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Virus outbreak to push Cathay Pacific into H1 loss, prompt more capacity cuts

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Cathay, which said 80 per cent of employees agreed to take three weeks of unpaid leave to cut costs, added it does not rule out job cuts as the virus situation unfolds.

Sydney 

CATHAY Pacific warned of a substantial loss in the first half of the year and flagged more capacity cuts due to the coronavirus outbreak, which has forced it to ground more than half its fleet and request aircraft delivery delays.

The carrier has been at the forefront of a global slump in travel demand due to the epidemic, compounding a hit it took in the second half of 2019 from widespread, sometimes violent anti-government protests in Chinese-ruled Hong Kong.

"Travel demand has dropped substantially and we have taken a number of short-term measures in response. These have included a sharp reduction of capacity in our passenger network," Cathay chairman Patrick Healy said in a statement.

"Despite these measures we expect to incur a substantial loss for the first half of 2020," he added.

Cathay, which said 80 per cent of employees agreed to take three weeks of unpaid leave to cut costs, added it does not rule out job cuts as the virus situation unfolds.

It has already grounded more than 140 planes and slashed capacity by two thirds across its network for March and April, versus plans for a 40 per cent cut.

Earlier this month, Cathay carried 82 per cent fewer passengers than usual on Cathay Pacific and regional arm Cathay Dragon, chief financial officer Martin Murray told analysts.

The company flagged that substantial passenger capacity and frequency reductions were likely for May as well, adding it was "difficult to predict when these conditions will improve".

The flu-like coronavirus, which can be transmitted from person to person, originated in China late last year and spread to more than 60 countries since then. It has infected over 100,000 people and killed more than 4,000 globally.

The accelerating outbreak is dashing hopes of a sharp rebound in demand, BOCOM International analyst Luya You said.

Cathay is flying empty passenger planes filled with cargo to help make up for the one-third of its cargo capacity that has been lost through flight cuts across its network, chief customer and commercial officer Ronald Lam said. Cathay said it was cautiously optimistic about the air cargo market, where rates have risen sharply in recent weeks.

However, given overall weakness in the sector, Cathay said it was talking to both Airbus and Boeing Co about potentially delaying aircraft deliveries. But for now Cathay said it is still receiving new aircraft and that it hopes to add capacity once demand returns. Cathay was due to take delivery of 17 A350 and A320neo family planes from Airbus SE and lessors this year.

An Airbus spokesman said the company does not comment on delivery schedules for individual airlines. Boeing did not respond immediately to a request for comment.

Cathay said it had unrestricted liquidity of HK$20 billion (S$3.58 billion) and it expected to remain a going concern. Mr Murray said there was no need for a cash call yet but he could not rule that out if the situation deteriorated.

For 2019, the airline reported a 28 per cent plunge in earnings to HK$1.69 billion, in line with market estimates. REUTERS