Cathay Pacific warns of declining airfares and uncertain cargo outlook, shares fall 10%

HONG KONG: Cathay Pacific Airways on Wednesday (Aug 6) warned of declining airfares, challenges at its budget carrier and uncertain cargo market conditions, sending its shares down almost 10 per cent after it posted a slight rise in first-half profit.

Hong Kong's flagship airline also ordered 14 more Boeing 777-9 wide-body jets as it renews its fleet, taking its total order for the model to 35 with options for another seven.

Cathay reported a 1 per cent increase in first-half profit to HK$3.65 billion (US$465 million) on a strong jump in passenger numbers, lower fuel prices and a steady cargo performance.

But its passenger yields, a proxy for airfares, fell 12.3 per cent at its main brand and 21.6 per cent at its low-cost carrier HK Express during the period as Cathay and its rivals added capacity.

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"HK Express continues to face short-term challenges," Cathay Chairman Patrick Healy said of the budget airline, which posted a HK$524 million first-half loss before net finance charges and taxation.

He said Cathay was taking a long-term view, and a path to profitability was expected for HK Express.

Shares in Cathay ended 9.66 per cent lower on Wednesday at their lowest close since Jul 4. Shares saw their biggest one-day percentage drop since January 2021, while the benchmark Hang Seng Index gained 0.3 per cent.

"The results were in line with expectations, but the performance from the budget airline segment was not impressive," said Steven Leung, a sales director in Hong Kong at brokerage firm UOB Kay Hian.

Yields at Asia's airlines are coming down from post-pandemic record highs as carriers continue to add more capacity, intensifying competition. The region's air travel recovery had lagged the rest of the world due to China and Hong Kong being slower to return to international flying after COVID-19.

Asian peer Singapore Airlines said last week that yields for its main brand had declined by 3.5 per cent in the April to June quarter, while those at its low-cost carrier Scoot were down 4.7 per cent.

CARGO OUTLOOK

Based at the world's busiest cargo airport, Cathay is one of Asia's largest cargo carriers and has benefited in recent years from rising volumes of e-commerce out of China.

Cathay on Wednesday noted cargo market uncertainty caused by changes to US tariffs this year, in particular the cancellation of a duty-free exemption for low-value packages from China and Hong Kong in early May.

However, the airline said its cargo business showed resilience and capacity was being redeployed to markets that remained strong. The cargo division's half-year revenue rose 2.2 per cent to HK$11.1 billion, while yields fell 3.4 per cent.

Cathay's order for 14 more 777-9 planes with GE engines exercised options secured as part of a 2013 order for 21 of the jets, and adds options to purchase another seven in the future, the airline said.

Cathay said the 14 jets had a list price of US$8.1 billion, but it had secured significant discounts, as is customary for major airlines. It expects the aircraft to be delivered by 2034.

The long-delayed 777-9, Boeing's latest version of its 777 plane, has not yet been certified by the US Federal Aviation Administration. Boeing CEO Kelly Ortberg said last month the model is undergoing flight testing and the planemaker hopes to start deliveries next year.

Cathay said in March it was expecting its first 777-9 delivery in early 2027.