April 6, 2017, © Leeham Co.: Cathay Pacific Airways faces a loss this year after posting its first loss in eight years last year.
Analysts following the Hong Kong-based airline see another loss, with declining revenues and pricing pressure from competition.
Morningstar, in a report issued last month, characterized CX’s 2016 results as an “ongoing fundamental deterioration.”
CX missed Morningstar’s full year estimate by HK$1bn (US$128.7m) on a 9.4% drop in revenue.
“The under-performance was largely driven by nearly 9.2% and 16.2% year-on-year declines in passenger and cargo yield, respectively,” Morningstar wrote in a note last month.
Fuel hedging and maintenance costs were higher, the research firm notes.
“We expect the pressure to persist into the near future, driven by another 2%-3% annual yield decline in 2017-18, on top of a marginal drop in overall load factor.”
“Things will get worse before they get better,” Morningstar predicts. The firm predicts a loss for Cathay of more than US$70m this fiscal year.
Competition from Chinese carriers as more service is added to international routes.
Morningstar is skeptical of management targets for cost cuts.
Daiwa Capital Markets called the 2016 results “disappointing.” The outlook for FY2017 “remains challenging.”
Daiwa notes that passenger yield in the first two months of FY17 failed to recover, “mostly due to weak premium-class demand and sharply falling yields of long-haul routes.”
Cathay launched a three year “transformation program” to cut costs, Daiwa writes. Nevertheless, Daiwa forecasts operating margin to decline to 1% in FY2017.
Daiwa has a Sell rating on CX stock.
HSBC Global Research, on the other hand, believes the transformation program will be “material.”
“The company plans to transition to a leaner and more agile organization structure.” New routes will be added and money-losing ones dropped.
CX plans to cut staff costs by a whopping 30% at its headquarters.
The research firm sees a “difficult” first half in FY2017.
HSNC has a Hold on the stock.
Cathay has 21 Boeing 777-9s, 11 Airbus A350-900s and 26 a350-1000s on order. It’s taken delivery of nine A350-900s directly from Airbus and two on lease.