Cathay Pacific’s passenger carriage dropped 9.3% in 1H15

Even cargo yields disappointed analysts.

It was noted that Cathay’s 1H earnings missed Jefferies’ expectations by 11% and verified its concerns on its passenger yield (down 9.3% yoy) due to cyclical shortfall in premium demand and structurally rising competition.

According to a research note from Jefferies, 9.3% and 11% drop in PAX and cargo yields are the major disappointments, as it was unable to raise the prices to offset falling fuel surcharges and depreciation of the revenue currencies.

The lack of pricing power has both cyclical and structural reasons. Cathay’s premium class demand and air cargo has suffered from cyclical slowdown of Chinese economy and global trade.

On the other hand, Chinese carriers’ aggressive long haul expansion has also structurally eroded Cathay’s pricing power and growth potential on transit segment.

Here’s more from Jefferies:

1H earnings below expectation. Thanks to lower oil prices, Cathay’s 1H net income grew 4.6x yoy to HK$2.0bn, but missed consensus by 11%.

Cathay’s own airline operation recorded a HK$955mn profit, up 139% yoy, contributing 34% of earnings growth in 1H. The rest came from higher investment income from Air China.

1H operating margin was 4.7%, up 1.6ppt yoy, but was less than half of that of Chinese carriers, due to weaker yield and high oil hedging.