Cathay shares rally as capacity back to prepandemic levels

June Chen and Bloomberg

The share price of Cathay Pacific Airways (0293) jumped nearly 8 percent yesterday, having recovered 100 percent of pre-pandemic passenger capacity, chief financial officer Rebecca Sharpe said yesterday in a briefing for analysts.

The stock's price closed at HK$10.60 apiece, its highest in more than five years.

The company projected its financial results in the second half of last year to be stronger than the first, driven by elevated cargo demand and reduced fuel prices, partially offset by a continued normalization of passenger yields as the supply of flights increased to meet demand in the overall market.

Analysts predicted Cathay would deliver a full-year net income of around HK$7.5 billion, lower than its 2023 results. Its first-half net income fell 15 percent to HK$3.6 billion from a year earlier as post-Covid travel demand normalized.

Amid normalized short-haul yields - weakened from post-pandemic highs - the company plans to increase its long-haul supply this year, in which continued normalization is expected. Yields are a key profitability metric.

Hong Kong's de facto flag carrier also plans to increase the number of destinations to 100 this year.

Earlier, it announced it will resume direct flights to Rome on June 5 and continue to expand its global network. The upcoming three-times-weekly summer seasonal service will be Cathay's second direct route between Hong Kong and Italy.

While the group once increased liquidity amid pandemic uncertainty, Sharpe said it has fallen back to healthy prepandemic levels.

She also emphasized that Cathay has no intention of changing its current dividend policy. It distributes about half of after-tax profit excluding the extraordinary non-cash gains to ordinary shareholders, though this depends on the group's business performance, she said.

Cathay saw healthy cargo demand in the first half of 2024 continue into the second, particularly during the peak season, for which it plans to increase freighter capacity to the Americas. Chief customer and commercial officer Lavinia Lau Hoi-zee said freight demand remains strong at present, especially for e-commerce businesses.

As for the looming tariffs proposed by US president-elect Donald Trump, Lau said the company is preparing back-up plans to help Cathay flexibly seize market opportunities even when supply sources change.

Closing its two-year financial rebuild chapter, Cathay bought back the remaining 50 percent of preference shares issued to the Hong Kong government last year, totaling HK$9.75 billion, as well as HK$1.53 billion in warrants.

Last month it repurchased approximately 68 percent of the HK$6.74 billion of convertible bonds it issued in 2021.

Sharpe said these financial rebuild actions can reduce the risk of equity dilution for shareholders.