Cathay Pacific Airways is Hong Kong's flag carrier and one of the leading airlines in the region. Recently, Salomon Smith Barney maintained a neutral, medium-risk rating on the airline stock with a 12-month price target of $16.80 on the higher side. Salomon expected Cathay's stock to trade in line with the Hang Seng Index, underpinned by rising consensus estimates for 1999-2000. The brokerage pointed out that, earlier this month, Cathay chief executive David Turnbull sounded very bullish on the airline's earnings recovery. Management expects the earnings rebound to be driven mainly by cost savings. Salomon said that, in contrast to market expectations, management was not hopeful of a sharp rebound in revenues. Load factors were expected to remain largely flat, with traffic increasing generally in line with capacity growth. Management does not expect to see much improvement in yields over the next year or so despite having lost close to 20 per cent in passenger yields in 1998. The brokerage does not expect Cathay to see any increase in local currency yields, but this could change if income levels or consumer confidence return faster than expected in Cathay's key markets of Hong Kong and Japan. Alternatively, the airline would see large revenue gains if there was noticeable currency appreciation among Asian currencies.