Airline News
Analysts downgrade Cathay, industrial action averted?
May 18th 2015
HSBC last week became the third financial powerhouse to downgrade Cathay Pacific Airways’ stock from buy to hold, despite the airline’s 20% profit boost in the 2014/15 fiscal year reported in March. Read More » HSBC analyst, Mark Webb, said the airline was "losing near-term momentum" and that upside was limited after its strong recent performance. While Cathay does not report its quarterly performance, based on the first-quarter results posted in early May by Air China, which owns 29.99% of Cathay, Webb estimated Cathay produced a HK$620 million ($80 million) net profit in the first three months of 2015. "In Q1, we estimated Cathay Pacific was operating at slightly below break-even level," he wrote.
Cathay’s Mainland neighbours have published their first-quarter results, and if Webb’s analysis was correct, the “Big Three” all outperformed their “Hong Kong brother”. Air China posted a Q1 net profit of 1.68 billion yuan ($270 million), China Eastern Airlines earned 1.56 billion yuan and China Southern Airlines produced 1.9 billion yuan in profits. All three benefitted from strong domestic demand and the drop in the jet fuel price. Looking ahead, JP Morgan predicted an average of 9% in profit growth for the Mainland carriers, i.e. 7.5 billion yuan ($1.21 billion) for Air China, 5.78 billion yuan for China Eastern and 5.43 billion yuan for China Southern, compared with HK$6.32 billion ($820 million) for Cathay.
Cathay is undergoing hitherto unprecedented expansion into Europe, having launched Manchester and Zurich, with plans to add Dusseldorf from September. However, tensions between the airline and the Aircrew Officers Association, its powerful 2100-member pilots’ union, have disrupted smooth operations at the carrier. A new “tentative agreement” for pilots has been reached, including pay increases of 4.5% this year and 3.5% next year, according to a contract document seen by the South China Morning Post. Cathay was hit by industrial action in late 2014, following its original 3% increase offer for 2015 and 2016. If realized, the pay rise will likely end the dispute that, according to union pilots and the airline, has caused countless delays and last-minute cancellations in last six months. Cathay’s cabin crew are continuing negotiations with the carrier about their employment terms.
