By Lisa Barrington and Donny Kwok
HONG KONG (Reuters) -Cathay Pacific Airways warned on Wednesday of declining airfares, challenges at its budget carrier and uncertain cargo market conditions, sending its shares down almost 10% to a one-month low.
Hong Kong’s flagship airline also said it had ordered 14 more Boeing 777-9 wide-body jets as it expands long-haul routes, taking its total orders for the model to 35 with options for another seven.
Cathay’s first-half profit rose 1% to HK$3.65 billion ($465 million) on a strong jump in passenger numbers, lower fuel prices and a steady cargo performance.
But passenger yields, a proxy for airfares, fell 12.3% at its main brand and 21.6% at low-cost carrier HK Express, as Cathay and its rivals added capacity.
“HK Express continues to face short-term challenges,” Chairman Patrick Healy said after the budget airline posted a first-half loss of HK$524 million, before net finance charges and taxation.
Healy said Cathay was taking a long-term view and expected HK Express to become profitable.
Cathay shares ended 9.7% lower at their lowest close since July 4, having seen their biggest one-day percentage drop since January 2021. The benchmark Hang Seng Index gained 0.3%.
“The results were in line with expectations but the performance from the budget airline segment was not impressive,” said Steven Leung, a sales director in Hong Kong at brokerage UOB Kay Hian.
YIELDS NORMALISE
Yields at Asia’s airlines are coming down from post-pandemic record highs as carriers add capacity, intensifying competition.
Asian peer Singapore Airlines said last week its yields declined 3.5% in the April to June quarter, while those at its low-cost carrier Scoot fell 4.7%.
Cathay’s Chief Commercial Officer Lavinia Lau said a rise in long-haul flights and transit passengers was also pushing yields lower.
North America yields took the biggest hit, falling by 17.5%, and pressure on those routes could continue as Cathay added 50% more U.S.-bound capacity this summer and U.S. visa issues for Chinese nationals may impact traveller numbers, Lau said.
Bookings for Japan have not yet recovered to normal levels since a substantial drop-off in June amid rumours an earthquake would strike the country, CEO Ronald Lam said.
Based at the world’s busiest cargo airport, Cathay is one of Asia’s largest cargo carriers and has benefited from rising volumes of e-commerce out of China.
Cathay said its cargo business showed resilience despite uncertainty caused by changes to U.S. tariffs this year, in particular the cancellation of a duty-free exemption for low-value packages from China.
The cargo division’s half-year revenue rose 2.2%, while yields fell 3.4%.
Cathay’s order for 14 more 777-9 planes with GE engines exercised options secured in a 2013 order for 21 of the jets. It expects delivery by 2034.
The long-delayed 777-9, Boeing’s latest version of its 777, has not yet been certified. The model is undergoing flight testing and Boeing hopes to start deliveries next year.
Cathay said it expects its first 777-9 delivery in 2027.
(Reporting by Lisa Barrington in Seoul and Donny Kwok in Hong Kong; Additional reporting by Sameer Manekar in Bengaluru; Editing by Louise Heavens and David Holmes)
