No thanks to stiff competition and higher airport fees.
Maybank Kim Eng expects Cathay’s 2016 results (out 15 Mar) will be a loss of HKD752m, which is below their initial forecast of a profit of HKD846m.
"We estimate yields collapsed by 10% YoY due to stiff competition and higher airport fees applied in Aug-Sep 2016. The outlook is dreary and we slashed our FY17-18F earnings by 75% and 55% on lower yields and load factor assumptions," Maybank Kim Eng said.
Here's more from Maybank Kim Eng:
All Asian carriers with significant long-haul services such as Singapore Airlines (SIA SP; HOLD: SGD9.70) and Asiana (020560 KS, Not rated) have reported dismal yields for Dec 2016. This is Cathay’s core market and it will be worse affected as half of its passengers are lower yielding transit.
Also, we will witness the impact of the Hong Kong International Airport’s (HKIA) higher landing fees implemented in Sep 2016 and airport development fee in Aug 2016, which collectively increases operating costs by 3-4%. We estimate Cathay’s yields plunged by 10% in 2016 due to all these factors.
The competitive environment is escalating on the long-haul front and Cathay has no answer due to its high-cost fuel hedges and significantly higher costs. Ironically, a much higher fuel price (>USD80/bbl vs Cathay’s fuel edge at USD85/bbl) is the key variable that would improve Cathay’s fortunes as it would raise competitors’ fuel cost to its level.
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