Cathay Pacific shares plunge as it axes profit outlook

Cathay Pacific shares plunge as it axes profit outlook
HONG KONG: Shares in Hong Kong flag carrier Cathay Pacific plunged as much as five percent Thursday after it scrapped its profit outlook for the second half of the year, citing competition and overcapacity.

The Hong Kong-based firm said it no longer expected business to improve in the latter half of the year — a departure from its previous forecast. Net profit for the first six months of the year stood at HK$353 million ($45.5 million).

Shares in the company were trading as low as HK$10.16 ($1.31) per share, down 5.58 percent from Wednesday’s close. It closed with a smaller loss, ending at HK$10.26 or 4.65 percent down.

Air China, a shareholder of Cathay , also saw shares plunging 3.44 percent.

“Since the interim report was issued, the outlook for our airlines’ business has deteriorated,” company secretary David Fu said in statement issued late Wednesday to the Hong Kong Stock Exchange.

“It is no longer expected that the Cathay Pacific group’s results for the second half of 2016 will be better than those of the first half,” the statement said, adding the firm was engaged in a “critical review” of its operations against a “difficult revenue picture”.

Despite a rising appetite for air travel in the Asia-Pacific the Hong Kong airline is competing against firms that are aggressively expanding in the region as well as low-cost carriers, including fledgling Chinese rivals.

Hong Kong-based financial analyst Jackson Wong said aside from competition, other factors could take a toll on the firm in the coming months.

“For the second half of the year it’s going to be tough…the Chinese economy is a major factor…the oil prices which are going (back) up will also be one of the things they are facing,” the associate director of Hong Kong-based Simsen Financial group told AFP.

He added the weak global economy affects the airline’s cargo business.

“iPhone 7 is still selling like a hot cake but it’s not growing as fast as before. It’s an indicator that electronics which used to be a profit source (for airlines) could be going flat,” he said.

The firm warned too that “overcapacity and strong competition is putting particular pressure on our passenger business”.

The company has also suffered huge hedging losses as the price of oil plunged from its peak, which should have provided a boost to Cathay’s bottom line.

Oil hedging is when an airline locks in prices of fuel — a huge chunk of most airlines’ outlay costs — at a pre-determined level for a certain amount of time.

In the first six months, Cathay recorded hedging losses at HK$4.49 billion.