Cathay Pacific abandons forecast, conducts 'critical review'

[SINGAPORE] Cathay Pacific Airways Ltd, Asia's biggest international carrier, scrapped its profit outlook and said the airline is doing a "critical review" of its business amid a deteriorating outlook.

Cathay Pacific's results in the second half of the year "is no longer expected" to be better than that of the first half, the Hong Kong-based carrier said in a stock exchange statement Wednesday. In August, the airline reported an 82 per cent slump in net income in the first six months of the year and warned that premium travel was declining.

Chief executive officer Ivan Chu has struggled to revive profits at Cathay Pacific amid a slump in passenger yields - a key measure of profitability in the industry. Rival Singapore Airlines Ltd has also warned of tougher days as competition with Middle East carriers increases.

With Chinese airlines offering more direct services to the US and Europe from the mainland, Cathay Pacific's Hong Kong hub is no longer so critical for travellers to use as a hub.

"The Middle Eastern airlines are taking away Cathay's breakfast, lunch and dinner," said Shukor Yusof, founder of independent aviation consulting firm Endau Analytics in Malaysia.

"The next 12 to 18 months doesn't look favourable unless they do something drastic. They need to stop the bleeding."

Cathay and its unit Dragonair carried 2.7 per cent more passengers in the first six months of this year, taking the number to 17.2 million. Yet, yields - the money earned from carrying a passenger for one kilometre - slumped 10 per cent amid increased competition.

"We are engaged in a critical review of our business, the goal of which is to improve revenues and to reduce costs," Cathay Pacific said in the statement. "The review will consider all options for improving efficiency and productivity."

Cathay Pacific shares rose 0.2 per cent to HK$10.76 in Hong Kong trading Wednesday, before the announcement to the stock exchange. That helped trim the stock's decline this year to 20 per cent. The stock is the third-worst in the Hang Seng Index this year.

After announcing the first-half results, which missed analyst estimates, Cathay Pacific chairman John Slosar said the business outlook "remains challenging."

"Since the interim report was issued, the outlook for our airlines' business has deteriorated," the carrier said in the statement.

"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."

BLOOMBERG