Cathay shares decline as profit dives 82%
Shares dived on Wednesday in Cathay Pacific Airways Ltd, Asia’s biggest international airline, on first-half profit that missed analyst estimates — after it posted losses from jetfuel hedges and passenger yields that declined amid fierce competition.
The unexpected financial result saw Cathay shares fall the most in a year.
Net income in the six months to end June fell 82 percent to HK$353 million ($45.5 million), Cathay said in a statement on Wednesday.
That fell short of the HK$1.07 billion median estimate in a Bloomberg News survey of four analysts. Group sales declined 9.3 percent to HK$45.7 billion.
Cathay Chief Executive Officer Ivan Chu has struggled to revive profitability at the Hong Kong carrier as passenger yields — the money earned from carrying a passenger for one kilometer, and a key measure of an airline’s profitability — slumped again amid competition with Chinese mainland and Middle Eastern airlines. Chu, who has stuck with the airline’s fuel-hedging policy amid the plunge in oil prices, has ordered more than $10 billion in new aircraft to take on rivals.
“Cathay needs to prove it can cut costs but still be perceived as premium,” said Will Horton, an analyst at CAPA Center for Aviation.
“That would be an accomplishment — the cards are stacked against being a highly efficient premium airline. Not even Emirates has achieved that.”
Cathay stock prices fell 7.465 percent to HK$11.90 in Hong Kong, making Cathay the world’s worst airline stock on Wednesday.
Cathay reported a HK$4.49 billion fuel-hedging loss in the first half, smaller than some analysts estimated, which compared with the HK$3.74 billion loss for a year earlier. Passenger yields fell 10 percent.
Cathay is among airlines that didn’t benefit fully from the drop in oil prices as the level at which it has hedged is higher than the spot market price.
Cathay said in March that 60 percent of its fuel needs this year was hedged at an average $85 a barrel. Brent crude now trades at about $48.57 a barrel.
Rival Singapore Airlines hedged 37.5 percent of its fuel needs in the July-September period at an average $81 a barrel, compared with 42 percent at $87 in the April-June quarter.
Cathay will have “a hard time” for the next two to three years because of its fuel hedging, said Morningstar Investment Service analyst John Hu last week.
Cathay itself indicated more turbulent times ahead.
Cathay needs to prove it can cut costs but still be perceived as premium.” Will Horton, an analyst at CAPA Center for Aviation