Oct 14, 2016

    Turbulent skies ahead for Cathay Pacific


    SHARES in Hong Kong flag carrier Cathay Pacific plunged more than 5 per cent yesterday after it scrapped its profit outlook for the second half of the year, citing competition and overcapacity.

    The Hong Kong-based firm said it no longer expected business to improve in the latter half of the year - a departure from its previous forecast.

    Net profit for the first six months of the year stood at HK$353 million (S$63 million).

    "Since the interim report was issued, the outlook for our airlines' business has deteriorated," company secretary David Fu said in statement issued late on Wednesday to the Hong Kong Stock Exchange.

    "It is no longer expected that the Cathay Pacific group's results for the second half of 2016 will be better than those of the first half," it said, adding the firm was engaged in a "critical review" of its operations against a "difficult revenue picture".

    Despite a rising appetite for air travel in Asia-Pacific, the Hong Kong airline is competing against firms that are aggressively expanding in the region as well as low-cost carriers, including Chinese rivals.

    "Overcapacity and strong competition (are) putting particular pressure on our passenger business, with continued shortfalls in revenue compared with forecasts and heavy pressure on yield," he said.

    It has also suffered huge hedging losses as the price of oil plunged, which should have provided a boost to Cathay's bottom line.

    Oil hedging is when an airline locks in prices of fuel - a huge chunk of most airlines' outlay costs - at a pre-determined level for a certain amount of time.

    In the first six months, Cathay recorded hedging losses at HK$4.49 billion.