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Cathay Pacific's turbulent flight could roll into early 2020

Airline sees weak first-half for cargo but is cautiously optimistic

Cathay Pacific said on Tuesday that although its November passenger traffic was affected by soft sentiment on routes to and from the U.S., services to India were a bright spot, as were transit services.   © Reuters

HONG KONG (Nikkei Markets) -- Cathay Pacific Airways warned on Tuesday that the bad dream it has been living over the past several months may have yet to run the full course.

The airline said it continues to see a shortfall in advance bookings to Hong Kong after prolonged anti-government protests crimped travel demand to its home market. The carrier also said that while it is "cautiously optimistic" about its cargo operations overall of 2020, the first half of the year is anticipated to be weak.

Having announced "reluctantly" that it will cut its seat capacity in 2020 by 1.4%, instead of an earlier plan to increase it by 3.1%, the airline reiterated that its second-half financial results will be "significantly below" those for the first half of the year.

Cathay shared its outlook after a fourth straight monthly drop in passenger traffic for November, a 9% year-on-over fall, due to weak travel sentiment in Hong Kong. The rest of 2019 could remain "incredibly challenging," it added.

For Cathay, the year 2019 has been a story of two very different halves. Low fuel prices and various strategic initiatives helped the company swing to a profit in the first half of the year, a period during which it also spread its wings to announce the acquisition of Hong Kong Express Airways, marking a foray into the budget travel segment.

The winds changed in the second half, when the airline's handling of participation by some employees in Hong Kong protests earned it a safety warning from the Civil Aviation Administration of China, and eventually cost Chief Executive Rupert Hogg and Chief Commercial Officer Paul Loo their jobs.

At the same time, traffic over mainland China routes in particular took a hit, forcing the company to recalibrate its prospects for the second half of the year, which is usually the better half.

The airline said on Tuesday that although its November passenger traffic was also affected by soft sentiment on routes to and from the U.S. before Thanksgiving week, services to India were a bright spot, as were transit services.

In the cargo and mail segment, Cathay said it is "pleased" with a terminal charge concession for export shipments from Hong Kong that will take effect from Apr. 1. The concession will save about cargo customers 30 Hong Kong cents (4 U.S. cents) per kilogram, a reduction of roughly 18%-20% from current levels, with the Airport Authority of Hong Kong partially contributing to it.

Luya You, an analyst at BOCOM International, said the airline's freight business had probably "bottomed out" for now, although uncertainties still linger. "It depends on the market situation and this is a very macro-driven business segment," she said.

Ivan Su, an analyst at Morningstar, said the Sino-American trade war has led companies to make changes to their supply chain, and some of the resulting losses for Cathay's freight services, albeit small, could be "permanent."

Shares of Cathay Pacific climbed 3.5% in Hong Kong on Tuesday before the release of its November traffic statistics, while the city's benchmark Hang Seng Index advanced 1.2%. The stock has risen less than 1% from its closing level of 2018, underperforming the Hang Seng Index's 7.7% increase during the same period.

-- Benny Kung and Dhanya Ann Thoppil

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