Cathay Pacific to cut capacity as Hong Kong travel demand falls

Cathay Pacific to cut capacity as Hong Kong travel demand falls

HONG KONG (Reuters) – Cathay Pacific Airways Limited 0293.HK As anti-government protests in Hong Kong weigh on demand, the company said on Wednesday it would cut capacity for the upcoming winter season after reporting an 11.3% drop in passenger numbers in August.

The airline said inbound passengers to Hong Kong were down 38% and outbound passengers were down 12% in August compared with the same period last year, and it doesn’t expect the situation to ease in September.

Hong Kong’s financial secretary reported earlier this week that visitor arrivals plummeted nearly 40% in August, following a drop in July, as sometimes violent anti-government protests took a mounting toll on the city’s tourism, retail and hotel sectors. 5%, the decline further expanded.

Weak demand and capacity cuts will put more pressure on Cathay Pacific as it grapples with management changes and attempts to complete a three-year financial turnaround plan driven by revenue growth and cost cutting.

Cathay Pacific chief customer and commercial officer Lam Siu Kee said in a statement: “Given the current significant drop in forward bookings for the remainder of the year, we will be taking some short-term tactical measures, such as capacity adjustments.”

“Specifically, we are reducing capacity growth so that winter 2019 (from end-October 2019 to end-March 2020) capacity growth will be slightly lower year-over-year, compared to our original plan for growth of over 6% for that period.”

Cathay Pacific has become the biggest corporate victim of anti-government protests after China ordered it to suspend employees who took part in or supported demonstrations. The demonstrations have plunged the former British colony into a political crisis.

Chairman John Slosar announced last week that he planned to step down in November, less than three weeks after Chief Executive Rupert Hogg left amid mounting regulatory scrutiny.

Cathay Pacific said on Wednesday that premium class travel was down more than leisure travel, with demand in mainland China and north-east Asia hit hard, despite more positive demand in Australia and New Zealand.

Lower travel demand, higher transit passenger numbers and the negative impact of a stronger dollar put further pressure on passenger yield, a measure of the average fare per passenger-kilometre, the airline said.

“We expect air ticket prices to continue to fall in the coming months as Cathay Pacific struggles to maintain load factors within a reasonable range,” said You Luya, an analyst at BOCOM International, referring to the measure of seat occupancy. In other words, the second half of the year could be particularly dismal, given that yields have fallen sharply across all categories.”

Transit passengers are generally less profitable for airlines because they face more competition from rivals than non-stop flights, putting pressure on pricing.

Cathay Pacific said its load factor fell 7.2 percentage points to 79.9% in August. Cargo volumes fell 14% due to weakness in the global air cargo market and the impact of tropical storms and disruptions at Hong Kong airport.

Reporting by Jamie Freed; Editing by Robert Birsel and Muralikumar Anantharaman

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