(Reuters) -Hong Kong's Cathay Pacific Airways reported marginal full-year profit growth on Wednesday, but airfares fell because of intense competition as Asia's airlines continue to restore seat capacity after the pandemic.

Hong Kong's flagship airline posted a 1% rise in its group net profit of HK$9.89 billion ($1.27 billion) for the year ended December 31, beating SmartEstimate's HK$8.49 billion forecast, supported by elevated cargo demand, more passengers, lower fuel prices and cost efficiencies.

Shares in the Hong Kong-listed airline jumped almost 4% to their highest since May 2019 just after the results were announced.

Cathay Pacific's full-service airline, however, saw its annual yield, a proxy for airfares, fall 12%, while yields at the group's fully owned low-cost carrier HK Express fell 23% year-on-year.

HK Express reported a full-year loss of HK$400 million compared to a profit of HK$433 million the year before.

Cathay attributed the drops at HK Express to intense price competition on regional routes pushing airfares down, and industry-wide issues with the Pratt & Whitney engines that power its Airbus A320neo planes, which grounded some aircraft in 2024.

Passenger yields and ticket prices have been softening globally as airlines restore capacity after pandemic travel restrictions were lifted.

Hong Kong and mainland China emerged from those much later than other parts of the world and international capacity has still not been fully restored.

"A path to sustained profitability can be expected as [HK Express] continues to grow and increase its efficiencies," Cathay said.

CARGO GAIN

Based at the world's busiest cargo airport, Cathay Pacific is one of Asia's largest cargo carriers and has benefited in recent years from rising volumes of e-commerce out of China.

Cargo yields rose 3% year on year and the airline carried 11% more cargo tonnage, although the airline warned that developing global trade conflicts could pose challenges to its freight business.

"Given the global geopolitical situation, we are cautiously monitoring any short-term impacts on air cargo demand," it said.

The company's revenue for the year jumped 10.5% to HK$104.37 billion, in line with a Visible Alpha consensus of HK$104.74 billion.

Cathay Pacific's profit included a one-off gain of HK$578 million from a dilution of its interests in Air China and Air China Cargo.

The company declared a second interim dividend of HK$0.49 per ordinary share, higher than a Visible Alpha consensus of HK$0.42 per share.

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($1 = 7.7705 Hong Kong dollars)

(Reporting by Shivangi Lahiri and Nichiket Sunil in Bengaluru, Lisa Barrington in Seoul; Editing by Rashmi Aich, Mrigank Dhaniwala and Gerry Doyle)

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