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Cathay Pacific Hopes China Travel Recovery Will Reverse 2022 Losses

Edward Russell

January 20th, 2023

Cathay Pacific plane taxis at Beijing Capital airport.

Hong Kong’s decision to drop all travel restrictions during the year-end holidays came a little too late for Cathay Pacific Airways.

The Hong Kong-based carrier forecast Friday a HK$6.4-7 billion ($817-894 million) net loss for 2022 despite what it described as a “marked improvement” in performance during the second half of the year. That is nearly double analyst estimates of a HK$3.4 billion loss, Bloomberg reported. Cathay Pacific lost HK$5.5 billion in 2021

Hong Kong dropped all entry and quarantine restrictions in December. The move was heralded by Cathay Pacific and others as allowing the city, once known as “Asia’s World City,” to begin the steep recovery from strict Covid-era travel restrictions. And, almost as important to Cathay Pacific, China dropped its Covid quarantine and entry restrictions on January 8, which has already prompted a spike in new travel bookings.

Cathay Pacific carries a large amount of connecting traffic to and from China via its Hong Kong hub. In 2019, more than 30 percent of its global seat capacity touched China, according to Diio by Cirium schedules.

“We are very excited to be firmly on the path to rebuilding Cathay Pacific and the Hong Kong international aviation hub,” CEO Ronald Lam said Friday. “Nevertheless, challenges still remain and we are taking a measured and responsible approach to our rebuilding efforts.”

For one, China’s reopening does nothing to address the backlog of visa’s for foreigners who want or need to travel to the country. China also mandates a negative Covid test for all arriving international travelers, and many other countries are requiring the same for any visitors coming from the Middle Kingdom.

Executives at Delta Air Lines and United Airlines have in recent days taken a cautious approach to the recovery of China travel demand. In response to questions on Delta’s Asian capacity recovery earlier in January, President Glen Hauenstein said the carrier was “not going to get ahead of [itself] in terms of China.” Capacity would come back in line with demand, he added.

Both U.S. and Chinese airlines are blocked from operating more than a smattering of weekly frequencies between their respective countries under Covid-era travel rules. United Chief Commercial Officer Andrew Nocella confirmed Wednesday that both governments needed to agree to remove the caps before additional flights could be added.

But artificial limits on nonstop flights between the U.S. and China could mean a payday for airlines like Cathay Pacific. Most travelers between the two countries will need to connect — likely somewhere in Asia — for now, and airlines with strategically located hubs, like All Nippon Airways (ANA), Cathay, Japan Airlines, and Korean Air, are poised to capture a significant share of those flyers.

Cathay Pacific will operate 100 weekly flights to 14 Chinese cities by the end of February, up from just 27 flights a week at the beginning of January. ANA said Tuesday that it is evaluating increasing its current schedule of up to 17 weekly flights to China. Korean Air and Japan Airlines have yet to provide an update on their China operations.

The number of airline seats on International flights to and from China is scheduled to more than double by March compared to December, Diio data show. Carriers plan to fly 3.2 million seats in March, up from just 1.5 million three months earlier. Airlines flew 16.4 million international seats to and from China in March 2019.

Cathay Pacific, despite the worse 2022 outlook, maintains its plans to recover 70 percent of pre-pandemic capacity by the end of the year, and to fully recover in 2024.

“We expect [passenger] demand will continue to be strong in January and the Chinese New Year period, driven by leisure traffic from Hong Kong,” Lam said. “Following the return of quarantine-free travel between Hong Kong and the Chinese Mainland, we are continuing to add more flights and more destinations as quickly as is feasible.”

Edward Russell

January 20th, 2023

Tags: Asia-Pacific

Photo credit: Cathay Pacific plane taxis at Beijing Capital airport. Flickr / byeangel

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