Like other airlines, the global downturn left Cathay stuck with money-losing fuel contracts -- signed when prices were high before the slowdown kicked in -- and chairman Christopher Pratt warned 2009 looked equally "grim" for the firm.

The airline reported a net loss of 8.6 billion Hong Kong dollars (1.1 billion US) for 2008, a dramatic turnaround from the previous year's profit of 7.0 billion dollars.

"Having made a painful adjustment to high fuel prices, the aviation industry now has to adjust to a severe economic downturn," Pratt said in a statement to the Hong Kong stock exchange.

"Cathay Pacific expects an extremely challenging year in 2009. Passenger and cargo demand are expected to remain weak and, if fuel prices remain at their present levels, further loss on fuel hedging contracts will be incurred."

Turnover at the airline rose 14.9 percent year-on-year to 86.6 billion Hong Kong dollars, the statement said.

Cathay, like much of the beleaguered aviation industry, suffered from an extremely volatile 2008.

The first half saw strong demand for both passenger travel and cargo, Pratt said, but the bottom line was hit by record oil prices of more than 140 US dollars a barrel.

Passenger numbers on Cathay and its sister airline Dragonair increased to 25.0 million in 2008, up 7.3 percent, but the numbers fell off sharply in the second half of the year.

In addition, Cathay's cargo business dried up in the last quarter as demand for goods made in southern China collapsed as a result of the global economic slowdown.

The volume of cargo carried dropped 1.6 percent to 1.6 million tonnes in 2008, the statement said.

In a sign of the falling demand, earlier this year the airline shelved plans to build a new cargo terminal at Hong Kong International Airport for two years.

Cathay's results were also hit hard by hedging positions it had taken out against the high cost of fuel.

As the oil price plummeted in the second half of 2008 to below 40 US dollars, those hedges were extremely costly and forced Cathay to write off 7.6 billion Hong Kong dollars in potential losses.

Pratt said up to the end of February the airline was facing further possible losses of 1.9 billion dollars on its hedging positions, as the global oil price remained low.

Tony Tyler, Cathay's chief executive, said the firm was now making a full assessment of its routes and where the firm could cut costs.

"There are no sacred cows. This is being driven by the market, ultimately we have to cut our coat according to our cloth," he told reporters, adding that job cuts had not been ruled out.

Cathay plans to dispose of five Boeing passenger aircraft, while leases on three Airbus planes operated by Dragonair would not be renewed when they expire this year.

Three Boeing freighter planes have also been taken out of service because of the falling demand for cargo services.

Despite the gloom, Pratt said the company had no current plans to raise more capital.

The global slowdown has battered Asia's major carriers, with Singapore Air, Japan's ANA and Australia's Qantas all cutting routes or grounding planes.

The drop in demand, in particular for business- and first-class travel, has led Cathay and other airlines to slash fares.

A return ticket from Hong Kong to Paris or London is now less than 3,000 Hong Kong dollars (385 US) before tax.

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