Cathay Pacific Airways shares drop as yields face ‘pressure’

Shares in Cathay Pacific Airways slumped 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 earlier this week that combined passenger load factor for Cathay Pacific and unit Dragonair fell by 1.7 percentage points to 85.5% in the period. While the capacity increased 4.2%, the growth in passenger traffic was 2.7%, it said.

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

Cathay is joining Singapore Airlines 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 has slid 7.2% this year, compared with a 1.1% loss in the Hang Seng Index.

“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,” he said.

Net income at Cathay Pacific is due to decline 14% to HK$5.13 billion (€598m) this year, according to the mean estimate in a survey of 17 analyst estimates. The airline is due to report first-half numbers in August.

* Bloomberg