Cathay Pacific’s first half performance ‘below expectations’
Passenger numbers rise in June, though profitability remains under ‘intense’ pressure, according to chief executive
Cathay Pacific Airways warned shareholders on Monday that its performance in the first half of this year was “below expectations”.
In a statement to the Hong Kong Stock Exchange ahead of its interim results in August, chief executive Ivan Chu said passenger revenue had been adversely affected by a reduced load factor and intense pressure on yield [a measure of unit profitability].
“Cargo tonnage has stabilised but yield continues to decline. Foreign currency movements have also been adverse,” Chu said in the statement.
The company’s two airlines, Cathay Pacific and Dragonair, saw a 2.1 per cent growth in the number of passengers carried in June over last year, reversing declines in the previous two months. Then, last June it was affected by travel alerts caused by South Korea’s MERS outbreak.
The passenger load factor, a measure of utility, droped by 1.7 percentage points in June, to 85.5 per cent.
Patricia Hwang, Cathay’s general manager for revenue management, said pressure on yield “remains severe, with competition increasing and premium demand continuing to fall short of expectations”.
Cathay Pacific shares rose 1.95 per cent to close at HK$12.56 before the traffic results were out, while the Hang Seng Index edged up 0.66 per cent.
Bocom International analyst Geoffrey Cheng said despite concerns expressed by its management in recent months’ traffic reports, Cathay’s stock had rallied 10.95 per cent this month, compared with 14.21 per cent for China Eastern Airlines, 12.33 per cent for Air China and 10 per cent for China Southern.
“That was buoyed by the stock market fervour and oil price rise, instead of being based on fundamentals.
“On an operating level, Cathay has been lagging behind the Chinese big-three airlines, though they were much worse affected by the renminbi’s depreciation in the second quarter,” said Cheng.
He downgraded Cathay from long-term buy to neutral on June 27 and revised down his full-year profit forecast for the company by 4.9 per cent to HK$6.151 billion.
Daiwa analyst Kelvin Lau cut his target price for Cathay by 9.77 per cent on June 24 to HK$12 and lowered full-year net profit forecast by 16.4 per cent to HK$11.05 billion excluding foreign exchange hedging losses.