Cathay Pacific says profit will fly past estimates as revamp pays off
Airline plans to cut costs, boost revenue and compete against rivals from Middle East, mainland China and budget airlines
Hong Kong’s Cathay Pacific Airways projected its annual profit at more than double analyst estimates as its turnaround plan designed to cut costs and boost revenue pays off, sending its shares surging nearly 9 percent on Wednesday.
Benefiting also from improving airfares, Cathay forecast it would swing to a profit of about HK$2.3 billion ($293 million) for 2018 after two straight years in the red.
Before the announcement, 15 analysts polled by Refinitiv had on average expected the airline to report a profit of HK$1.1 billion for 2018, versus a HK$1.25 billion loss in 2017, as out-of-the-money fuel hedges rolled off.
Shares surged by as much as 8.8 percent on the promising outlook, their biggest one-day jump since October 2011.
Cathay said in a statement that its passenger business had benefited from capacity growth and improved revenue management, with average airfare prices up despite competitive pressures.
It appears passenger yields, a proxy for airfares, have increased faster than expected for Cathay, Jefferies analyst Andrew Lee said, adding the outlook for 2019 was positive too.
“We estimate the passenger segment will continue to benefit from controlled passenger capacity expansion and yield management strategy,” he said in a note to clients.
Cathay and Singapore Airlines are both pursuing turnaround plans to cut costs and boost revenue to better compete against rivals from the Middle East, mainland China and budget airlines.
Since launching its revamp program in 2017, Cathay's initiatives have included cutting jobs at its head office and overseas ports, adding more economy class seats to older Boeing Co. 777 jets and changing its fuel hedging policy. “The company's transformation program has had a positive impact,” said Cathay, which is set to announce its annual results on March 13.
Cathay, which relies on cargo for about a quarter of its revenue, said the freight business was also strong, with rates up and volumes higher.