LearX
12th Jul 2003, 17:45
HK Cathay Pacific Set For Upturn
Cathay Pacific Airways Ltd.'s latest data showing an increase in passengers in June indicate the worst of the SARS impact may be over for the carrier, analysts said Thursday.
On Wednesday, Cathay said that it carried 459,627 passengers last month, 88% more than in May, though down 55% on year. Passenger loads - or the percentage of the aircraft filled - rose to 70.7% in June from 41.4% in May.
Cargo capacity fell 8.6% over the year, but that was because of cuts in flights that reduced bellyhold capacity, analysts said.
"(The figures Wednesday) suggest that there is finally some light at the end of the tunnel," said CLSA analyst Jay Bhatt, who rates the stock as an underperform.
Analysts said Cathay, which reports first-half earnings on Aug. 6, can look forward to a year of improvement. Cash break-even is likely to come by September, its gradual reinstatement of services following SARS indicates a resurgence of interest, and, as Goldman Sachs said in a research note Thursday, "a burgeoning China story."
In April, eight months after it applied to fly to China, Cathay won a license to fly to Beijing, Shanghai and Xiamen, despite smaller rival Hong Kong Dragon Airlines' objections. It has said it will begin flights to Beijing in the winter, though its flights to Shanghai and Xiamen are still awaiting a go-ahead from the mainland government.
"We believe that the worst is over for Cathay and expect news flow about potential flights into China to have a positive impact on the share price," said Citigroup Smith Barney analyst Anil Daswani. He rates the stock as an outperform.
At 0715 GMT, Cathay shares were down 0.5%, or 5 HK cents, at HK$10.85, off its 52-week high of HK$12.75, but well above the HK$8.25 year-low it hit April 25 when SARS had hammered its shares.
At the height of the severe acute respiratory syndrome outbreak in April, Cathay cut 45% of its weekly flights. It said recently, however, that by the end of this month, it will be running at 70% of its normal capacity, 90% by August, and full services by September.
Yield, or revenue per kilometer, however, is another story, as the airline continues a spate of offers to lure passengers.
According to JP Morgan analyst Peter Negline, who rates the stock as underweight, Cathay's promotional offers are "depressing yields and delaying the return to profitability"
In its monthly newsletter, Cathay said that "market rates in June for many fares were down 30% or more from the same time last year."
Goldman Sachs, which rates the stock as attractive, is assuming a 20% passenger yield decline for 2003 "to reflect the impact of SARS and the subsequent price discounting required to stimulate volumes."
Cathay's management has said that the yield decline is to be expected.
"We need to fill seats, so yields have come down. Long term, we've always been bearish about yields," Cathay's Corporate Affairs Development Director Tony Tyler said Tuesday. "That's why we've been working to cut costs."
Cutting costs helped Cathay post a net profit for the year ended Dec. 31 of HK$3.98 billion compared with HK$657.0 million in 2001.
Goldman Sachs' research note Thursday concluded that Cathay's share price in the coming weeks would recover "on the back of improving volumes, not yields."
On Tuesday, Tyler said that the airline was currently flying over 27,000 passengers a day - the level needed to break even. At the height of SARS, the airline had said it was carrying between 7,000 and 8,000 passengers a day.
LearX
It would be appreciated if you gave the link to both the Cathay and the Goldman Sachs report in order that they can receive their due credit and PPRuNe can avoid any copyright issues! Many thanks.
BlueEagle - Moderator.
Cathay Pacific Airways Ltd.'s latest data showing an increase in passengers in June indicate the worst of the SARS impact may be over for the carrier, analysts said Thursday.
On Wednesday, Cathay said that it carried 459,627 passengers last month, 88% more than in May, though down 55% on year. Passenger loads - or the percentage of the aircraft filled - rose to 70.7% in June from 41.4% in May.
Cargo capacity fell 8.6% over the year, but that was because of cuts in flights that reduced bellyhold capacity, analysts said.
"(The figures Wednesday) suggest that there is finally some light at the end of the tunnel," said CLSA analyst Jay Bhatt, who rates the stock as an underperform.
Analysts said Cathay, which reports first-half earnings on Aug. 6, can look forward to a year of improvement. Cash break-even is likely to come by September, its gradual reinstatement of services following SARS indicates a resurgence of interest, and, as Goldman Sachs said in a research note Thursday, "a burgeoning China story."
In April, eight months after it applied to fly to China, Cathay won a license to fly to Beijing, Shanghai and Xiamen, despite smaller rival Hong Kong Dragon Airlines' objections. It has said it will begin flights to Beijing in the winter, though its flights to Shanghai and Xiamen are still awaiting a go-ahead from the mainland government.
"We believe that the worst is over for Cathay and expect news flow about potential flights into China to have a positive impact on the share price," said Citigroup Smith Barney analyst Anil Daswani. He rates the stock as an outperform.
At 0715 GMT, Cathay shares were down 0.5%, or 5 HK cents, at HK$10.85, off its 52-week high of HK$12.75, but well above the HK$8.25 year-low it hit April 25 when SARS had hammered its shares.
At the height of the severe acute respiratory syndrome outbreak in April, Cathay cut 45% of its weekly flights. It said recently, however, that by the end of this month, it will be running at 70% of its normal capacity, 90% by August, and full services by September.
Yield, or revenue per kilometer, however, is another story, as the airline continues a spate of offers to lure passengers.
According to JP Morgan analyst Peter Negline, who rates the stock as underweight, Cathay's promotional offers are "depressing yields and delaying the return to profitability"
In its monthly newsletter, Cathay said that "market rates in June for many fares were down 30% or more from the same time last year."
Goldman Sachs, which rates the stock as attractive, is assuming a 20% passenger yield decline for 2003 "to reflect the impact of SARS and the subsequent price discounting required to stimulate volumes."
Cathay's management has said that the yield decline is to be expected.
"We need to fill seats, so yields have come down. Long term, we've always been bearish about yields," Cathay's Corporate Affairs Development Director Tony Tyler said Tuesday. "That's why we've been working to cut costs."
Cutting costs helped Cathay post a net profit for the year ended Dec. 31 of HK$3.98 billion compared with HK$657.0 million in 2001.
Goldman Sachs' research note Thursday concluded that Cathay's share price in the coming weeks would recover "on the back of improving volumes, not yields."
On Tuesday, Tyler said that the airline was currently flying over 27,000 passengers a day - the level needed to break even. At the height of SARS, the airline had said it was carrying between 7,000 and 8,000 passengers a day.
LearX
It would be appreciated if you gave the link to both the Cathay and the Goldman Sachs report in order that they can receive their due credit and PPRuNe can avoid any copyright issues! Many thanks.
BlueEagle - Moderator.