Latest
Recommended
Published: Sat, August 20, 2016
Economy | By Melissa Porter

Cathay Pacific's First-Half Profits Drop as Business Travel Dwindles

Cathay Pacific's First-Half Profits Drop as Business Travel Dwindles

Passenger yield - the amount of cash earned from carrying passengers each kilometre and a key measure of a carrier's profitability - fell 10 percent to 54.3 Hong Kong cents.

Yield fell by 17.6 percent, year-over-year, which the report attributed to "strong competition, overcapacity and the suspension (from April) of fuel surcharges".

Cathay is among airlines that did not benefit fully from the drop in oil prices as the level at which it has hedged is higher than the spot market price. The carrier also reported Wednesday that it lost HK$4.49 billion ($579 million) from fuel hedges in the first half of the year.

Cathay Pacific introduced a passenger service to Madrid in June.

"The overall business outlook therefore remains challenging", said Slosar. It comes at a time when Emirates, Etihad Airways and Qatar Airways expand more into Asia.

Cathay Pacific's First-Half Profits Drop as Business Travel Dwindles
Cathay Pacific's First-Half Profits Drop as Business Travel Dwindles

In a bid to rein in costs, Cathay has stopped hiring and replacing non-critical staff and is "restricting non-essential discretionary spending", the company said, adding the same headwinds would remain in the second half of the year.

Cathay Pacific also faces other challenges.

At Hong Kong International Airport, tonnage climbed 4.7 per cent to 380,000 tonnes. "The pie is not getting bigger", said analyst Jackson Wong, associate director of Hong Kong-based Simsen Financial group. Authorities have started imposing a fee of between HK$70 and HK$180 per passenger who fly out of Hong Kong for the HK$141.5 billion expansion of the airport.

On a more positive note, the airline also recently announced it will be increasing its checked luggage allowances. "We do not expect a recovery in profitability for the second half of 2016 and flag a likely lack of share-price catalysts in the near term", Kelvin Lau, an analyst at Daiwa Capital Markets Hong Kong Ltd. said in an August 17 note, maintaining a hold recommendation.

Airlines charged HK$109 for long-haul and HK$24 for short-haul flights from Hong Kong before the levy was eliminated, according to the Civil Aviation Department.

Like this: