March 14 (Bloomberg) -- Cathay Pacific Airways Ltd., Asia’s biggest international carrier, expects an improving economy to boost premium travel after slumps in cargo and finance-industry demand for flights cut profit last year.
“The world economy is starting to look better, especially North America,” Cathay Chief Executive John Slosar said today in an interview with Susan Li on Bloomberg TV’s “First Up.”
Slosar’s introduction of promotional fares helped boost passenger numbers 5 percent last year, while job cuts at banks crimped premium travel and cargo demand slumped. Net income last year dropped 83 percent to HK$916 million ($118 million) amid a decline in freight demand and higher fuel costs, the company said in a Hong Kong stock exchange filing yesterday.
“Business travel is expected to recover modestly this year with the improvement in the world economy,” Geoffrey Cheng, an analyst at Bank of Communications Co., said today by phone. He raised his recommendation on the company to long-term buy, citing better than expected 2012 profit, driven by cost cuts.
Cathay declined 1.3 percent to HK$14.02 at the close in Hong Kong trading, the lowest level since Dec. 21. The city’s benchmark Hang Seng Index rose 0.3 percent.
Barclays Plc analysts led by Patrick Xu cut Cathay’s share price target by 4 percent to HK$15.41 yesterday after the earnings were released. Daiwa Securities Group Inc. analysts led by Kelvin Lau also lowered the target price.
Sales at the front of the cabin, the most profitable segment of the passenger business, fell short of Cathay’s expectations in December, the airline said earlier this year. Premium-ticket prices between Asia and the U.S. averaged $5,859 in December, the lowest level since 2009, according to data compiled by Bloomberg.
“Corporate travel was hanging reasonably well last year and all indications are that this year will be even better than that,” Slosar said today. He said business demand hasn’t been uniform across industries and has been hurt especially by a decline in financial industry travel.
The carrier’s cargo yields last year were unchanged at HK$2.42 after cutting capacity by 3.1 percent. Passenger yield, including fuel surcharges, rose 1.2 percent to 67.3 Hong Kong cents at the airline, according to the statement yesterday.
Faster global economic growth is “going to help revenue or yields a little bit, but I think cargo is still patchy,” Slosar said.
The worldwide air freight market shrank 1.5 percent in 2012, according the International Air Transport Association.
Cathay, which moves cargoes with 22 dedicated aircraft and bellies of passenger planes, carried 1.56 million tons of cargo and mail last year, 5.3 percent less than a year earlier, the company said in January. Revenue, measured by weight multiplied by kilometers, also fell 7.3 percent to 8.94 million.
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