Advertisement
Advertisement
Cathay Pacific
Get more with myNEWS
A personalised news feed of stories that matter to you
Learn more
Cathay Pacific’s announcement comes during a difficult week for the airline. Photo: AFP

Cathay Pacific delays delivery of four Airbus planes and speeds up cull of older jets but will not ground aircraft or offer unpaid leave for now as it battles Hong Kong protest fallout

  • City’s flag carrier delays aircraft and will retire two more planes than planned in 2020

Cathay Pacific will not ground planes or offer unpaid leave to staff for now although it has deferred the delivery of four Airbus aircraft and will retire an extra two planes in 2020, the company has told analysts, as civil unrest in Hong Kong saps demand for air travel.

The city’s flagship carrier said Cathay Dragon would take delivery of three fewer planes and one fewer aircraft would be inducted into low-cost carrier HK Express’s fleet. Cathay Pacific and its regional airline, Cathay Dragon, are to retire an extra aircraft each, as part of substantive changes to ride out the impact of the city’s protests. In total, the group will add 17 new aircraft and retire 10 next year.

The wider business plan showcased to financial analysts may prove out of date and deeper changes may be needed, according to people in the room, because parts of the company’s presentation did not factor in the turmoil in the city this week.

The reshuffle of aircraft took place after the airline issued a second profit warning in less than a month on Wednesday, and said profits in the second half of the year would be “significantly below” those of the first, while the short-term outlook was “challenging and uncertain”.

However, company executives said the wider business impact from the ongoing five months of anti-government protest was not as bad compared to the outbreak of severe acute respiratory syndrome (Sars) in 2003.

Cathay is to slow down delivery of aircraft from Airbus. Photo: AFP

“People stopped flying,” said Cathay’s finance chief Martin Murray, referring to Sars, as it grounded aircraft temporarily and offered staff unpaid leave, which was not in the current plans.

In response to the “short-term crisis”, the company on Wednesday outlined passenger flight capacity reductions against its original schedule by 6 to 7 per cent for November and December.

Cutting capacity saved Cathay a lot of money on variable costs and its revenue from passengers booked on axed flights who would move to other services largely stayed intact, chief customer and commercial officer Ronald Lam Siu-por said.

Last week, Cathay said it would transfer half of the orders of its newest aircraft type, the Airbus A321neo, to its newly acquired HK Express which would get 16, with the remaining 16 still going to Cathay Dragon.

The aircraft changes would leave the group with six fewer aircraft by the end of 2020. The airline operated 240 aircraft as of last month.

Following the HK$4.93 billion purchase of HK Express earlier this year, the airline said it would lead to a small post-acquisition loss. The low-cost carrier lost HK$141 million last year, and the 2019 loss, Murray said, “would be in that ball park.”

Luya You, transport analyst at Bocom International, said of the Cathay plan: “If Hong Kong’s social unrest escalates or extends significantly beyond expectations, minor-to-moderate capacity cuts may not be sufficient in reducing costs, in our view. At that stage, longer-term development goals may be at risk with Cathay likely to ramp up cost cuts in response to further deteriorating demand.”

Jeffries’ Andrew Lee and Lois Zhou reiterated its forecast that the company would achieve a HK$973 million loss in the second half of the year.

The company is offsetting the decline in inbound and outbound travellers by luring more transit passengers through offering cheaper airfares than normal for them, and promoting destinations to fly to other than Hong Kong. The effort had yielded “single-digit positive growth in advanced bookings”, the company said.

Giving the first insight into the mix of the airline’s passenger base, Cathay typically carried between 25 and 30 per cent of outbound travellers, with 15-20 per cent being inbound passengers and about 45 per cent transit.

Murray noted that if the protests were more prolonged – without specifying a length – the airline would have to ground aircraft and stop unprofitable routes, though in the meantime it said it could manage by making temporary changes to flight schedules.

The airline said this month and December were a mixed bag. Lam said that as of last Friday, inbound advanced bookings had slightly worsened.

“Given what has happened in the past few days, the situation could change so there could be more drops. I hope not,” he told analysts candidly.

For outbound travel, the company said the trend was similar to the past three months, but December was improving to less of a decline, but still a drop, with the peak Christmas travel ahead.

In October, travel into Hong Kong was also weak, falling 35 per cent after dropping 38 per cent in August and September, the company reported on Wednesday. Outbound travel fell 13 per cent, after dropping 9 per cent in September and 12 per cent in August.

And with demand for Cathay flights tumbling in its second largest market, China, the airline said: “During normal days, [its share of revenue is a] little bit more than 10 per cent and now it’s slightly less than 10 per cent.”

This article appeared in the South China Morning Post print edition as: cathay to trim fleet as protests bite hard
Post