Cathay Pacific Focuses on Asia Growth as Long-Haul Demand Cools

Cathay Pacific Airways Ltd. (293), Asia’s largest international carrier, plans to focus expansion on regional routes this year as the global economic slowdown damps demand for flights to Europe and the U.S.

“Asia’s economies are better than the rest of the world’s at the moment,” Chief Executive Officer John Slosar said in an interview in Hong Kong today. “Traffic around the Asian points is good, we think that’s a pretty good strategy for this year.”

The Hong Kong-based airline is adding frequencies to destinations including Kuala Lumpur, Bangkok, Seoul and Ningbo, as rising wages and trade spur demand. Total capacity growth will slow to about 7 percent this year, as the carrier won’t add any new long-haul flights and it’s paring Middle East services.

The carrier has no plan to trim capacity growth further as loads are “holding up pretty well”, Slosar said. The airline yesterday said that 2012 may be more challenging than 2011 because of the global economy and waning cargo volumes.

“We find little reason to be optimistic on Cathay Pacific’s earnings prospects,” said Barclays Capital analysts led by Patrick Xu in a note to investors today. “We expect it to underperform the Chinese carriers, given that it doesn’t have as resilient a domestic market and its balance sheet is not positively exposed to yuan appreciation.”

The analysts reiterated an underweight rating on the stock, while lowering their target price to HK$15.72 from HK$16.45.

The carrier rose 0.4 percent to HK$15.20 at 9:47 a.m. in Hong Kong trading. It has dropped 17 percent in the past year compared with a 5.9 percent decline for the benchmark Hang Seng Index.

Capacity Expansion

The airline plans to expand both passenger and cargo capacity by about 6 percent to 7 percent this year. Last year, passenger capacity expanded 9.2 percent, while freight space increased 7.9 percent.

Southeast and North Asian routes accounted for 33 percent of Cathay’s capacity last year, based on figures in its annual results statement. North America was 25 percent and Europe’s share was 18 percent.

Cargo volumes tumbled 8.6 percent last year, contributing to the carrier yesterday reporting a 61 percent decline in full- year profit. Freight demand has remained weak into this year, the airline said. Volumes may pick up in the second half helped by the introduction of a revamped Apple Inc. iPad and other consumer-electronics products, Slosar said.

To contact the reporter on this story: Jasmine Wang in Hong Kong at jwang513@bloomberg.net; Susan Li in Hong Kong at sli31@bloomberg.net

To contact the editor responsible for this story: Neil Denslow at ndenslow@bloomberg.net

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