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Hong Kong company reporting season

Cathay Pacific to freeze hiring, watch its budget after 1H net profit missed estimates

First-half net profit slumped by a larger-than-expected 82 per cent

PUBLISHED : Wednesday, 17 August, 2016, 12:30pm
UPDATED : Wednesday, 17 August, 2016, 11:31pm

Cathay Pacific Airways Co. said it will stop hiring non-essential staff, watch its budget and delay the delivery of new aircraft, after Hong Kong’s flagship carrier missed estimates and reported an 82 per cent slump in first-half net profit. The airline’s shares fell 7.3 per cent after results were announced.

“We are reviewing productivity and expenditure, we have stopped hiring and replacement of non-operationally critical staff, and we are restricting non-essential discretionary spending,” chairman John Solar said in Hong Kong. “In places like our head office in Hong Kong, there is no need to add staff, we have a hiring freeze.”

Cathay will still hire essential crew members for its plan to launch new routes such as the new four-times-weekly service to London’s Gatwick airport, scheduled to begin on September 2.

Net income for the first six months fell to HK$353 million, or 9 HK cents per share, worse than the HK$1.07 billion median forecast of four analysts polled by Bloomberg.

Revenue was hurt by fewer tourist arrivals, cut backs in corporate travel and intense competition from mainland Chinese airlines.

A weak global economy forced many businesses to cut back on their travel budgets and asked their employees to “trade down” from business class to coach, while more tourists preferred to take short trips instead of making long-haul journeys, said Cathay’s chief executive Ivan Chu.

Competition has intensified with mainland Chinese carriers this year, which bolstered their Trans-Pacific capacity by 20 per cent, while Asia-to-Australia routes expanded by as much as 40 per cent. That led to cut-throat competition and fare discounts, which hurt the airline’s profit margin.

To attract travellers, Cathay offered discounts of up to 30 per cent on business class tickets during the peak season of July and August, selling “tens of thousands” of such tickets during the promotion, Chu said.

Cathay announced this week it will give an additional 10 kg of check-in luggage allowance to every passenger across all classes on its flights, as well as those operated by its sibling carrier Dragonair.

The move takes effect on September 15, allowing holidaymakers with a tendency to over pack to enjoy lower excess baggage fees.

Prospects aren’t likely to improve for the airline in the second half of the year, Slosar said.

“We expect the operating environment in the second half of the year to continue to be impacted by the same adverse factors as in the first half,” he said. “We expect passenger yield to remain under pressure. Overcapacity and economic fragility will dampen cargo demand.”

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