Cathay Profit Misses Estimates on Cargo Slump, North Asia

Cathay Pacific Airways Ltd. (293), Asia’s biggest international carrier, reported first-half profit that missed analyst estimates as cargo revenue dropped and declining yields in North Asia masked gains from carrying more passengers.

Net income totaled HK$24 million ($3.1 million) in the six months ended in June, Cathay said in a stock exchange statement today, compared with the HK$590 million median profit estimate in a Bloomberg News survey of five analysts. It was the smallest profit in at least 15 years for the Hong Kong-based airline.

Cathay’s cargo revenue fell 5.2 percent in the first half as it shipped fewer goods at lower rates while travel within the Asia Pacific region was affected by avian flu and political issues in Northeast Asia, the carrier said. Wall Street job cuts have crimped premium business travel for Asian airlines and Cathay’s Chief Executive John Slosar has cut capacity and phased out some planes to take excess capacity out.

“The whole business scenario is very weak,” Maybank Kim Eng Holdings Ltd. analyst Mohshin Aziz said in a phone interview today. “It’s a given that analysts will revise down their forecast for Cathay’s full-year earnings due to the management’s guidance of weak yield outlook.”

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A Cathay Pacific Airways Ltd. aircraft takes off from Chek Lap Kok Airport in Hong Kong. Close

A Cathay Pacific Airways Ltd. aircraft takes off from Chek Lap Kok Airport in Hong Kong.

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A Cathay Pacific Airways Ltd. aircraft takes off from Chek Lap Kok Airport in Hong Kong.

No Shine

Cathay’s announcement of a HK$155 million loss from its associates was a “surprise,” Aziz said.

The company posted about HK$350 million loss from the newly-opened cargo terminal and also had a loss of HK$50 million a month from its cargo venture with Air China Ltd., Finance Director Martin Murray told reporters today.

Cargo exposure took “the shine off” as losses at Cathay’s own freight business, the venture and the terminal exceeded estimate, Credit Suisse Group AG analyst Timothy Ross said in a note today. He cut target price of Cathay to HK$15.10 from HK$16.70 and maintained an outperform rating on the stock.

Shares of the airline gained 0.9 percent to HK$14.26 in Hong Kong trading yesterday. Trading in the city is closed today because of adverse weather.

Sales declined 0.6 percent to HK$48.6 billion, the airline said. Cathay also reported a restated net loss of HK$929 million for the year-earlier period.

Freight volumes fell 1.7 percent and cargo yields, a measure of what the carrier charges, declined 3.3 percent in the first half, the airline said in the statement.

Passenger Yields

Passenger yields, a measure of ticket price, increased 4.4 percent as the company cut capacity. North Asia market, Cathay’s biggest after the North America, was the only region that posted a decline in passenger yields amid rising competition.

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A Cathay Pacific Airways Ltd. Boeing Co. 747-8 freighter sits on the tarmac at Chek Lap Kok Airport in Hong Kong. Close

A Cathay Pacific Airways Ltd. Boeing Co. 747-8 freighter sits on the tarmac at Chek Lap... Read More

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A Cathay Pacific Airways Ltd. Boeing Co. 747-8 freighter sits on the tarmac at Chek Lap Kok Airport in Hong Kong.

Cathay and its affiliate Hong Kong Dragon Airlines Ltd carried 14.5 million passengers in the first half of the year, 1.3 percent more than a year earlier.

“We continue to operate in a challenging business environment in the first half,” Chairman Christopher Pratt said in the statement. “Our cargo business has been affected by weak demand since April 2011. There is still no sign of sustained improvement.”

Freight declined on weak demand from Europe and intensified competition from Gulf carriers such as Emirates. Cathay, the world’s biggest international air-cargo carrier, started operating a HK$5.9 billion cargo terminal earlier this year, its first independently owned facility in Hong Kong.

Japan Flights

In May, the airline said it will add more flights from Hong Kong to Japan as the yen’s decline against the dollar made Japan a cheaper destination for foreign visitors.

Global airline earnings are likely to generate a net income of $12.7 billion in 2013, 67 percent higher than a year earlier, as capacity cuts help pack planes to record levels, according to the International Air Transport Association.

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John Slosar, chief executive officer of Cathay Pacific Airways Ltd. Close

John Slosar, chief executive officer of Cathay Pacific Airways Ltd.

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Photographer: Jerome Favre/Bloomberg

John Slosar, chief executive officer of Cathay Pacific Airways Ltd.

Cathay’s fuel costs dropped 8.5 percent from a year earlier to HK$18.67 billion. The airline proposed to pay an interim dividend of 6 Hong Kong cents per share, compared with none a year earlier.

Cathay, which is phasing out less fuel-efficient Boeing 747-400s, also parked a freighter this month. The company had a total of 184 planes on its fleet at the end of June, according to the statement.

The airline earlier this year signed an agreement to cancel an order for eight Boeing 777-200 freighters. Instead, the carrier will buy three Boeing 747-8 freighters and sell four 747-400 converted freighters to Boeing as part of the deal.

To contact the reporter on this story: Jasmine Wang in Hong Kong at Jwang513@bloomberg.net

To contact the editor responsible for this story: Anand Krishnamoorthy at anandk@bloomberg.net

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