Photographer: Billy H.C. Kwok/Bloomberg

Cathay Drops After CEO Says Performance ‘Below Expectations’

  • Passenger yield under intense pressure, Ivan Chu says
  • Growth in fliers fails to keep pace with capacity increase

Cathay Pacific Airways Ltd. slumped the most in three weeks after Asia’s biggest international carrier said first-half performance was “below expectations” and yields were under “intense pressure.”

Shares snapped six days of gains after the Hong Kong-based airline said in a statement to the stock exchange on Monday that combined passenger load factor for Cathay Pacific and unit Dragonair fell by 1.7 percentage points to 85.5 percent in the period. While the capacity increased 4.2 percent, the growth in passenger traffic was 2.7 percent, it said.

“Passenger revenue has been adversely affected by the reduced load factor and intense pressure on yield,” Chief Executive Officer Ivan Chu said in the statement issued after trading hours. “Cargo tonnage has stabilized but yield continues to decline.”

Cathay is joining Singapore Airlines Ltd. in raising concerns about yields as the expansion of Middle Eastern airlines to Asia, the emergence of mainland Chinese airlines and regional budget carriers squeeze the luxury operators, prompting them to offer discounts to fill more seats. After reporting the lowest yield from passengers in six years in the 12 months through March, Singapore Air’s CEO Goh Choon Phong said in May that yields are under pressure across the industry.

Cathay’s stock slid 2.9 percent to HK$12.20 in Hong Kong, the biggest decline since June 27. It has dropped 7.2 percent this year, compared with a 1.1 percent loss in the Hang Seng Index.

Less Attractive

“Cathay has become less attractive as Chinese carriers offer more direct flights,” said Shukor Yusof, founder of consulting firm Endau Analytics in Malaysia. “The attractiveness of Hong Kong as a travel destination may not be as before. Like Singapore Airlines, Cathay is also affected by the budget carriers.”

Net income at Cathay Pacific is due to decline 14 percent to HK$5.13 billion ($661 million) this year, according to the mean estimate in a Bloomberg survey of 17 analyst estimates. The airline is due to report first-half numbers in August.

Singapore Air’s net income is forecast to rise 10 percent to S$888 million ($658 million) in the fiscal year ending in March, according to the mean estimate in a Bloomberg survey of 18 analysts.

Chu also said “foreign currency movements have been adverse,” while he didn’t elaborate on yields.

Not Too Bad

“The major risk, which is not shown in the figures, is the yield,” said Kelvin Lau, an analyst at Daiwa Capital Markets Hong Kong Ltd. “So far, the comments from the last few months have been consistently talking about pressure on yield, both front- and back-end,” he said, adding the passenger load of 85.5 percent “isn’t too bad.”

In May, Singapore Air said its yields, or the revenue earned from a passenger flying a kilometer, was 10.6 Singapore cents in the year through March, dropping from 11.2 cents a year earlier. That damped full-year net income, which fell short of estimates.

“We see some weakness going forward,” CEO Goh said at the time. “Oil price is volatile and competition continues.”

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