Cathay Pacific struggles as passenger yields continue dropping

When will it start stabilising?

Passenger yields remain under pressure as back-end load factors remain soft leading to lower ticket prices according to Jefferies. In fact, management noted passenger yields continue to sequentially decline. Further, costs are also increasing, especially fuel, given higher oil price.

"We believe this is likely to lead to 1H17 losses, which is unlikely to surprise the market but size of loss is unclear," Jefferies said in a research.

Here's more from Jefferies:

Although 2017 will be a difficult year, management noted "signs of improvement in 2H17". We believe this is due to improving front-end load factors (which is positive for overall passenger yields) and shift to pricing/revenue strategy from previously focusing on load factors. Management expects passenger yields to stabilize with upward trend in pax yields by year-end.

Air cargo remains the bright spot with demand and yields tracking ahead of their expectations as management noted demand was particularly strong for exports from Mainland China with supply constraints in Shanghai. Further, the cargo fuel surcharge was reinstated since April this year.

Still no details of cost saving targets under the transformation plan except unit cost (ex fuel) flat target in 3 years time. However, details would be available during interim results. The recent 600 headcount reduction is likely to lead to one-off HK$300mn cost but HK$500mn cost saving from 2018 onwards.