Cathay in for a bumpy ride, analysts say
Surging fuel prices, natural disasters, political upheaval, and economic uncertainty are set to weigh on Cathay Pacific Airways when it reports its interim results on Wednesday.
Analysts say this year's half-year result is likely to be less than half the record interim net profit of HK$6.8 billion reported last year, with estimates ranging between HK$2.5 billion and HK$3 billion.
'The results are going to be pretty poor,' said one analyst who declined to be named. Another added: 'Last year's half-year figure was buoyed by a stronger-than-expected recovery in passenger and cargo volumes which has not been there this year.'
There was a downturn in passenger and cargo traffic on Japan routes following the earthquake and tsunami in March, and political unrest in the Middle East affected the airline in the second quarter, said analysts.
One of the few pieces of good news already announced by Cathay ahead of its result statement was that total passengers rose 1.7 per cent to 13.17 million in the first half of the year. But in other areas the airline faced considerable headwinds, with a drop of 4.1 per cent in cargo and mail to 835,880 tonnes in the first half.
Passenger and cargo loads also fell as the airline was adding capacity of about 10 per cent more flights.
Capacity issues would again arise in the second half as the airline adds more passenger and freighter aircraft to its fleet, although the disposal of up to seven freighters to Air Hong Kong and Air China Cargo may offset the overall impact, especially on cargo operations, said analysts.
Passenger load factors dropped 4.7 percentage points to 79.3 per cent in the first half of this year, while cargo and mail loads slumped 9.6 percentage points to 68.4 per cent.
'This year has been especially difficult for the airline,' one analyst added, forecasting that conditions could worsen in the second half. While premium demand in first and business class held up relatively well in the first half of the year, prospects were not as bright for the second half.
Referring to HSBC's decision to cut around 30,000 jobs worldwide, or about 10 per cent of its staff, the analyst said that travel budgets would be greatly reduced. As a result Cathay Pacific could see a significant fall in first and business class passenger traffic between now and Christmas.
Turning to the Japanese earthquake, he said it was hard to gauge the impact. Cathay Pacific's Japanese routes contribute 9 per cent to 10 per cent of total revenue.
While the number of flights was cut almost by half and inbound passenger numbers dropped significantly, analysts said people originally planning holidays in Japan would have chosen alternative destinations.
'While economy class may have been empty, the front end of the plane was full of senior executives travelling to Japan to give full support to their staff,' said one frequent traveller at the time.
Another big concern is the impact of rising fuel costs, which were 35.6 per cent of Cathay Pacific Group's total operating costs in 2010. With uprisings across the Middle East throughout spring, oil prices were already higher than Cathay Pacific expected at the start of this year.
Citi Investment Research and Analysis forecasts a full-year profit for Cathay of just HK$6.3 billion. Total revenue is set to rise by just 3 per cent this year to HK$91.87 billion.
These forecasts could get a fillip, it said, if cargo rebounded in the second half as European and North American retailers struggled to restock shelves before Christmas and New Year.
