Cathay Pacific Warns of $1.3 Billion First-Half Net Loss

(Bloomberg) -- Cathay Pacific Airways Ltd. warned it is set to post a first-half net loss of about HK$9.9 billion ($1.3 billion) as the coronavirus decimates air travel, with the Hong Kong carrier flying less than 1% of its usual number of passengers in recent months.

International aviation remains “incredibly uncertain” because of virus-related border restrictions, Chief Customer and Commercial Officer Ronald Lam said in a statement Friday. The airline and its Cathay Dragon unit flew 27,106 passengers last month, down 99.1% from June 2019, with a passenger load factor of just 27.3%.

“Although we have begun to see some initial developments, notably a slight increase in the number of transit passengers following the easing of transit restrictions through Hong Kong International Airport, we are still yet to see any significant signs of immediate improvement,” Lam said.

The virus has dealt a crushing blow to Cathay and other airlines worldwide, resulting in job losses and bankruptcies. In April, Cathay was flying as few as 458 passengers a day on average. That number increased to 900 a day in June.

With its finances and prospects looking increasingly strained, Cathay last month proposed a HK$39 billion government-backed rescue plan that was approved by shareholders Monday.

The Hong Kong government gets a 6.08% stake in Cathay through an entity called Aviation 2020 and has placed two observers -- Carlson Tong and Rimsky Yuen -- on the airline’s board. The carrier’s main shareholders are Swire Pacific Ltd., Air China Ltd. and Qatar Airways.

The rescue included a rights issue of seven shares for every 11 held, at a subscription price of HK$4.68 apiece. Cathay shares hit HK$5.9 on July 15, their lowest since September 2001.

The shares fell 1.5% to HK$6.02 in Hong Kong trading Friday.

While the fundraising plan helps the airline stave off collapse, a fresh wave of virus cases in Hong Kong and stricter social-distancing measures have further clouded its outlook.

Cathay has been hit particularly hard by Covid-19 as it has no domestic market to fall back on, and it already was in financial trouble as violent protests put off visitors to Hong Kong and prompted a change in management at the airline last year.

Cathay expects to operate as much as 10% of its normal flight schedule in August and will “continue to assess the potential of increasing more flights and adding destinations,” Lam said. July capacity is about 7% of usual levels.

Separately, Hong Kong airport said passenger and flight movements plunged 99.1% and 71.8%, respectively, in June from a year earlier, while cargo throughput fell 7.7%, mainly because of decreases to and from mainland China and Southeast Asia.

Visitor traffic dropped more than 99% in June, while travel by Hong Kong residents plunged 98%, the airport authority said in a statement Friday. In the first half of the year, Hong Kong International Airport handled 8.3 million passengers, down 78% from the same period in 2019.

Cathay’s expected first-half net loss, which compares with net income of HK$1.3 billion a year earlier, includes impairment charges of about HK$2.4 billion, mainly relating to 16 aircraft that are unlikely to re-enter “meaningful economic service” before the 2021 summer season, the airline said.

On the cargo front, Cathay and Cathay Dragon carried 93,228 tons of cargo and mail in June, down 43% from a year earlier, even as they operated a full freighter schedule along with chartered flights from subsidiary Air Hong Kong. There were fewer cargo-only flights on passenger planes.

“Cargo tonnage fell by 5% month-on-month as demand for medical supplies waned following a peak month in May,” Lam said. “The reduction of long-haul carriage from the Chinese mainland and Hong Kong made way for movements from Southeast Asia and the Indian sub-continent as local lockdown measures eased.”

Earlier this week, Akbar Al Baker, the chief executive officer of Qatar Airways, told Bloomberg Television he was confident the airline would overcome the crisis.

Analysts at Daiwa Capital Markets Hong Kong Ltd. upgraded Cathay to hold from sell on Thursday, saying the worst was over for the shares after they’d slumped more than 20% since the rescue plan was announced on June 9.

©2020 Bloomberg L.P.