From today's SCMP
Cathay Pacific Airways will cut passenger capacity 1.6 per cent next year, the first reduction since 2009, as it contends with slowing international travel demand and a need to train pilots for new aircraft.
The cut, which mainly affects long-haul routes, is “a slight surprise,” Bank of Communications analyst Geoffrey Cheng said in a note today, following a briefing by the company on Tuesday.
UOB-Kay Hian gave the same numbers in a note. Elin Wong, a spokeswoman for Hong Kong-based Cathay, said she couldn’t immediately comment in a reply to Bloomberg News questions.
The carrier is boosting its focus on short-haul routes and premium-economy cabins as the global economic slowdown saps demand for premium-class long-haul flights to cities including New York. The airline also last week told staff it was stepping up cost-cutting measures because of the inter-continental slowdown, a cargo slump and higher fuel prices.
The long-haul capacity reduction “implies a lack of confidence as well as a repositioning of the company’s strategy,” UOB-Kay Hian’s K. Ajith and Eugene Ng said. “The focus towards short-haul is fraught with risk, especially given that various low-cost carriers have expanded in the region.”
Ajith and Ng cut their 2012 earnings estimate to a HK$425 million (US$55 million) loss from a HK$329 million profit. The airline lost HK$935 million in the first half. The analysts also cut their target price to HK$12.60 from HK$12.80, while keeping a sell rating. Bank of Communications lowered its earnings forecast and price target, while maintaining a neutral rating.
The airline rose 0.7 per cent to HK$13.96 at 11:18am (HK time), while the benchmark Hang Seng Index declined 0.7 per cent. Cathay has risen 4.8 per cent this year.
The carrier also said part of the reason for cutting capacity was a need to train pilots on new aircraft, according to the UOB-Kay analysts. “This is unusual as an airline typically schedules training well in advance,” they said.
The airline will boost cargo capacity 12 per cent next year, as it adds new Boeing 747-8 freighters. The carrier received three of the planes in October and two more will arrive next year, the UOB-Kay analysts said. Cathay is beginning to see an upturn in cargo, particularly in North America, and it will be able to slow capacity growth if needed, they said.
On the passenger side, the airline will receive 14 new wide-body planes next year, while retiring six Boeing 747s. Cathay faces the risk of making a loss from shedding the 747s, Ajith and Ng said.
This year, the airline increased passenger capacity 4.1 per cent through October. Its cargo capacity, as measured by available ton kilometers, was little changed.