Kitsune
27th Jul 2009, 07:04
Cathay Pacific
Published: July 14 2009 09:01 | Last updated: July 14 2009 20:56
Eat my shoots. A month ago Tony Tyler, chief executive of Cathay Pacific, swatted away concerns over a rights issue by telling analysts that things had stopped getting worse. Traffic figures for June, released this week, tell a different story. Passenger numbers fell the most, year-on-year, since the peak of Sars. Even with big capacity reductions, load factors weakened further. Don’t even ask about premium, about two-fifths of total revenues.
Mr Tyler cannot be blamed for misreading the outlook, or for trusting faulty forecasting tools. Even so, it is time to ask the awkward question again. Does Cathay need a recapitalisation? Could its shareholders be relied on to back it? Swire Pacific, the largest, with 40 per cent, and manager of the airline, would presumably deliver the goods. But Air China, holder of 17 per cent, is living hand to mouth. Citic Pacific, with another 17 per cent, is still shaking off a record loss as it refocuses on speciality steel, iron ore and Chinese real estate.
There would be something absurd about Cathay, a company with net debt to equity of about 100 per cent, tapping up Air China, where the ratio is about 250 per cent. But the facts are uncomfortable. Cathay’s gearing is more than double its own 20-year average, at a time when operating metrics have rarely been worse. Regional peers – Qantas, ANA and Malaysia’s AirAsia – have raised equity in recent months.
Meanwhile, the gap between Cathay and Singapore Airlines, the sector prefect with net cash, is widening. Total debt to equity at the Temasek-backed carrier is not far off its average 10 per cent since 1990; it has said it is seeking opportunities in China or India. Mr Tyler will want to focus on signs of recovery at Cathay’s interim results next month. Investors may not let him.
BACKGROUND NEWS
Cathay Pacific Airways this week released combined Cathay Pacific and Dragonair traffic figures for June 2009 that showed a sharp fall in passenger numbers compared to the same month last year, in part due to the impact of the Influenza A (H1N1) outbreak. There was also another marked year-on-year drop in the amount of cargo and mail carried.
In June, Cathay Pacific and Dragonair carried a total of 1,738,413 passengers – a drop of 18.1 per cent against the same month in 2008 – while the load factor fell by 4.5 percentage points to 76.8 per cent. Capacity for the month, measured in available seat kilometres, was down 9.1 per cent.
Copyright The Financial Times Limited 2009
Published: July 14 2009 09:01 | Last updated: July 14 2009 20:56
Eat my shoots. A month ago Tony Tyler, chief executive of Cathay Pacific, swatted away concerns over a rights issue by telling analysts that things had stopped getting worse. Traffic figures for June, released this week, tell a different story. Passenger numbers fell the most, year-on-year, since the peak of Sars. Even with big capacity reductions, load factors weakened further. Don’t even ask about premium, about two-fifths of total revenues.
Mr Tyler cannot be blamed for misreading the outlook, or for trusting faulty forecasting tools. Even so, it is time to ask the awkward question again. Does Cathay need a recapitalisation? Could its shareholders be relied on to back it? Swire Pacific, the largest, with 40 per cent, and manager of the airline, would presumably deliver the goods. But Air China, holder of 17 per cent, is living hand to mouth. Citic Pacific, with another 17 per cent, is still shaking off a record loss as it refocuses on speciality steel, iron ore and Chinese real estate.
There would be something absurd about Cathay, a company with net debt to equity of about 100 per cent, tapping up Air China, where the ratio is about 250 per cent. But the facts are uncomfortable. Cathay’s gearing is more than double its own 20-year average, at a time when operating metrics have rarely been worse. Regional peers – Qantas, ANA and Malaysia’s AirAsia – have raised equity in recent months.
Meanwhile, the gap between Cathay and Singapore Airlines, the sector prefect with net cash, is widening. Total debt to equity at the Temasek-backed carrier is not far off its average 10 per cent since 1990; it has said it is seeking opportunities in China or India. Mr Tyler will want to focus on signs of recovery at Cathay’s interim results next month. Investors may not let him.
BACKGROUND NEWS
Cathay Pacific Airways this week released combined Cathay Pacific and Dragonair traffic figures for June 2009 that showed a sharp fall in passenger numbers compared to the same month last year, in part due to the impact of the Influenza A (H1N1) outbreak. There was also another marked year-on-year drop in the amount of cargo and mail carried.
In June, Cathay Pacific and Dragonair carried a total of 1,738,413 passengers – a drop of 18.1 per cent against the same month in 2008 – while the load factor fell by 4.5 percentage points to 76.8 per cent. Capacity for the month, measured in available seat kilometres, was down 9.1 per cent.
Copyright The Financial Times Limited 2009