Cathay hit by lower passenger numbers Cathay Pacific warned that this year would be worse than 2011 as it reported a 61 per cent fall in full-year net profit, a sharp decline in profit margin and a lower passenger load factor - a key measure of how well an airline fills its aircraft. Looking ahead, economic uncertainties have continued into the first half of this year. While these uncertainties continue, we expect pressure on economy class yields and our cargo business in particular to remain weak. Fuel prices have risen further," said Christopher Pratt, Cathay's chairman. As a result, 2012 is looking even more challenging than 2011 and we are therefore cautious about prospects for this year. The Hong Kong-based airline said last year's results were hit by a 44 per cent rise in gross fuel prices and weaker demand from global economic woes, natural disasters in Japan and Thailand and political unrest in the Middle East. Its profit margin dropped from 15.7 per cent in 2010 to 5.6 per cent while it's passenger load factor fell 3 per cent to 80.4 per cent, as demand failed to keep up with a 9.2 per cent increase in capacity. The fall in net profit was also partly to do with HK$3bn in one-off gains from asset disposals in 2010. The airline industry is reeling from the effects of continuing economic stability, which saw the International Air Transport Association cutting the industry" collective net earnings forecast for 2012 from $4.9bn to $3.5bn in December. Singapore Airlines last week asked pilots to take no-pay leave for up to two years while Europe's largest carriers such as Air France-KLM and Lufthansa recently announced that they fell deeply into the red in 2011. Peter Harbison, head of CAPA Centre for Aviation, an independent research firm, said Cathay Pacific was managing the downturn relatively well because of aggressive cost-cutting in previous years and its high exposure to the Chinese market. However, Cathay Pacific's long-term concern would be how it retained its market position amid a fast-changing competitive landscape in Asia, he said. Low-cost airlines and the expansion of Chinese airlines are really biting Cathay, which is one of few airlines which do not own a budget carrier. It is going to be a challenge for the company to keep its defences up in the next few years," he said. The competition is coming from the likes of AirAsia, Lion and Indigo - low-cost Asian airlines which Mr Harbison said had around 1,000 aircraft orders between them. Another three budget airlines are being launched in Japan, while mainland Chinese airlines are rapidly expanding their international routes. Hong Kong Airlines, an ambitious carrier backed by China's Hainan Airlines Group, has started an all-business class service from Hong Kong to London. Cathay Pacific shares fell 2.8 per cent in Hong Kong after its results announcement against a flat Hang Seng index.