Cathay Pacific cuts earnings outlook as travelers avoid Hong Kong

[SINGAPORE] Cathay Pacific Airways cut its earnings outlook after passenger traffic fell for a second month as protests that have put intense pressure on the carrier continued to disrupt travel and business in Hong Kong.

Second-half financial results will be lower than those of the first half, Hong Kong's flag carrier said in a statement on Friday, reversing previous forecasts. Cathay also reported a second straight monthly drop in passenger traffic and warned of a "significant" decline in inbound bookings for the rest of this year, especially from China and other Asian markets.

"Our expectation is that rest of 2019 will remain incredibly challenging for the airline," chief customer and commercial officer Ronald Lam said in the statement. "The mainland China market has been hit especially hard. Intense competition together with an increasing reliance on transit passengers over the short term has continued to apply additional pressure on yield."

The comments deal another blow to an airline buffeted by the protests in Hong Kong. Chinese regulators clamped down on Cathay after some employees took part in demonstrations, and the company's decision to subsequently fire staff and warn workers about supporting the pro-democracy movement angered activists. The airline appointed a new chief executive and chairman after their predecessors resigned amid the unrest.

Cathay, the world's worst-performing major airline in the past three months, continued to fall. The stock dropped 1.2 per cent to HK$10.06 at 1:02pm in Hong Kong, though it was little changed from where it was before the announcement.

Unrest in Hong Kong has led to a slump in visitors, particularly from mainland China, which accounts for the bulk of tourists. They're especially wary due to a perception they could be targeted in the protests, which state media frame as being driven by violent extremists. Demonstrations spread to the airport at times, crippling operations there and causing hundreds of flight cancellations.

The company said in August that second-half earnings would be better than those of the first six months. But then it reported passenger traffic tumbled 11 per cent, the most in a decade, in August and 7.1 per cent in September.

State-run companies including China Citic Bank International Ltd, China Huarong International Holdings Ltd and finance-to-brewing conglomerate China Resources National Corp banned their employees from booking flights on Cathay, people familiar with the matter have said.

Cathay has frozen headcount and reduced capacity for the winter season due to weaker demand.

BLOOMBERG