Roller coaster day for Cathay shares after ‘disappointing’ first-half performance

Cathay Pacific shares declined for the fourth day in a row on Wednesday, to their lowest level in a week after its chief executive admitted to a “disappointing” first-half financial performance.

The stock fell as much as 2.2 per cent to HK$12.22, the biggest intraday decline since June 21, making it the heaviest loser on the benchmark Hang Seng Index.

However, the airline narrowed its decline in later trade, ending the session down 0.64 per cent to close at HK$12.4.

Passenger numbers at Cathay Pacific and Cathay Dragon declined 0.5 per cent in the first six months, while capacity rose by 1.1 per cent, according to a Hong Kong stock exchange filing.

“Our airlines’ performance in the first half continued to be disappointing,” chief executive Rupert Hogg said in his filing.

Hogg, who took over the helm in May, is tasked with executing a three-year transformation plan at Cathay Pacific, due to begin in the second half of this year.

High expectations of that transforming plan have boosted Cathay shares 14.4 per cent in the past three months, against a Hang Seng Index which has added 11.9 per cent.

Senior management changes continue. Its stock exchange filing also showed Martin Cubbon had resigned as a non-executive director and Michelle Low Mei Shuen has now been appointed as a non-executive director. Both take effect on October 1, 2017.

But analysts still say Hogg still has his work cut out, with the carrier forecasting “major routes to remain under pressure in 2017” during the March announcement of its 2016 results, which posted an unexpected HK$575 million (US$73.67 million) loss.

“When we announced our results for 2016 in March, we said we expected the operating environment in 2017 to remain challenging. This has been the case,” Hogg said. “Strong competition from other airlines has put intense and increasing pressure on passenger yield and revenue.”

Cathay’s general manager for revenue management Navin Chellaram, reiterated that passenger yield continues to come under pressure in the face of strong competition.

“The overall load factor remains high, with front-end traffic showing a pick-up, although the back-end, particularly on short-haul routes, has been sluggish.”

Deutsche Bank continues to have a “Sell” rating on Cathay and expects the airline to continue losing money this year. Credit Suisse is also maintaining its “Underperform” rating for the Hong Kong carrier.

“[Cathay] is facing structural problems that we do not believe can be solved in two or three quarters,” added Geoffrey Cheng, an analyst from Bocom International Holdings, the Hong Kong securities brokerage of the Bank of Communications.

“We expect passenger yields could improve in the second half of this year, as that passenger traffic will peak in the summer months.”

Hong Kong airlines, meanwhile, a local subsidiary of Hainan airlines, has just launched a series of aggressive promotional fares from late August to January 2018 on most popular Northeast Asia destinations, which means Cathay’s yield recovery could remain challenging in the second half of the year, said Cheng.

In terms of June traffic, Cathay and Dragon have again performed worse, carrying a total 2,809,992 passengers last month, a 2.1 per cent drop compared with June 2016.

Cargo and mail revenue in June for the two airlines increased 12.8 per cent, to 170,476 tonnes.