Cathay Pacific Air's passenger mix 'deteriorating'

Which is perhaps why yield also disappointed.

It has been noted that the passenger mix of Cathay Pacific Air is deteriorating.

According to a research note from Jefferies, over the past 1.5 years, Cathay has over-grown its long haul capacity to better compete with emerging Chinese carriers in this segment and hoard time slots at crowded HKIA.

Cathay therefore became increasingly reliant on low yielding connecting traffic to fill up the aircrafts, as reflected by robust LF across the Asian markets.

Management commented that demand from its high yielding market, long haul premium class out of Hong Kong, remained subdued YTD.

Here's more from Jefferies:

Yield disappoints. Management commented that net PAX yield (excluding fuel surcharge) was only marginally up in 5M15, implying gross yield could be down about 10% yoy.

This is below our full year estimates of 4% yoy decline. Cathay’s robust passenger load factor (up 2.5ppt YTD to 86%) did not boost passenger yield, which was the result of lower yield.

Oil is over hedged. Cathay’s fuel hedging position further increased to 62% at Brent $94 in 2015, 60% at $86 in 2016, and 40-50% hedged for 2017-18 at $80. The hedging period is 2 years longer on average than Asian peers, and coverage ratio is 20ppt higher.

We consider Cathay’s hedging as too high, particularly in light of the fact that nearly all of its flights are already subject to monthly adjusted fuel surcharges.