Trading Statement

In the interim report for 2016 of Cathay Pacific Airways Limited (“Cathay Pacific”), it was indicated that the operating environment in the second half of the year was expected to continue to be affected by the same adverse factors as in the first half and that the overall business outlook remained challenging.

When the interim report was issued, it was expected that, as is normal for seasonal reasons (and notwithstanding the adverse factors referred to in the report), the Cathay Pacific group’s results for the second half of 2016 would be better than those of the first half, when the consolidated profit attributable to shareholders was HK$353 million.

Since the interim report was issued, the outlook for our airlines’ business has deteriorated. Overcapacity and strong competition is putting particular pressure on our passenger business, with continued shortfalls in revenue compared with forecasts and heavy pressure on yield.

Against this difficult revenue picture, we are engaged in a critical review of our business, the goal of which is to improve revenues and to reduce costs so as to maintain a strong financial position and to deliver acceptable financial returns. The review will consider all options for improving efficiency and productivity. At the same time, we understand the need to continue to invest in our businesses and to improve continuously the products and services which we provide to our customers.

Against this background, 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.

Source: http://www.cathaypacific.com/dam/cx/...atement_en.pdf

My comments: this is not surprising as they did mention the challenging environment in their interim results briefing. What they need is a Low cost airline subsidiary to better compete with regional LCC and changing consumer trends.

There are reports in the media notably from Ben Sandilands that doesn't make any sense. Airlines issue profit statements in line with the stock exchange requirements. This doesn't mean that the airline is in crisis mode. Yes, the market is challenging at the moment but CX has a strong balance sheet to weather the storm.

So if they add another column of seats to make the 777 10 abreast, wouldn't that be adding to capacity?

I hope CX don't start going down the route of BA and "enhance" everything within an inch of its life. I've just recently started flying Cathay and have made it my first choice of travel between the UK and Australia, even though it is often at a premium compared to some other airlines. I've done 2 trips so far in the last 10 months and the next one booked in a few months time. And I've been spreading the word on social media too. Maybe I should reign that in for a bit.

Not really.

Do you know, instead of spending money for a LCC or cutting costs, the best way to maintain its competitiveness?

Ans: Stop pissing off customers.

Stick with CX as I have for the past decade and I still love flying with them!

Maintaining its competitiveness is important but it needs to increase revenue to offset the high cost of operating out of HK!

Loads do look really dreadful right now. I saw a set of all loadings ex-HKIA last week. CX's long-haul #s were dreadful. 120pax total going to Paris on the daytime flight, 150 on the nighttime flight, a load of 140 to SYD, 160 to EWR. It's only a week....maybe it was a very bad one....but the #s were atrocious.

Not surprise. SQ may have even lower loading. From CAPA report, the loading fo SQ is the lowest among all Asia and European airlines in the euro-Asia market.

It is not easy. The main driver now is price -sensitive leisure travelers. Even BA need to reduce their size in LCY-JFK market.

I wonder what "critical review" will entail. If they are dealing with the next six months, they won't be able to do anything major that affects short term results. Any long term structural change will take at least 1-2 years to enact and filter through.

I think they're a long way off the LCC model yet, and the investment in lounges and aircraft shows they're not planning to go that way any time soon. They might be cutting a few things from the days of being literally top of the pile but don't let a few negative comments put you off.

Their big challenge is what to do now the mainland passengers have started flying mainland carriers. It's not only HK's airline industry that is noticing the downturn there.

My friend was on 383 earlier this week. The loading was 1/17/4/52.

Shocking. I'm on 807 next week ORD-HKG, and the PE seatmap looks pretty well zeroed out. I will report back and say whether it was true.

How much of this could be blamed on fuel hedging? I know it's been discussed before but I think one of the reasons why CX cannot offer competitive prices is because it is paying more for fuel than most of the other players....

Mainland carriers are also seeing their yields fall as they add capacity.

https://www.bloomberg.com/gadfly/art...cating-embrace

Fuel hedging adds to the yield issues. But then, mainland carriers don't hedge at all, which dented them a few years back. They're just at a different point in the cycle now.

I think the expansion of mainland carriers cannot explain all. HX relied on Chinese transfer passengers more but HX still expand quickly.