Fall in ticket sales for coming months overshadows Cathay Pacific’s return to profit as Hong Kong protests begin to have effect on business

Danny Lee

Cathay Pacific Airways said it had suffered a double-digit fall in ticket sales for travel to Hong Kong over the next few months, due to the social unrest in Hong Kong, which has also hurt outbound travel.

There is mounting evidence the city’s nine-week protests are having an economic cost for companies and the impact of the unrest on Hong Kong’s largest airline overshadowed its return to profit in the first half of 2019 to the tune of HK$1.35 billion (US$172.23 million), which exceeded the top expectations of analysts.

The fall in bookings is a direct signal that travellers are less keen to visit Hong Kong in the near term, and that economic damage could spread to other business sectors.

Yet, Cathay Pacific’s chairman John Slosar said the drop on the same period last year was not yet wholly a cause for concern – and he was still expecting a recovery.

“People tend to take a wait-and-see approach,” Slosar said. “The fact that forward bookings are down doesn’t mean the bookings are gone. They are not booking as far out as they were before.”

Cathay Pacific CEO Rupert Hogg (left) and chairman John Slosar, at the company’s 2019 interim results announcement on Wednesday. Photo: Xiaomei Chen

The airline anticipated the volatility in its passenger business to “settle down” by the end of the year.

For now, the drop in bookings came from economy class travel rather than the more lucrative premium segment of business class travel, but was still putting pressure on ticket prices, said Slosar. Transit traffic had not been affected so far, the company said.

Global businesses, from Walt Disney to the Intercontinental Hotels Group, have said in recent days that the protests in Hong Kong have had an impact.

CEO Rupert Hogg said it was “too early” to determine if the company needed to cut airfares to stimulate travel demand or respond or reduce the rate of the airline’s growth.

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Typically for airlines, the second half of the year, which includes the surge in demand for summer and Christmas travel plus a rise in cargo bookings, is better. Cathay Pacific said there was no change in that sentiment.

Aided by a HK$1.2 billion fall in fuel costs and overall expenses, Hong Kong’s flagship carrier’s profit was also defined by revenue growth in the January-June period – a record. Higher passenger numbers boosted the top line, all in spite of lower revenue from the weak cargo business.

Cathay Pacific completed a HK$4.93 billion takeover of budget carrier HK Express in July. Photo: AP

The airline swung to profit from a half-year loss of HK$263 million in the first six months of 2018; this was also shaped by a three-year cost-cutting programme, of which the company is currently in the final year.

Among analysts, Luya You of Bocom International came closest to the earnings estimate, having predicted the airline would deliver a net profit of HK$1.41 billion.

Cathay Pacific chairman John Slosar said the drop on the same period last year was not yet wholly a cause for concern – and he was still expecting a recovery. Photo: Xiaomei Chen

The transport analyst said the second half would be “challenging” for the airline. “There’s still a lot of moving parts in the second half that makes it difficult for us to build a clear outlook at the moment. If Hong Kong’s protests end earlier than expected, we expect air demand to bounce back rather quickly as is typically the case. Similarly goes for trade strife,” she added.

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K Ajith, transport research director of brokerage firm UOB Kay Hian Asia, said weak visitor arrivals in the second half of the year remained “the biggest risk” for the airline, but the headwind was already priced into the company’s shares.

Some 17.48 million people flew with Cathay in the first half of this year. That is 776,000 more than during the same period in 2018. The business carried 5.7 per cent less freight in the first half year on year, in a strong sign the US-China trade war had hurt the airline’s once resurgent cargo business.

Cathay Pacific swung to profit from a half-year loss of HK$263 million in the first six months of 2018. Photo: Winson Wong

A slowing global economy and the trade war continue to weigh on the airline. The world’s fifth-biggest cargo carrier said it would ground one of 21 freighter planes in light of the weakness in freight.

The Cathay Pacific Group, one of Asia’s largest airline groups, comprises its flagship namesake brand, as well as Cathay Dragon and budget airline HK Express. It also controls the Asia Miles rewards programme, cargo airline Air Hong Kong and it has an 18.13 per cent stake in Air China.

Chairman Slosar said Cathay was keen to expand HK Express, its newly acquired budget subsidiary. Plans included considering new aircraft and destinations.

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