Watch for a major announcement tomorrow from Cathay Pacific Airways in Hong Kong which could reveal a top to toe revamp and possibly warn of the chance of a rare full year loss.
Cathay scrapped its second-half profit forecast in October and announced a complete review of its business as it struggled with the fallout of a surge in traffic out of China to major markets such as Australia, bypassing Hong Kong.
Reuters reported on Monday that December edition of Cathay’s staff magazine said Chief Executive Ivan Chu would unveil the results tomorrow.
Hong Kong analysts say Cathay is expected to announce job cuts, cost reductions and moving a number of flights to its short-haul airline subsidiary when it unveils the results of a key review of the business on Thursday.
Chinese airlines are making life increasingly tougher for the 71-year old Cathay (which is a stablemate with Qantas, BA and American in the oneworld alliance).
Making life even tougher is the growing impact of the “open skies” deal signed last month between China and Australia.
Cathay’s share price has tumbled to its lowest level since the depths of the global financial crisis in 2009. In fact the shares are off more than 37% in the past two ears, and although they have bounced nearly 7% so far in 2017, that is more of a small relief rally rather than the start of a major price move.
Analysts say 2017 could see Cathay report its first full-year loss since 2010 as it tallies up the costs associated with the outcome of the review.
The rapid growth of Chinese rivals such as China Eastern Airlines and China Southern Airlines is pressuring Cathay at a time when its costs have risen because of the strength of the Hong Kong dollar against the Chinese yuan.
Cathay does not have a low-cost arm, (Like Qantas’ Jetstar) and costs at its short-haul carrier Cathay Dragon are said to be nearly as high as those at the parent.
Reuters points out that Cathay is also caught on the wrong side of China’s “one country, two systems” arrangement toward Hong Kong, as the regional hub is excluded from the air transport deals China is cutting.
The latest was an open skies agreement signed in October between China and Australia, a key market for Cathay for both direct flights and connections throughout Asia and to Europe.
Flights to the South West Pacific and South Africa – the bulk of them to Australia – represented 13.6% of Cathay’s capacity in the first half of 2016, according to figures from Reuters.
The open skies deal allows mainland carriers unlimited capacity on routes to Australia, at a time when Cathay is not allowed to add any more flights to Australia’s biggest airports and can only increase capacity by using larger aircraft.
Capacity between Australia and mainland China grew by 61.6% in the five years ended 2016. Over the same period, capacity between Australia and Hong Kong grew by just 2.6%.
Chinese hubs such as Guangzhou, Shanghai and Beijing have seized market share as a result.
