Pratt said that the tumbling oil price in the second half of 2008 had also caused heavy losses from hedging contracts taken out to protect it against the previously high cost of fuel.

"Having made a painful adjustment to high fuel prices, the aviation industry now has to adjust to a severe economic downturn," he said.

Tough year ahead

Passenger numbers on Cathay Pacific and its sister airline Dragonair increased to 7.3 per cent to 25m in 2008, mainly due to strong demand in the first half of the year.

But like many airlines Cathay is bracing for a tough year ahead with consumers expected to rein-in spending on air travel as a result of the global downturn.

After announcing the loss on Wednesday the airline said it would look at cutting capacity to meet falling demand.

"All passsenger routes are under review. When that is finished we will know which routes we can't operate," Tony Tyler, Cathay's CEO, told reporters at a news conference in Hong Kong.

Cathay said it had seen cargo volume slide in the last quarter of 2008 as global demand for goods made in Hong Kong and southern China dried up.

Cathay has long enjoyed a reputation as one of the world's most-profitable airlines and was last year ranked as the world's sixth largest carrier by stock market value.