Hong Kong protests clipped Cathay’s wings in third quarter, parent Swire Pacific says as it issues profit warning

Swire Pacific, parent company of Hong Kong carrier Cathay Pacific, said on Thursday it expected to post a lower recurring profit for this year, mainly because of poor results at the airline, which has been adversely affected by about five months of anti-government protests in the city.

“The company’s consolidated recurring underlying profit for 2019 is expected to be below that of 2018,” it said in a filing to the Hong Kong bourse after the stock market closed on Thursday. “The expected results of Cathay Pacific are the principal reason for this,” it added.

However, after taking into account HK$13.4 billion (US$1.7 billion) in investment property disposal gains in the year’s first seven months and other non-recurring factors, overall profit for 2019 is still expected to be substantially above that of 2018.

Swire Pacific, one of Asia’s largest and oldest conglomerates controlled by the British Swire family, posted 40 per cent year-on-year growth in underlying profit to HK$4.23 billion in the year’s first half, with Cathay turning in an interim net profit of HK$1.35 billion – a turnaround from a loss of HK$263 million last year.

But Cathay’s fortunes have rapidly deteriorated in the past few months, with passenger throughput falling 11.3 per cent year on year in August and by 7.1 per cent in September. Its September inbound traffic dived 38 per cent from a year ago, as travellers were deterred by the city’s increasingly violent protests, some of which took place at the airport.

The steep falls pared the airline’s accumulated throughput growth to a mere 1.3 per cent for the year’s first nine months, from 4.4 per cent in the first six months.

“The protests in Hong Kong have continued to reduce Cathay Pacific’s passenger traffic and to affect forward bookings adversely,” Swire Pacific said. “It is no longer expected that Cathay Pacific will achieve better results in the second half of 2019 than in the first half [as it did in normal times].”

Property rents, another big profit driver for Swire Pacific, have continued to be affected since July by the protests, which have deterred visitors from its shopping malls, it said, adding that it had to offer rental concessions to some tenants.

Swire Pacific sees stronger headwinds as Hong Kong grapples with protests

The protests are also affecting its sportswear and leisure products retail and wholesale unit Swire Resources, while losses have deepened at Qinyuan, the bakery chain it operates in southwest China.

Meanwhile, after a review of its offshore services business, which operates a fleet of vessels mainly serving the oil and gas and renewable energy industries, Swire Pacific expected to book impairment charges on the fleet’s value to the tune of HK$2.12 billion this year.

Another HK$440 million of impairment on goodwill – the excess of an asset’s acquisition price over its assets’ fair value – is expected to be booked on its US-based aircraft maintenance business HAECO Americas and the Qinyuan bakery business.

Swire Pacific posts record sales and 80 per cent jump in 2018 profit

Before the profit warning, Swire Pacific was forecast to post a net profit, including disposal gains, of HK$13.75 billion this year, up from HK$7.49 billion last year, according to an average estimate by analysts polled by Bloomberg.

Swire Pacific shares have fallen 20.3 per cent since June 9, while Cathay shares have declined 9.2 per cent, compared with a 3.3 per cent gain by the Hang Seng Index.