Cathay posts first loss in eight years
— Cathay Pacific Airways reported its first loss in eight years and scrapped plans for a second-half dividend after competition from Chinese airlines and losses from fuel hedging dented earnings. The stock fell the most in seven months.
The net loss totalled HK$575 million ($74 million) in 2016, while sales dropped 9.4 per cent to HK$92.8 billion, Hong Kongbased Cathay, Asia’s largest international airline, said on Wednesday. Jefferies Group said the losses could continue in the current year as well.
Cathay said the operating environment in 2017 would remain challenging, and that premium travel from Hong Kong was below expectations, prompting the airline to sell such tickets at promotional prices to leisure travellers. The carrier, whose passenger yields have been damped by competition from full service carriers for business seats and budget airlines for the mass market, said it is starting a three-year “corporate transformation” programme to improve returns and operational efficiency.
The carrier is “facing structural problems from competition headwinds, given Chinese airlines continue to aggressively expand international capacity, yield pressures from weak premium class traffic and cost-conscious leisure travellers,” Andrew Lee, an analyst at Jefferies, wrote in a note on Wednesday.
Cathay, whose parent is the Swire Group, last posted a loss in 2008, of HK$8.7 billion, according to data compiled by Bloomberg. The carrier, in which Air China holds almost 30 per cent, has been widening its discounts to premium offerings in a bid to fill seats as it competes against rivals such as China Eastern Airlines.
For instance, an economy-class ticket on Cathay’s Hong Kong-New York direct flight a month from now costs about $1,235, while seats on Asiana Airlines and Korean Air Lines go for less than $750, based on a search on Chinese online travel booking app Ctrip. China Eastern is offering tickets for $715 from Shenzhen to the US city via Shanghai.
“The bar for air travel is getting lower as cheap fares are driving growth in the economy class,” Geoffrey Cheng, an analyst at Bocom International Holdings, said before the earnings announcement. “For those who still travel in the premium cabin, they increasingly favour transfer flights” because “it’s cheaper than non-stop service,” he said.
Yields slip
Cathay’s passenger yields, the money earned from flying a traveller for one kilometre and a key measure of profitability, dropped 9.2 per cent to 54.1 Hong Kong cents last year. Cargo yield declined 16 per cent to HK$1.59.
Analysts in a Bloomberg News survey had predicted full-year results ranging from a profit of HK$1.5 billion to a net loss of HK$1.5 billion. The disparity in the figures reflected varying estimates of charges due to fuel hedging losses.