Cathay Pacific's recovery hits rough patch on oil, trade war

Beijing

IT'S TURNING out to be a bumpy road to recovery for Cathay Pacific Airways Ltd.

Just when the premium airline was showing signs of a rebound, crude oil played spoilsport again, denting early gains from a transformation plan that chief executive officer Rupert Hogg considers crucial to survival. More uncertainty lies ahead for the world's third-largest cargo carrier as a global trade war escalates.

Hong Kong's flagship airline is likely to report a net income of HK$140 million (S$24.4 million) for the first half of 2018, according to the median estimate in a Bloomberg News survey of five analysts. While that is better than the HK$2.05 billion loss a year earlier, it is smaller than the HK$792 million profit in the second half of 2017. The numbers are due around noon on Wednesday.

Mr Hogg, who became CEO in May last year, is seeking to turn Cathay's fortunes around in the face of intense competition from budget carriers and mainland Chinese rivals. He has reduced jobs starting with the carrier's head office in Hong Kong to cut costs, and introduced better business-class services on long-haul flights to help lure premium passengers.

Shares of Cathay have declined 18 per cent since March 16, when they reached HK$14.68, their highest level in more than two years.

Here's what to watch out for in Cathay's earnings:

Still, higher crude won't be all bad news for Cathay because it will help reduce its paper losses on fuel hedging. The carrier hedged nearly half its needs at an average US$80.81 a barrel in the first quarter and US$81.13 in the second quarter. During those periods, Brent crude traded at an average of US$67.23 and US$74.97, respectively.

"We expect the escalating trade tensions to dampen global trade," Ms Png said. "Cathay's cargo traffic growth will moderate in the second half."

In its monthly traffic statement last month, Cathay expressed caution on tariff disputes, saying that they "have the potential to significantly impact both our passenger and cargo businesses".

The carrier has been trying attract more premium passengers by offering greater choices of in-flight meals on long-haul business cabins and opening a new lounge in Hong Kong. It has also implemented digital reforms to improve services and adding destinations.

The measures seem to be paying off. Cathay said in July that demand in the premium cabins across its network has been "strong" and "small yield growth came on the back of improved business travel and traffic mix over last year." BLOOMBERG