Cathay Pacific

Cathay shares fall on profit warning

PUBLISHED : Friday, 11 May, 2012, 12:00am
UPDATED : Friday, 11 May, 2012, 12:00am

Cathay Pacific Airways shares fell more than 6 per cent yesterday, the biggest drop in more than seven months, after the airline said weakening demand and high fuel costs would badly hurt its first-half results.

Cathay's share price tumbled 6.3 per cent to HK$12.52 after it flagged a profit warning, predicting its results would be 'disappointing'. Air China, which owns nearly 30 per cent of Cathay, fell 4 per cent to HK$5.55.

The industry is being hit by weak cargo demand and pressure on passenger yield amid global economic uncertainty.

Air cargo, which accounts for 30 per cent of Cathay sales during good times, was sluggish despite an uptick in volume due to ad hoc shipments of smartphones, Ivan Chu, Cathay's chief operating officer, said yesterday. It had cut capacity by 25 to 30 per cent on its freighter services to Europe and North America, he said.

Citigroup slashed its target price for Cathay by 13 per cent to HK$15.50 yesterday. 'With a recovery in the macro environment seemingly pushed out until the second half at the earliest, we expect Cathay's first half earnings to be very weak,' Citi said.

Singapore kerosene prices had stabilised at US$126 per barrel on Wednesday from the peak of US$137 in mid-March. However, passenger and cargo demand were tracking below the levels in 2008, when oil prices were also at high levels, Cathay's chief executive, John Slosar, said on Wednesday.

Singapore Airlines, which is considered a rival to Cathay, reported a surprise loss in the three months to March on Wednesday, citing higher fuel prices.

Cathay announced cost-saving plans including unpaid leave, a freeze on headcount and cuts in capacity on long-haul flights. However, it does not plan to delay the delivery of new planes. Between now and the end of 2019, it will take delivery of 93 aircraft.

'Cutting flight frequencies while still taking deliveries of additional aircraft simply results in lower utilisation of the fleet,' a report from Barclays said.

One brokerage firm even rated Cathay a 'sell' on the grounds that it has employed 'desperate' methods to boost sales.

Cathay started offering deep discounts for redeeming frequent flyer miles early this year, a report by Kim Eng Securities said. 'This is a method for airlines to boost revenues when ... there are no options left,' it said.


Cathay's pared-down forecast of passenger-capacity growth this year. Its earlier prediction was 7 per cent