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Cathay Pacific is Back in the Black But Its Slow Recovery Worries Some

Edward Russell
June 23rd, 2023 at 10:18 AM EDT

Cathay Pacific and Singapore Airlines planes at Hong Kong

The fortunes of Cathay Pacific Airways are on the upswing with the carrier’s financial forecast firmly in the black after years of Covid losses.

The Hong Kong-based Oneworld alliance carrier said Friday that it expects a “consolidated profit” in the first half of the year. That would be a dramatic reversal of the HK$5 billion ($639 million) group net loss it posted during the same period last year; Cathay’s airline business only lost HK$2.5 billion during the period.

“The Cathay Group has seen a strong rebound in the performance of our airlines,” Cathay Chief Commercial Officer Lavinia Lau said in a statement.

Cathay was hit hard by the Hong Kong government’s strict Covid restrictions. The Chinese special administrative region only ended most of its rules in December. This severely limited Cathay which, with no domestic market to serve, is entirely reliant on local travel demand and transit passengers; the latter was also limited during the pandemic. These restrictions saw Cathay, once one of Asia’s leading global airline brands, flying just four Boeing 777s worth of passengers in a single month.

But now, with Hong Kong having dropped all restrictions and the government offering visitors free tickets to entice travelers, Cathay’s demand is surging back. Passenger traffic soared 1,664 percent in May compared to a year ago on a 1,152 percent increase in capacity. However, traffic stood at 52 percent of four years earlier in May, and capacity at just 51 percent.

Still, Cathay lags behind its regional peer and competitor Singapore Airlines. The Star Alliance carrier benefitted from the easing of travel restrictions in its namesake country earlier than in Hong Kong, and that allowed it to capture business that may have otherwise gone to Cathay. In May, passenger traffic was down just 4 percent from 2019 levels on 12 percent less capacity. Singapore Airlines was profitable in both halves of its 2022-23 fiscal year that runs from April through March, and posted a full year net profit of nearly S$2.2 billion ($1.6 billion).

Singapore Airlines was also able to use the crisis to accelerate plans to streamline its operations and make strategic moves abroad. The planned integration of regional subsidiary SilkAir was completed in 2021. And, last year, Singapore Airlines leveraged its minority ownership in Indian airline Vistara to take a 25 percent stake in Tata Group-owned Air India.

Cathay, on the other hand, is still focused on rebuilding its network. Capacity is only scheduled at 63 percent of 2019 levels in the September quarter, according to Cirium Diio schedules. Flights to Johannesburg resume in August, Chicago O’Hare in October, and Christchurch in December. Cathay aims to fly 70 percent of its pre-pandemic capacity by the end of the year and to fully recover by the end of 2024.

J.P. Morgan analyst Karen Li in a June 16 research note highlighted this slow capacity recovery as a “key concern amid rising competition.”

Singapore Airlines, on the other hand, will fly just 6 percent less capacity in the September quarter, Diio schedules show.

One market that could help Cathay’s recovery is China. The airline, as a benefit of its home base in Hong Kong, flies significantly more capacity to the country than Singapore Airlines, and that’s true even after the easing of China’s strict zero-Covid policy. While seats on both carriers to the country are still down double digits, Cathay will fly nearly three times more seats to China in the September quarter than Singapore Airlines. Cathay highlighted “considerable demand” for travel between China and its Hong Kong hub, whether to the city or connecting to other destinations, in May.

“Despite concerns over outbound travel appetite, international air travel is poised to see a strong recovery from the 2023 summer travel season,” Li wrote of China. She added that limited capacity should support higher yields in the market this year and potentially through 2025.

Edward Russell
June 23rd, 2023 at 10:18 AM EDT

Tags: Asia-Pacific

Photo credit: Cathay Pacific and Singapore Airlines planes at Hong Kong Flickr / Kwok Ho Eddie Wong

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