Cathay Pacific welcomes Greater Bay Airlines as it awaits restructuring

Report by : Gan Yung Chyan, KUCINTA SETIA

The covid epidemic has severely impacted the global aviation industry. Cathay Pacific Airways (0293) lost nearly 10 billion in the first half of 2020. The group frankly stated in its performance outlook that the passenger flight business will not recover significantly in the future. Chairman He Yili (Patrick He) on 12 August 2020 reiterated that the management will make recommendations on the group’s business model in the fourth quarter. The notice "involves a very tough decision" or hints at large-scale layoffs and reorganization. Analysts estimate that Cathay Pacific's restructuring plan may involve reducing the scale of operations or attempting to invest more resources in the low-cost airline business.

Financial performance of Cathay Pacific Group

According to Ming Pao, Cathay Pacific announced that as of the end of June 2020, it recorded a net loss of 9.865 billion yuan in the first half of this year and did not pay interim dividends. During the period, passenger transportation revenue plummeted by 70% year-on-year to 11.056 billion yuan, while freight revenue rose 10.4% year-on-year to 12.692 billion yuan. During the period, a fuel hedging loss of 1.599 billion yuan was recorded, an increase of 14 times over the same period last year. In terms of segments, Cathay Pacific and Cathay Dragon lost 7.36 billion yuan, compared with 675 million yuan in the same period last year; Hong Kong Express lost 779 million yuan.

Cathay Pacific Group's future operations involve very difficult decisions

You Luya, an analyst in the transportation and infrastructure industry of Bank of Communications International, believes that the reported results are not surprising because the group has issued a profit warning earlier to disclose the amount of loss, but it is expected that the group will further lay off in the second half of the year. As for the business model restructuring plan, she believes that the reorganization will be a major event, and the group may consider reducing its operating scale. She continued to point out that from the earlier announcement of the Group’s plan to optimize its passenger aircraft fleet allocation, the Group’s introduction of smaller and younger aircraft fleets may mean that it will concentrate resources on the development of low-cost airline business in the future. In order to reduce operating costs and complexity, once the group finally decides to abandon the core business model, it may damage its brand reputation in the long run.

Cathay Pacific welcomes Greater Bay Airlines

Regarding Regal Huang Chubiao’s Greater Bay Airlines application for an Air Operator Permit (AOC) from the Civil Aviation Department in July 2020, He Yili believes that the addition of new competitors shows the importance of Hong Kong as an international aviation hub, and new airline companies are also welcome to join. As for whether the new airlines will bring competition to the group, he said bluntly that every route the group operates has to compete with hundreds of airlines from other regions. The market itself is already very competitive. So he is not particularly worried.