Cathay Warns Results Will Deteriorate Significantly Due to Coronavirus

(Bloomberg) -- Cathay Pacific Airways Ltd., among the most high-profile corporate casualties of the pro-democracy protests in Hong Kong, is turning into one of the most impacted airlines from the novel coronavirus outbreak.

First-half financial results will be “significantly down” from a year earlier, Cathay Chief Customer and Commercial Officer Ronald Lam said in a statement. The airline and Cathay Dragon carried 3.8% fewer passengers in January, with the drop only likely to deepen as they cut 90% of capacity to China.

“This was the most challenging Chinese New Year period we have experienced,” Lam said, referring to the national holidays that were at the end of January. Even before the epidemic, “the first half of 2020 was already expected to be extremely challenging financially,” he wrote.

China’s Biggest Airlines Report Early Hit from Outbreak

Cathay is particularly exposed to the virus because sales from Hong Kong and China account for about half of its total revenue. The company is bracing for what Chief Executive Officer Augustus Tang said described as a “very significant impact” the virus will have on travel. More than 50 countries and territories have imposed travel restrictions on China and authorities in some places have also denied entry to passengers arriving from Hong Kong, which shares a border with mainland China.

Lam said that the year had started “fairly positively” with “satisfactory” passenger traffic volume through the first three weeks. Then the virus hit. “Our performance deteriorated rapidly in the last week of January as the novel coronavirus situation became more severe, and it continues to weaken significantly.”

Tens of thousands of flights that could have carried millions of passengers in and out of China have been canceled because of the virus, threatening to further strain the finances of an industry that had been reeling from multiple headwinds such as the U.S.-China trade war. According to OAG Aviation Worldwide, the outbreak has cost airlines servicing the region $652 million in lost revenue.

The stock closed at HK$10.50 in Hong Kong, unchanged from Friday before the announcement. It’s tumbled 8.9% this year.

Cathay had already warned that profit in the second half of last year would be “significantly” lower than the first because it was badly hit by months of protests in Hong Kong.

Cathay’s woes prompted parent Swire Pacific Ltd. to issue its own profit warning, predicting that first-half results will be “materially worse” than a year earlier.

--With assistance from Shirley Zhao.

To contact the reporter on this story: Kyunghee Park in Singapore at kpark3@bloomberg.net

To contact the editors responsible for this story: Young-Sam Cho at ycho2@bloomberg.net, Will Davies

©2020 Bloomberg L.P.