Cathay Pacific says not out of woods despite smaller loss

HONG KONG — Cathay Pacific Airways remains wary of the impact of travel restrictions and the fast-spreading coronavirus delta variant on the carrier’s revival, despite posting a smaller first-half loss on Wednesday.

Hong Kong’s flagship carrier, which has slashed costs and boosted cargo operations, said it plans to add flights to raise passenger capacity to about 30% of pre-pandemic levels by the last quarter of this year. The figure stood at 5% in the first half.

But the target “is highly dependent upon operational and customer travel restrictions being lifted in Hong Kong and around the world,” Chairman Patrick Healy told an online press briefing. “The pace and timing of recovery continue to be highly uncertain. We are not yet seeing significant signs of meaningful improvement.”

Cathay has no domestic network to fall back on, and it faces strict border controls in Hong Kong and other parts of the world. This month, the city moved to ease quarantine rules for those vaccinated, boosting hopes for rising passenger demand.

However, a fresh outbreak of the virus in China and elsewhere threatens to snuff out travel demand.

Cathay has available liquidity of 32.81 billion Hong Kong dollars ($4.22 billion), and raising passenger capacity is crucial to bring the airline’s monthly cash burn below HK$1 billion. The cash burn totaled between HK$1.3 billion and HK$1.9 billion for the first half of the year, according to a previous disclosure, with the carrier saying Wednesday that reserves are enough to last at least a year.

The airline posted a net loss of HK$7.85 billion in the six months ended June 30, improving from an HK$9.86 billion loss in the year-earlier period. Sales dropped 43% to HK$15.85 billion, Cathay said.

Revenue from passenger services slumped 93% to HK$748 million. The airline carried only 157,000 passengers — an average of 868 per day — in the first six months of the year, down 96% from a year earlier.

Andrew Lee, an analyst at Jefferies, said passenger numbers have bottomed out, and he called the airline’s target of raising capacity “the first stage of recovery.” He recommends investors buy the stock.

Lower impairments and fuel hedging gains in the period also helped reduce the loss. The airline recorded impairment charges of HK$500 million, mainly owing to an early retirement of 11 aircraft in the first half, compared with HK$2.46 billion a year earlier.

Hedging gains totaled HK$625 million, versus a loss of HK$1.59 billion a year earlier.

Cargo operations provided the silver lining. Revenue from the business rose 0.1% on the year to HK$12.7 billion, though capacity stood below half the pre-pandemic levels. The reduction in passenger aircraft cut the belly space available for cargo, but Cathay said it benefited from the rise in freight rates.

“We expect our cargo operations will continue to perform strongly in the second half of the year,” Healy said, though the airline does not plan to enhance cargo capacity.

Ronald Lam, chief customer and commercial officer who doubles as chairman of the group’s low-cost carrier HK Express, said: “Medium-term cargo prospect is quite hard to tell at the moment, as currently the whole market is distorted, both in terms of demand and supply due to the pandemic.”

Cathay incurred costs of HK$403 million during the first half related to employee layoffs, and did not rule out more such moves.

“At the moment, there is no intention to introduce more unpaid leave for the rest of the year,” CEO Augustus Tang said at the press briefing. “But the situation facing us is extremely uncertain, [and] the challenge remains dynamic. If things change, we cannot take any options off the table.” 

Cathay’s shares closed 3.6% higher at HK$6.42 on Wednesday. The shares have dropped 34% since the end of 2019.


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