Cathay Pacific rallies as optimism spurs upgrades

[SINGAPORE] Cathay Pacific Airways shares rose as much as 6 per cent on Thursday, as analysts said they believed losses had bottomed for the Hong Kong airline after it reported its worst first-half result in at least two decades.

The carrier has in recent years seen its market share on international routes eroded by aggressively expanding mainland Chinese and Gulf airlines.

This, with poor fuel hedges and its lack of a budget arm have hurt its competitiveness.

"The first half was an ugly combination of one-offs and non-structural costs," Capa Centre for Aviation analyst Will Horton said.

"The good news is that the core airline operation excluding fuel hedging did surprisingly well given even greater over-capacity in all long-haul segments."

On Wednesday, Cathay said it had swung to a loss of HK$2.05 billion (S$358.13 million) for the six months ended June, from a profit of HK$353 million a year ago. This puts the carrier on track for its first ever back-to-back annual loss since it was founded in 1946.

Crucial Perspective analyst Corrine Png said the loss was worse than expected but "the worst was nearly over" and the airline's outlook would improve from next year, with forward bookings suggesting stronger passenger revenue growth.

Broker Daiwa upgraded the airline to a "hold" recommendation from a "sell" due to recovery in cargo yields, while Jefferies maintained a "buy", saying losses had bottomed.

The airline has cut 600 jobs at its head office in Hong Kong, the biggest job losses in nearly two decades, as part of a broader plan to help return to profitability.

Cathay shares were up about three per cent at HK$12.02 by 0258 GMT, after earlier hitting a 10-day high of HK$12.42, versus the benchmark index that was mostly steady.

REUTERS