HONG KONG • Cathay Pacific Airways has projected its annual profit to more than double that of analyst estimates as its turnaround plan to cut costs and boost revenue pays off.
The announcement sent its shares surging nearly 9 per cent yesterday.
Benefiting also from improving airfares, the Hong Kong carrier forecast it would swing to a profit of about HK$2.3 billion (S$396 million) for last year after two straight years in the red.
Cathay is set to announce its annual results on March 13.
Before the announcement, 15 analysts polled by Refinitiv I/B/E/S had on average expected the airline to report a profit of HK$1.1 billion for last year , versus a HK$1.25 billion loss in 2017, as out-of-the-money fuel hedges rolled off.
Shares surged by as much as 8.8 per cent on the promising outlook, their biggest one-day jump since October 2011.
Cathay said its passenger business had been boosted by capacity growth and better revenue management, with average airfare prices up despite competitive pressures.
It appears passenger yields, a proxy for airfares, have increased faster than expected for Cathay, Jefferies analyst Andrew Lee said, adding that the outlook for this year was positive too.
"We estimate the passenger segment will continue to benefit from controlled passenger capacity expansion and yield management strategy," he said in a note to clients.
Cathay's January traffic figures show it managed to fill a higher percentage of seats than last year, even as capacity rose 7.1 per cent, on strong business-class demand and pre-Chinese New Year traffic in economy class from Hong Kong and China. Its yields also rose for the month.
The improvements come as Cathay, like Singapore Airlines, strives to lower costs and boost revenue to better compete against rivals from the Middle East and China as well as budget airlines.
Since starting its transformation programme in 2017, Cathay has cut jobs at its head office and overseas ports, added economy-class seats to older Boeing 777 jets, and changed its fuel hedging policy.
"The company's transformation programme has had a positive impact," it said.
Cathay, which relies on cargo for about a quarter of its revenue, said the freight business was also strong, with rates and volumes both up.
The airline last year said trade tensions between the United States and China had not hurt business, but that it was monitoring the situation in case trading volumes shifted.
Cathay had benefited in November from customers speeding up shipments to beat the imposition of US tariffs, BOCOM International deputy head of research Geoffrey Cheng said.
But the carrier's freight volumes slipped 5.9 per cent in December after a temporary truce on new tariffs between the US and China was declared early that month. It dipped another 5.2 per cent last month as the pre-Chinese New Year rush was not as strong as last year's.
The cargo outlook this year is "a bit murky", Mr Cheng said.
The world's top two economies are holding talks to settle their dispute. Tariffs on US$200 billion (S$270 billion) worth of Chinese imports are scheduled to rise to 25 per cent from 10 per cent by March 1 if there is no deal, although US President Donald Trump has suggested that he is open to pushing the deadline.
REUTERS
