Cathay warns of significant drop in performance amid coronavirus outbreak

Hong Kong’s flagship airline Cathay Pacific has warned its year-on-year financial performance in the first half of 2020 will be “significantly down”, while adding it was likely to extend flight reductions into April amid the deadly coronavirus outbreak. 

The airline on Monday said it was widening its capacity reductions for February and March, shrinking by 40 per cent instead of 30 per cent, in a move analysts indicated the travel situation was worsening.

In a statement, Ronald Lam Siu-por, the airline’s chief customer and commercial officer, described the Lunar New Year holiday last month was the most challenging the company has experienced ever.

“Travel demand dropped substantially as the novel coronavirus outbreak in mainland China intensified towards the end of the holiday period,” he said.

The airline also blamed travel restrictions from governments worldwide on visiting mainland China, and in some cases even Hong Kong, for the poor travel demand.

“The first half of 2020 was already expected to be extremely challenging financially,” Lam added.

“But the poor travel demand and the consequent capacity reduction will significantly affect the company’s financial performance over the same period last year.”

Last year, the airline made a net profit of HK$1.32 billion in the first six months.

Cathay Pacific earlier asked all its 27,000 staff to take unpaid leave to help it preserve its cash. Photo: Winson Wong

The airline earlier asked all its 27,000 staff to take unpaid leave to help it preserve its cash.

Lam said in a statement released on Monday that the initial start to 2020 was “fairly positive”, with the first three weeks of January showing improved loads on its planes and earning more money on ticket sales – or yield – compared to the same period in 2019.

But the situation changed as the coronavirus alarm spread.

“Our performance deteriorated rapidly in the last week of January and it continues to weaken significantly. We saw significant cancellations within a short period,” he said.

Cathay Pacific also suffered a sharp decline in visitor traffic in the last two months of 2019, as tourists and business travellers shunned Hong Kong in droves amid anti-government protests. In November and December 2019, there was a 46 per cent year-on-year decline in visitor traffic.

Luya You, transport analyst at Bocom International, said the increase in capacity reduction and further cuts planned for April showed a worsening outlook.

“That’s the best indication that forward bookings are showing more weakness than expected. The fact that [Cathay] ramped up cuts means the situation is worsening.”

During the severe acute respiratory syndrome (Sars) outbreak in 2003, Cathay Pacific grounded 22 planes and cut passenger flights by 45 per cent amid a lack of travel demand.

At that time, Cathay carried up to 33,000 passengers a day. It fell to as low as 5,000 a day. The airline now handles three times the volume.

In a report published over the weekend, CAPA Centre for Aviation, a research organisation, said Hong Kong aviation would rebound, if the post-Sars trend was any standard. But it also warned that conditions had changed in 17 years which could see a different outcome, especially if the outbreak was not contained.

“The extent of China’s current global economic impact, as well as the deeper effects on regional aviation and tourism in 2020, could provoke a more sluggish recovery [for Hong Kong],” CAPA said.

Source: SCMP