HONG KONG -- Cathay Pacific Airways warned Friday that it expects to record a net $1.28 billion loss for the first half of 2020 due to the impact of the coronavirus pandemic, but said it plans to resume more flights even as the business outlook remains murky.
"The landscape of international aviation remains incredibly uncertain with border restrictions and quarantine measures still in place across the globe," said Ronald Lam, chief customer and commercial officer, in the Hong Kong airline group's announcement. "Although we have begun to see some initial developments... we are still yet to see any significant signs of immediate improvement."
Cathay, whose shareholders earlier this week voted to approve a government-led 39 billion Hong Kong dollar ($5.03 billion) bailout, generated a HK$1.3 billion net profit in the first half of 2019, a period that overlapped only slightly with the onset of large-scale antigovernment protests in Hong Kong.
For the first half of 2020, the airline group's passenger traffic was 76% lower than last year and its cargo and mail carriage 32% lighter as the company projected a HK$9.9 billion loss. In June, the group carried an average of around 900 passengers a day, up from about 600 in May, as Hong Kong loosened its coronavirus controls to allow airlines to funnel transit passengers through the city's airport.
Lam said the airline operated at 4% of its normal full-service passenger flight capacity in June as service resumed to cities including New York, San Francisco, Amsterdam and Melbourne. This figure is set to rise to about 7% for July and "up to 10%" in August, he said.
Hong Kong Express, the company's budget airline unit, had said last week that it would resume flights in August, ending a four-month service suspension.
The pandemic, however, may get in the way of these plans. Hong Kong this week instituted its tightest controls to date on business operations as a third wave of infections struck the city, with more than 428 cases of COVID-19 reported over the past 11 days.
On Friday, a quarterly government survey showed transport sector companies as among the most negative about prospects for business to improve in the July-September quarter.
This week, Daiwa Capital Markets, S&P Global Ratings and Moody's Investors Service said traffic levels for, respectively, Cathay Pacific, Hong Kong International Airport and the world will not return to 2019 levels until at least 2023.
Citing the COVID-19 resurgence in Hong Kong, Daiwa's Kelvin Lau forecast that Cathay would post a full-year loss of HK$16.07 billion for 2020. He projected further red ink of HK$7.21 billion next year, before profits return in 2022, while upgrading his rating on Cathay's stock to "hold" from "sell."
"We believe the current valuation already reflects the tough situation faced by [Cathay] and a very slow recovery going forward," he said, noting the shares had fallen by a third since the bailout plan was announced June 10.
Cathay shares closed down 1.8% Friday at HK$6 while the wider Hang Seng Index gained 0.5%. The stock last traded at this price level in the aftermath of the 9/11 terror attacks in September 2001.
In its statement Friday, Cathay said its first-half results would include a HK$2.4 billion impairment charge related mostly "to 16 aircraft that are unlikely to reenter meaningful economic service again before the 2021 summer season." The company's total fleet included 236 jets as of Dec. 31.
Separately Friday, Swire Pacific, Cathay's biggest shareholder, estimated it would record a loss of HK$4.5 billion in relation to its 45% stake without giving a figure for its own expected net result.
Earlier this week, the Hong Kong government named Carlson Tong, a former securities watchdog chief, and former justice minister Rimsky Yuen as its official nonvoting observers on Cathay's board, a condition of its provision of aid to the company.
"I am confident that they will help safeguard the government's investment interest in the Cathay group," said Financial Secretary Paul Chan. Cathay Chairman Patrick Healy said board members would "look forward to working with them closely in their role."
Aside from the equity and debt support included in the bailout plan, the government disclosed that Cathay had received HK$680 million in wage subsidies under its program to preserve employment through the pandemic, which is conditioned on employers avoiding job cuts.
Daiwa's Lau, though, expects the company's workforce to be hit after the company delivers a strategic restricting plan later this year.
"We believe this will be a significant cost-cutting plan as [Cathay] is still burning money every month and it would be difficult politically for the Hong Kong government to undertake another bailout," he said. "We expect either large-scale nonpaid leaves or redundancies to occur over 2020-21."