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A 99 Percent Collapse in Business Prompts Cathay Pacific to Boost Loss Projections

Madhu Unnikrishnan

December 16th, 2020

There is no end in sight for Cathay Pacific’s troubles, as the Hong Kong-based carrier grapples with an almost complete collapse in passenger traffic. Its latest investor update further underscores just how bad Cathay has had it since the before pandemic even began, as the territory was roiled with political unrest for the year before Covid struck.

The carrier reported its November traffic was 99% down from 2019. Unit revenues were off 98%. And its passenger load factor hovered at just about 18%. Cathay had cut capacity by 91%. Cathay said it transported just over 1,200 passengers per day in November — or roughly four B777s worth of passengers.

Next year doesn’t look any better. “We are still not seeing any meaningful improvement in our passenger business,” Chief Commercial Officer Ronald Lam said in a statement. “Looking ahead on the passenger front, we still are not seeing significant demand for travel as we head towards the end of 2020 — traditionally a strong travel season in the year.” 

Cathay Pacific expects to operate just 9% of its planned pre-Covid capacity in December and just 10% in January, down from the 34% average capacity it operated for most of the first half.  “This, together with the additional restructuring and impairment costs announced in October, and further aircraft impairment at year-end, is expected to result in the second-half losses being significantly higher than the first-half losses reported in our interim accounts,” Lam said.

The carrier reported a $1.3 billion loss in the first half of this year.

Also affecting November traffic was the delay of a planned Singapore-Hong Kong travel bubble, due to rising Covid infections. In fact, system-wide the carrier reported any gains it saw in the summer have been dashed by increasing Covid infections and new travel restrictions by countries throughout its network.

As with many carriers, cargo was a saving grace for Cathay Pacific. The carrier saw cargo load factors reach 78% in November, up nine points from last year, even though freight capacity was down 35%. It has maximized freighter utilization and operated 728 cargo-only flights on passenger aircraft, including 30 that carried freight in the passenger cabins. Cathay is opening new cargo routes to Australia this month. Growing e-commerce and demand for fresh food and flowers drove much of Cathay’s cargo growth, and the company is gearing up to transport vaccines.

Hong Kong bailed out Cathay Pacific once during the pandemic, to the tune of almost $5 billion, but it remains unclear if more government aid is in the offing.

The Covid pandemic, of course, has hobbled Cathay Pacific, but its problems predate the disease. Political protests in 2019 upended the city, greatly dampening demand for travel to Hong Kong. The city-state’s main airport even closed briefly during the unrest. Political protests only hastened China’s development of alternate economic centers, like Shanghai and Shenzhen, and also the relocation of many foreign companies’ Asian headquarters out of the territory, further diluting Hong Kong’s importance to Greater China’s economy.

And even prior to that, Cathay Pacific’s geographical advantage in Hong Kong had begun to erode, as more carriers began to overfly the city to operate directly to China. And Chinese carriers, like China Southern, stepped up their games, further diminishing Cathay’s competitive advantage. And soon, it could have a new, home-grown competitor, as the launch of Greater Bay Airlines looms.

Madhu Unnikrishnan

December 16th, 2020

Photo credit:  Cathay Pacific

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