Cathay Pacific Airways Ltd. (293) will cut passenger capacity 1.6 percent next year, the first reduction since 2009, as it contends with slowing international travel demand and introduces smaller planes.
The carrier has already pared frequencies on some North American and European routes, Finance Director Martin Murray said in e-mailed reply to Bloomberg News questions today. It is also retiring Boeing Co. 747-400s earlier than planned and replacing them with 777-300ERs, he said.
The carrier is boosting its focus on short-haul routes and premium-economy cabins as the global economic slowdown saps demand for premium-class long-haul flights to cities including New York. The airline also last week told staff it was stepping up cost-cutting measures because of the inter-continental slowdown, a cargo slump and higher fuel prices.
The long-haul capacity reduction “implies a lack of confidence as well as a repositioning of the company’s strategy,” UOB-Kay Hian Holdings Ltd. (UOBK) analyst K. Ajith and Eugene Ng said in a note today. “The focus towards short-haul is fraught with risk, especially given that various low-cost carriers have expanded in the region.”
Ajith and Ng cut their 2012 earnings estimate to a HK$425 million ($55 million) loss from a HK$329 million profit. The airline lost HK$935 million in the first half. The analysts lowered their target price to HK$12.60 from HK$12.80, while keeping a sell rating.
The capacity cut is “a slight surprise,” Bank of Communications Co. analyst Geoffrey Cheng said in a note. He cut his earnings estimates and target price for the airline, while maintaining neutral rate.
The airline rose 0.4 percent to HK$13.92 in Hong Kong trading today, while the Hang Seng Index declined 0.6 percent. Cathay has risen 4.5 percent this year, trailing an 18 percent gain for the benchmark.
The carrier will boost cargo capacity 12 percent next year, as it adds new Boeing Co. (BA:US) 747-8 freighters. It received three of the planes in October and two more will arrive next year, the UOB-Kay analysts said. Cathay is beginning to see an upturn in cargo, particularly in North America, and it will be able to slow capacity growth if needed, they said.
On the passenger side, the airline will receive 14 new wide-body planes next year while retiring six Boeing 747s. Cathay faces the risk of making a loss from shedding the 747s, Ajith and Ng said.
This year, the airline increased passenger capacity 4.1 percent through October. Its cargo capacity, as measured by available ton kilometers, was little changed.
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