Cathay Pacific just lost $2.1b in 1H17

No thanks to lower passenger count.

Cathay Pacific 1H17 results were disappointing, with HK$2.1 bn net loss, larger than both Jefferies and consensus full year loss estimates, according to Jefferies.

Although Jefferies expects 2H17 to remain loss-making, it believes losses have bottomed as management forecasts passenger and cargo yields to sequentially improve.

Further, operating costs from 2H17 onwards will likely benefit from HK$4 bn Transformation plan cost saving. 

Here's more from Jefferies:

1H17 net loss of -HK$2.1 bn was larger than 2Q16 -HK$928 mn loss and compares to HK$353 mn 1H16 net profit. The result disappointed due to: 1) passenger yields declining -5.2%, and 2) higher costs with ex-fuel unit costs +2.8%. The key positive was cargo business with yields 4.4% higher y-y driven by stronger demand and higher load factors.

The interim loss was higher than Jefferies and consensus full year loss forecasts of -HK$903 mn and -HK$1.2 bn, hence we expect consensus to cut earnings like we have in this note.

However, we believe we are past the worst and earnings have bottomed driven by the following:

Management noted passenger yields are likely to sequentially improve driven by stronger front-end demand and back-end pax yield decline narrowing. Further, management expects air cargo yields to sequentially improving given 2H and 4Q are seasonally stronger. In fact, air cargo yields continue to remain strong with Taiwanese airline's July air cargo yields increasing 15.1% y-y and monthly cargo revenue at highest level since March 2015.

Reduced ex-fuel costs by HK$4 bn over next 3 years with management noting the majority of savings should be from 2018 onwards. Further, we estimate unit costs would also decline from increasing B777 economy seats to 10 per row from 9, but management believes this should be reflected from 2019 onwards. No change to oil hedging position, which currently expires 2Q18.