)

Net unrealised gains or losses recognised in other comprehensive

incomeduringtheyear 58 13

Net unrealised gains or losses reclassified to profit or loss – (482)

At 31st December 631 584

(g) Offsetting financial assets and financial liabilities

2016

Gross amounts

of recognised

financial

assets/(liabilities)

HK$M

Gross amounts

of recognised

financial

assets/(liabilities)

offset in the

statement of

financial position

HK$M

Net amounts of

financial

assets/(liabilities)

presented in the

statement of

financial position

HK$M

Financial

instruments

not offset in

the statement

of financial

position

HK$M

Net amount

HK$M

Group

Derivative financial

assets 2,176 – 2,176 (1,235) 941

Derivative financial

liabilities (9,849) – (9,849) 1,235 (8,614)

(7,673) – (7,673) – (7,673)

100

Cathay Pacific Airways Limited

Notes to the Financial Statements Supplementary Information

29. Financial risk management (continued)

2015

Gross amounts

of recognised

financial

assets/(liabilities)

HK$M

Gross amounts

of recognised

financial

assets/(liabilities)

offset in the

statement of

financial position

HK$M

Net amounts of

financial

assets/(liabilities)

presented in the

statement of

financial position

HK$M

Financial

instruments

not offset in

the statement

of financial

position

HK$M

Net amount

HK$M

Group

Derivative financial

assets 2,778 – 2,778 (2,022) 756

Related pledged

securitydeposits 544 (544) – – –

Obligations under

financeleases (544) 544 – – –

Derivative financial

liabilities (21,871) – (21,871) 2,022 (19,849)

(19,093) – (19,093) – (19,093)

The Group enters into derivative transactions under International Swaps and Derivatives Association (ISDA) master

agreements, providing offsetting in the event of default. The ISDA agreements do not meet the criteria for offsetting

in the statement of financial position. This is because the Group does not currently have any legally enforceable

right to offset recognised amounts, because the right to offset is enforceable only on the occurrence of future

events such as default on the bank loans or other credit events.

30. 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 115 and a ten year history is included on pages 110 and 111 of the annual report.

100 101

Annual Report 2016

Notes to the Financial Statements Supplementary Information

31. Company-level statement of financial position

Note

2016

HK$M

2015

HK$M

2016

US$M

2015

US$M

ASSETS AND LIABILITIES

Non-current assets and liabilities

Property, plant and equipment 84,813 79,154 10,873 10,148

Intangible assets 3,257 2,931 418 376

Investments in subsidiaries 36,090 34,329 4,627 4,401

Investments in associates 10,796 10,802 1,384 1,385

Other long-term receivables and investments 2,792 3,335 358 427

137,748 130,551 17,660 16,737

Long-term liabilities (58,033) (48,279) (7,440) (6,190)

Other long-term payables (6,516) (14,972) (835) (1,919)

Deferred tax liabilities (9,898) (7,929) (1,269) (1,017)

(74,447) (71,180) (9,544) (9,126)

Net non-current assets 63,301 59,371 8,116 7,611

Current assets and liabilities

Stock 1,247 1,141 160 146

Trade, other receivables and other assets 8,823 8,989 1,131 1,152

Assets held for sale 31 1,493 4 192

Liquid funds 14,260 14,985 1,828 1,921

24,361 26,608 3,123 3,411

Current portion of long-term liabilities (10,354) (13,006) (1,327) (1,667)

Related pledged security deposits – 544 – 70

Net current portion of long-term liabilities (10,354) (12,462) (1,327) (1,597)

Trade and other payables (16,386) (20,272) (2,102) (2,599)

Unearned transportation revenue (12,567) (12,619) (1,611) (1,618)

Taxation (494) (446) (63) (57)

(39,801) (45,799) (5,103) (5,871)

Net current liabilities (15,440) (19,191) (1,980) (2,460)

Total assets less current liabilities 122,308 111,360 15,680 14,277

Net assets 47,861 40,180 6,136 5,151

CAPITAL AND RESERVES

Share capital and other statutory capital reserves 20 17,106 17,106 2,193 2,193

Other reserves 21 30,755 23,074 3,943 2,958

Total equity 47,861 40,180 6,136 5,151

The financial statements 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 66 to 104 and the principal accounting policies on pages 105 to 109 form part of these financial statements.

John Slosar Irene Lee

Director Director

Hong Kong, 15th March 2017

102

Cathay Pacific Airways Limited

Notes to the Financial Statements Supplementary Information

32. Impact of further new accounting standards

HKICPA has issued amendments and new standards which become effective for accounting periods beginning on or

after 1st January 2016 and which are not adopted in the financial statements. The Group is in the process of making an

assessment of what the impact of these amendments and new standards is expected to be in the period of initial

application. So far the Group has identified some aspects of the new standards which may have a significant impact on

the consolidated financial statements. Further details of the expected impacts are discussed below. As the Group has

not completed its assessment, further impacts may be identified in due course and will be taken into consideration

when determining whether to adopt any of these new requirements before their effective date and which transitional

approach to take, where there are alternative approaches allowed under the new standards.

HKFRS 9 “Financial Instruments” is relevant to the Group and becomes effective for accounting periods beginning on or

after 1st January 2018. HKFRS 9 contains three principal classification categories for financial assets: measured at (a)

amortised cost, (b) fair value through profit or loss and (c) fair value through other comprehensive income. If an equity

security is designated as fair value through other comprehensive income, then only dividend income on that security

will be recognised in profit or loss. Gains, losses and impairments on that security will be recognised in other

comprehensive income without recycling. With respect to the Group’s financial assets currently classified as “available-

for-sale”, these are investments in equity securities which the Group may classify as either fair value through profit or

loss or irrevocably elect to designate as fair value through other comprehensive income (without recycling) on transition

to HKFRS 9. The Group has not yet decided whether it will irrevocably designate these investments as fair value through

other comprehensive income or classify them as fair value through profit or loss. Either classification would give rise to a

change in accounting policy as the current accounting policy for available-for-sale equity investments is to recognise

fair value changes in other comprehensive income until disposal or impairment, when gains or losses are recycled to

profit or loss in accordance with the Group’s accounting policy 8 on page 107. This change in policy will have no impact

on the Group’s net assets and total comprehensive income but will impact on reported performance amounts such as

profit and earnings per share. The Group has yet to assess the full impact of the new standard.

HKFRS 15 “Revenue from Contracts with Customers” is relevant to the Group and becomes effective for accounting

periods beginning on or after 1st January 2018. The standard deals with revenue recognition and establishes principles

for reporting information to users of financial statements about the nature, amount, timing and uncertainty of revenue

and cash flows arising from an entity’s contracts with customers. The Group has yet to assess the full impact of the

new standard.

HKFRS 16 “Leases” is relevant to the Group and becomes effective for accounting periods beginning on or after 1st

January 2019. The standard eliminates the lessee’s classification of leases as either operating leases or finance leases

and, instead, introduces a single lease accounting model. Applying that model, a lessee is required to recognise assets

and liabilities for all leases with a term of more than 12 months, unless the underlying asset is of low value, and

depreciation of lease assets separately from interest on lease liabilities in the statement of profit or loss. HKFRS 16 will

primarily affect the Group’s accounting as a lessee of leases for aircraft and related equipment and buildings and other

equipment which are currently classified as operating leases. The application of the new accounting model is expected

to lead to an increase in both assets and liabilities and to impact on the timing of the expense recognition in the

statement of profit or loss over the period of the lease. As disclosed in note 8 to the financial statements, at 31st

December 2016 the Group’s future minimum lease payments under non-cancellable operating leases amount to

HK$20,475 million and HK$2,544 million for aircraft and related equipment and buildings and other equipment

respectively, the majority of which is payable between one and five years after the reporting date. Some of these

amounts may therefore need to be recognised as lease liabilities, with corresponding right-of-use assets, once HKFRS

16 is adopted. The Group will need to perform a more detailed analysis to determine the amounts of new assets and

liabilities arising from operating lease commitments on adoption of HKFRS 16.

33. Event after the reporting period

On 10th March 2017, Air China Limited (“Air China”) completed the issuance of 1,440,064,181 A shares. As a

consequence, the Company’s shareholding in Air China has been diluted from 20.13% to 18.13%.

102 103

Annual Report 2016

Subsidiaries

Place of

incorporation/

establishment

and operation Principal activities

Percentage of

issued capital

owned

Issued and paid up share capital

and debt securities

AHK Air Hong Kong Limited Hong Kong Cargo airline 60* 54,402,000 A shares and

36,268,000 B shares

Airline Property Limited Hong Kong Property investment 100 2 shares

Airline Stores Property Limited Hong Kong Property investment 100 2 shares

Airline Training Property Limited Hong Kong Property investment 100 2 shares

Asia Miles Limited Hong Kong Travel reward programme 100 2 shares

Cathay Holidays Limited Hong Kong Travel tour operator 100 40,000 shares

Cathay Pacific Aero Limited Hong Kong Financial services 100 1 share

Cathay Pacific Aircraft Lease

Finance Limited

Hong Kong Aircraft leasing facilitator 100 1 share

Cathay Pacific Aircraft Services

Limited

Isle of Man Aircraft acquisition

facilitator

100 10,000 shares of US$1 each

Cathay Pacific Catering Services

(H.K.) Limited

Hong Kong Airline catering 100 600 shares

Cathay Pacific MTN Financing

Limited

Cayman

Islands

Financial services 100 1 share of US$1

Cathay Pacific Services Limited Hong Kong Cargo terminal 100 1 share

Deli Fresh Limited Hong Kong Food processing and

catering

100 20 shares

Global Logistics System (H.K.)

Company Limited

Hong Kong Computer network for

interchange of air cargo

related information

95 100 shares

GuangzhouGuoTaiInformation

Processing Company Limited

People’s

Republic of

China

Information processing 100* Registered capital of

HK$8,000,000 (wholly

foreign owned enterprise)

Hong Kong Airport Services

Limited

Hong Kong Aircraft ramp handling 100 100 shares

Hong Kong Aviation and Airport

Services Limited

Hong Kong Property investment 100* 2 shares

Hong Kong Dragon Airlines

Limited

Hong Kong Airline 100 500,000,000 shares

Snowdon Limited Isle of Man Financial services 100* 2 shares of GBP1 each

Troon Limited Bermuda Financial services 100 12,000 shares of US$1 each

Vogue Laundry Service Limited Hong Kong Laundry and dry cleaning 100 3,700 shares

Principal subsidiaries and associates are those which materially affect the results or assets of the Group.

All shares are ordinary shares unless otherwise stated.

Shareholding held through subsidiaries.

Principal Subsidiaries and Associates

at 31st December 2016

104

Cathay Pacific Airways Limited

Principal Subsidiaries and Associates

Associates

Place of

incorporation/

establishment and

operation Principal activities

Percentage

of issued

capital owned

Air China Cargo Co., Ltd. People’s Republic

of China

Cargo carriage service 25**

Air China Limited People’s Republic

of China

Airline 20

Cebu Pacific Catering Services Inc. Philippines Airline catering 40*

Ground Support Engineering Limited Hong Kong Airport ground engineering

support and equipment

maintenance

50*

HAECO ITM Limited Hong Kong Inventory technical

management services

LSG Lufthansa Service Hong Kong Limited Hong Kong Airline catering 32*

Shanghai International Airport Services Co., Limited People’s Republic

of China

Ground handling 25*

Shareholding held through subsidiaries.

Shareholding held through subsidiary at 25%, another 24% held through an economic interest with total holding at 49%.

104 105

Annual Report 2016

1. Basis of accounting

The financial statements 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”), accounting

principles generally accepted in Hong Kong and the

requirements of the Hong Kong Companies Ordinance.

These financial statements also comply with the

applicable disclosure provisions of the Rules

Governing the Listing of Securities (the “Listing Rules”)

on 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 financial statements in

conformity with HKFRS requires management to make

certain estimates and assumptions which affect the

amounts of property, plant and equipment, intangible

assets, long-term investments, retirement benefit

obligations and taxation included in the financial

statements. These estimates and assumptions are

continually re-evaluated and are based on

management’s expectations of future events which

are considered to be reasonable.

The HKICPA has issued a number of amendments to

HKFRSs that are first effective for the current

accounting period of the Group and the Company.

The adoption of the amendments has had no

significant impact on the results and financial position

of the Group.

The Group has not applied any new amendment that is

not yet effective for the current accounting period.

2. Basis of consolidation

The consolidated financial statements incorporate

the financial statements 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

Principal Accounting Policies

associates. Subsidiaries are entities controlled by the

Group. The Group controls an entity when the Group is

exposed to, or has rights to, variable returns from its

involvement with the entity and has the ability to affect

those returns through its power over the entity.

The results of subsidiaries are included in the

consolidated statement of profit or loss and other

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

financial statements.

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.

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 consolidated

statement of profit or loss and other comprehensive

income, non-controlling interests are disclosed as an

allocation of the profit or loss and total comprehensive

income for the year. Loans from holders of non-

controlling interests are presented as financial liabilities

in the consolidated statement of financial position in

accordance with accounting policy 9.

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.

106

Cathay Pacific Airways Limited

Principal Accounting Policies

The consolidated statement of profit or loss and other

comprehensive income includes the Group’s share of

results of associates as reported in their financial

statements 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 or loss except that:

(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 or loss as an adjustment to the

hedged item in the same period or periods during

which the hedged item affects profit or loss.

(b) unrealised exchange 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. Property, plant and equipment

Property, plant and equipment is stated at cost less

accumulated depreciation and impairment.

The cost of an item of property, plant and equipment

comprises its purchase price and any directly

attributable costs of bringing the asset to working

condition for its intended use. An acquired (owned and

finance leased) aircraft reflects all components in its

full service potential excluding the maintenance

condition of its landing gear, airframe and engines. The

cost relating to the maintenance element is identified

on acquisition as a separate component and

depreciated till its next major maintenance event.

Expenditure for heavy maintenance visits on aircraft,

engine overhauls and landing gear overhauls, is

capitalised at cost and depreciated over the average

expected life between major overhauls, estimated to be

4 to 10 years. Expenditure for engine overhaul costs

covered by power-by-hour (fixed rate charged per hour)

maintenance agreements is expensed by hours flown.

Expenditure for other maintenance and repairs is

charged to the profit or loss.

Depreciation of property, plant and equipment is

calculated on a straight line basis to write down cost

over their anticipated useful lives to their estimated

residual values 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 3-25 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.

106 107

Annual Report 2016

Principal Accounting Policies

The depreciation policy and the carrying amount of

property, plant and equipment 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 of disposal.

6. Leased assets

Property, plant and equipment held under lease

agreements that transfers substantially all the risks and

rewards of ownership is treated as if it 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 transfer substantially all

the risks and rewards of 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 or loss on a straight line

basis over the life of the related lease.

With respect to operating lease agreements, where the

Group is required to return the aircraft with adherence

to certain maintenance conditions, provision is made

during the lease term. This provision is based on the

present value of the expected future cost of meeting

the maintenance and non-maintenance return

condition, having regard to the current fleet plan and

long-term maintenance schedules.

7. Intangible assets

Intangible assets comprise goodwill arising on

consolidation, acquisition of computer software

licences and others. The accounting policy for goodwill

is outlined in accounting policy 2 on page 105.

Expenditure on computer software licences and others

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 to ten 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 or loss.

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

or 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.

108

Cathay Pacific Airways Limited

Principal Accounting Policies

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 or 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 proprietary 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 or 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 or loss.

(b) the ineffective portion of the fair value change is

recognised in profit or 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 or 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

For defined benefit schemes, retirement benefit costs

are assessed using the projected unit credit method.

Under this method, the cost of providing retirement

benefits is charged to the statement of profit or loss

and other comprehensive income so as to spread the

regular cost over the service lives of employees.

The asset or liability recognised in the statement of

financial position is the present value of the cost of

providing these benefits (the defined benefit

obligations) less the fair value of the plan assets at the

end of the reporting period. The defined benefit

obligations are calculated every three years by

independent actuaries and are determined by

discounting the estimated future cash flows using

interest rates of high quality corporate bonds. The plan

assets are valued on a bid price basis.

Actuarial gains and losses arising from experience

adjustments and changes in actuarial assumptions

are charged or credited to other comprehensive

income in the statement of profit or loss and other

comprehensive income in the period in which they

arise. Past service costs are recognised immediately

in the statement of profit or loss and other

comprehensive income.

108 109

Annual Report 2016

Principal Accounting Policies

For defined contribution schemes, the Group’s

contributions are charged to the statement of profit or

loss and other comprehensive income in the period to

which the contributions relate.

13. Deferred taxation

Deferred taxation is provided in full, using the liability

method, on temporary differences arising between the

tax bases of assets and liabilities and their carrying

amounts in the financial statements. However, if the

deferred tax arises from initial recognition of an asset

or liability in a transaction other than a business

combination that, at the time of the recognition, has

no impact on taxable nor accounting profit or loss, it is

not recognised.

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. Assets held for sale

Non-current assets are classified as assets held for sale

when their carrying amounts are to be recovered

principally through a sale transaction and a sale is

considered highly probable. They are stated at the lower

of carrying amount and fair value less costs of disposal.

16. 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. Interest income is recognised as it accrues

while dividend income is recognised when the right to

receive payment is established.

17. Maintenance and overhaul costs

Replacement spares and labour costs for maintenance

and overhaul of aircraft are charged to profit or loss on

consumption and as incurred respectively unless they

are capitalised according to the accounting policy 5.

18. Loyalty programme

The Company operates a customer loyalty programme

called Asia Miles (the “programme”). As members

accumulate miles by travelling on Cathay Pacific or

Cathay Dragon flights, or when the Company sells miles

to participating partners in the programme, revenue

from the initial sales transaction equal to the

programme awards at their fair value is deferred as a

liability until the miles are redeemed or the passenger is

uplifted in the case of the Group’s flight redemptions.

Breakage, the proportion of points that are expected to

expire, is recognised to reduce fair value, and is

determined by a number of assumptions including

historical experience, future redemption pattern and

programme design.

Marketing revenue, associated with the sales of miles to

participating partners is measured as the difference

between the consideration received and the revenue

deferred, and is recognised when the service is

performed.

19. Related parties

Related parties are individuals and companies, including

subsidiary, fellow subsidiary, jointly controlled and

associated companies and key management (including

close members of their families), where the individual,

Company or Group has the ability, directly or indirectly,

to control the other party or exercise significant

influence over the other party in making financial and

operating decisions.

20. 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.

110

Cathay Pacific Airways Limited

2016 2015 2014 2013 2012 2011 2010 2009 2008 2007

Consolidated profit or loss summary HK$M

Passenger services 66,926 73,047 75,734 71,826 70,133 67,778 59,354 45,920 57,964 49,520

Cargo services 20,063 23,122 25,400 23,663 24,555 25,980 25,901 17,255 24,623 21,783

Catering, recoveries and other services 5,762 6,173 4,857 4,995 4,688 4,648 4,269 3,803 3,976 4,055

Revenue 92,751 102,342 105,991 100,484 99,376 98,406 89,524 66,978 86,563 75,358

Operating expenses (93,276) (95,678) (101,556) (96,724) (97,763) (93,125) (78,672) (62,583) (94,911) (67,831)

Operating (loss)/profit (525) 6,664 4,435 3,760 1,613 5,281 10,852 4,395 (8,348) 7,527

Profit on disposal of investments – – – – – – 2,165 1,254 – –

Gain on deemed disposal of an associate – – – – – – 868 – – –

Net finance charges (1,301) (1,164) (1,158) (1,019) (884) (744) (978) (847) (1,012) (787)

Share of profits/(losses) of associates 2,049 1,965 772 838 754 1,708 2,577 264 (764) 1,057

Profit/(loss) before taxation 223 7,465 4,049 3,579 1,483 6,245 15,484 5,066 (10,124) 7,797

Taxation (497) (1,157) (599) (675) (409) (779) (1,441) (275) 1,366 (775)

(Loss)/profit for the year (274) 6,308 3,450 2,904 1,074 5,466 14,043 4,791 (8,758) 7,022

Profit attributable to non-controlling interests (301) (308) (300) (284) (212) (169) (185) (170) (224) (187)

(Loss)/profit attributable to the shareholders of Cathay Pacific (575) 6,000 3,150 2,620 862 5,297 13,858 4,621 (8,982) 6,835

Dividends paid (1,259) (2,046) (1,022) (551) (1,338) (3,777) (1,691) – (2,438) (2,245)

Retained profit for the year (1,834) 3,954 2,128 2,069 (476) 1,520 12,167 4,621 (11,420) 4,590

Consolidated statement of financial position summary HK$M

Property, plant and equipment and intangible assets 117,390 111,158 108,789 104,737 93,703 82,099 74,116 73,345 73,821 70,170

Long-term receivables and investments 27,902 27,947 29,290 27,449 24,776 23,393 17,512 14,321 14,504 15,923

Borrowings (70,169) (63,105) (65,096) (67,052) (59,546) (43,335) (39,629) (42,642) (40,280) (36,368)

Liquid funds less bank overdrafts 20,290 20,647 21,098 27,736 24,182 19,597 24,194 16,511 15,082 21,637

Net borrowings (49,879) (42,458) (43,998) (39,316) (35,364) (23,738) (15,435) (26,131) (25,198) (14,731)

Net current liabilities (excluding liquid funds, bank overdrafts and

currentportionofborrowings) (21,727) (23,961) (22,478) (19,110) (15,711) (16,685) (14,022) (12,864) (16,887) (13,094)

Other long-term payables (7,517) (15,838) (10,487) (1,318) (3,205) (3,650) (1,700) (1,086) (5,509) (1,222)

Deferred taxation (10,643) (8,781) (9,263) (9,429) (8,061) (6,651) (5,842) (5,255) (4,737) (6,752)

Net assets 55,526 48,067 51,853 63,013 56,138 54,768 54,629 42,330 35,994 50,294

Financed by:

Funds attributable to the shareholders of Cathay Pacific 55,365 47,927 51,722 62,888 56,021 54,633 54,476 42,182 35,878 50,116

Non-controlling interests 161 140 131 125 117 135 153 148 116 178

Total equity 55,526 48,067 51,853 63,013 56,138 54,768 54,629 42,330 35,994 50,294

Per share

Shareholders’ funds HK$ 14.07 12.18 13.15 15.99 14.24 13.89 13.85 10.72 9.12 12.72

EBITDA HK$ 2.56 4.45 3.44 3.04 2.31 3.34 5.80 2.95 (1.00) 3.41

(Loss)/earnings HK cents (14.6) 152.5 80.1 66.6 21.9 134.7 352.3 117.5 (228.3) 173.5

Dividend HK$ 0.05 0.53 0.36 0.22 0.08 0.52 1.11 0.10 0.03 0.84

Ratios

(Loss)/profit margin % (0.6) 5.9 3.0 2.6 0.9 5.4 15.5 6.9 (10.4) 9.1

Return on capital employed % 1.0 8.0 4.7 4.0 2.3 8.4 21.7 8.7 (12.3) 12.3

Dividend cover Times (2.9) 2.9 2.2 3.0 2.7 2.6 3.2 11.8 (76.1) 2.1

Cash interest cover Times 9.1 25.5 20.7 23.8 20.9 41.7 35.2 5.1 3.7 14.2

Gross debt/equity ratio Times 1.27 1.32 1.26 1.07 1.06 0.79 0.73 1.01 1.12 0.73

Net debt/equity ratio Times 0.90 0.89 0.85 0.63 0.63 0.43 0.28 0.62 0.70 0.29

Statistics

110 111