Cathay Pacific’s Dire Run Eases as First-Half Losses Narrow

(Bloomberg) -- Cathay Pacific Airways Ltd.’s first-half loss narrowed from a year earlier as the Hong Kong-based carrier slashed costs and cargo operations helped offset feeble passenger traffic.

The airline reported a net loss of HK$7.6 billion ($977 million) in the six months through June, compared with a HK$9.9 billion deficit in the same half of 2020. Sales dropped 43% to HK$15.9 billion, Cathay said in a statement Wednesday.

Hong Kong this month moved to ease some of the world’s strictest Covid-related border controls -- offering a tiny bit of encouragement for an improvement in passenger demand. But travelers still face seven days of hotel quarantine after arriving from most places, and even longer if coming from the highest-risk spots, including the U.K., one of Cathay’s key markets. The airline said that it saw some improvement in demand later in the first half in China, U.S. and U.K.

Cathay carried 157,000 passengers in the first half, 96% fewer than a year ago, filling 18.9% of seats on its planes, the airline said in the statement. It plans to add more flights in the coming months and reach 30% of its pre-Covid capacity in the last three months of this year. Still, a growing outbreak of the fast-spreading delta variant in mainland China and a relentless increase in infections across much of the rest of Asia casts doubt over any recovery.

“Covid-19 will continue to have a severe impact on our business until borders progressively open and travel constraints are lifted,” Cathay’s Chairman Patrick Healy said. “As governments have stated, this is only going to be possible when sufficiently high vaccination levels are achieved. The progress of vaccination is encouraging, but the pace and timing of recovery remain uncertain.”

First Recovery Stage

First-half losses narrowed in the wake of Cathay slashing jobs and pay, as well as shutting overseas bases for flight crew and closing its Cathay Dragon regional airline. The company reflected HK$500 million in impairment and related charges on 11 aircraft that aren’t expected to re-enter service before they’re returned to lessors or retired, and HK$403 million in restructuring costs. That compares with HK$1.2 billion of impairment and related charges for 16 aircraft and another HK$1.2 billion in certain airline service subsidiaries’ assets respectively, a year ago.

The fact Cathay should be at 30% of pre-Covid levels in the fourth quarter is “the first stage of recovery,” Jefferies analyst Andrew Lee said. “We still expect the second half to remain loss-making as passenger recovery is dependent on borders reopening and travel bubbles.”

Sales from cargo operations rose 0.1% from a year earlier to HK$12.7 billion, despite a decline in freight carried. Yield, reflecting earnings from carrying one ton of cargo per kilometer, climbed 24%. The airline had a fuel hedging gain of HK$625 million in the first half, compared with a HK$1.6 billion loss in the same period last year.

“I’m more positive for the second half,” said James Teo, an analyst at Bloomberg Intelligence. “It’s not just the reopening, but also since their Europe flights are seeing 40% load factor in June and China flights are also not bad at 29%. This could improve with the reopening,” he said, referring to Hong Kong slowly relaxing entry rules.

Available Liquidity

Cathay aims to lower its average monthly operating cash burn to less than HK$1 billion in the second half. The carrier has also deferred aircraft deliveries, including Airbus SE A350s and A320neos, and is expanding e-commerce operations with an online shopping platform.

The airline raised HK$39 billion through a recapitalization plan last year that gave the Hong Kong government a 6.08% stake and a seat on the board as an observer. The other main shareholders are Swire Pacific Ltd., Air China Ltd. and Qatar Airways.

As of June, Cathay had an available liquidity balance of HK$32.8 billion. It raised HK$6.74 billion from convertible bonds in the first half and $650 million from selling regular notes. The group “currently has sufficient unrestricted liquidity for at least the next 12 months,” Cathay said.

Shares in Cathay rose as much as 1.9% after Wednesday’s earnings report. The stock has declined 12% this year, the fifth-worst performer on the Bloomberg World Airline Index.

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