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HomeFT SelectCathay Pacific dives to first annual loss in 8 years

Cathay Pacific dives to first annual loss in 8 years

Shares in Cathay Pacific fell as much as 6.9 per cent on Wednesday after the Hong Kong flag carrier swung to its first annual loss since 2008.

The airline reported a net loss of HK$575m ($74m) for 2016 in the face of increased competition from mainland Chinese airlines and falling demand for its premium class seats.

The net loss compares with a HK$6bn profit reported in 2015, and came amid what the airline described as a “difficult” operating environment with “intense and increasing” competition from rivals.

The loss also undershot analysts’ consensus estimate of a HK$450m profit, according to Bloomberg.

Cathay stock recovered slightly to trade down 1.4 per cent at HK$11.44 a share in late-afternoon trading, while the benchmark Hang Seng index was flat.

“Three economic factors were important: the reduced rate of economic growth in mainland China, a reduction in the number of visitors to Hong Kong, and the strength of the Hong Kong dollar,” said Cathay.

The airline added that heightened competition from mainland Chinese carriers operating more flights to the US had piled pressure on its yield.

Passenger yield per kilometre — a key measure of airline profitability — fell 9.2 per cent year-on-year to 54.1 Hong Kong cents.

The airline’s cargo unit felt the impact of overcapacity, which dragged down revenues 13.2 per cent year-on-year to HK$20bn.

“The cargo market got off to a good start, but overcapacity is expected to persist,” said John Slosar, Cathay chairman. “We expect the operating environment in 2017 to remain challenging.”

The number of corporate passengers travelling from the airline’s home market fell for the first time since 2009. Cathay said it had responded to the slip by offering promotions on its premium class tickets to attract leisure travellers.

Cathay’s fuel hedging loss for the year was HK$8.46bn, roughly on par with the HK$8.47bn hedging loss reported 2015. The airline expects to benefit from lower fuel prices this year but is still forecasting a hedging loss for 2017, although it expects this to be lower than in 2016.

The airline had previously reported an 82 per cent fall in net income in the first half linked to losses from fuel hedging and a slowdown in China.

As a result, Cathay launched its largest strategic review in two decades and in January said it would undergo a reorganisation that would include job cuts, without specifying numbers.

Via FT