Hong Kong flag carrier Cathay Pacific on Wednesday booked the first back-to-back annual loss in its seven-decade history but said it was in the black for the second half and was upbeat about the next year.

The firm's report was its worst since 2008 during the global financial crisis, as lower-cost Chinese airlines ate into market share while it took a major hit from fuel costs.

"Increased fuel costs are increasing operating costs and adversely affecting results," chairman John Slosar said in a statement.

However, while it posted a net loss of HK$1.26 billion ($161 million), that was much better than the HK$2.26 billion forecast in a survey by Bloomberg News.

The news was greeted by a more than three percent surge in the firm's share price in afternoon Hong Kong trade, although the gains were later pared and it closed flat at HK$13.78.

Cathay suffered a HK$2.05 billion loss in the first six months of the year but that was narrowed by a healthy second-half, when it shifted into the black.

The second-half results were boosted by improved premium class demand and a strong cargo business, with Slosar saying an better global economic outlook also helped.

Fuel hedging costs fell to HK$6.38 billion in 2017 from HK$8.45 billion the previous year.

However, fuel was still the most significant outlay, accounting for 30 percent of operating costs at HK$31.11 billion, compared with HK$27.95 billion in the year before.

Huarong International Securities analyst Jackson Wong said the company still had the edge over its rivals in terms of reputation in the premium market, but needed to take a broad approach to compete with budget carriers.

"Whether they can regain the market share is really the key," Wong told AFP.

- Job cuts -

Companies such as China Eastern and China Southern Airlines are offering direct services to Europe and the United States from the mainland, while budget carriers have targeted regional travellers, undermining Cathay's position.

The airline is also under pressure from Middle East rivals, which are expanding into Asia and offering more luxury touches.

Cathay said passenger revenue decreased 3.5 percent in 2017, with passenger yield -- the average amount paid per person per mile -- dropping 3.3 percent.

The HK$575 million loss in 2016 was Cathay's first time in the red for eight years, and prompted a management shake-up and promises to slash staff costs by 30 percent.

It pledged to cut 600 staff including a quarter of its management as part of its biggest overhaul in two decades.

Chief executive Rupert Hogg took over in May 2017, replacing Ivan Chu, who had been in the job for three years.

The carrier has also been in long-running talks with pilots over compensation, housing benefits and pay freezes, with a strike targeting the year-end holidays averted in 2017.

There was no mention of further cuts in Wednesday's announcement but Slosar said the company's "transformation programme" was still a priority for 2018, promising to "better contain costs" to boost passenger business.

"We are confident of a successful outcome from these efforts," Slosar added, pledging to expand the airline's route network and buy more fuel-efficient planes.

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