Cathay Pacific Latest Airline To Report Struggling Cargo Segment

Cathay Pacific Airways Limited CPCAY managed to stay in the black during the first half of 2019 despite major headwinds on the cago side and struggling yields on the passenger side. The company posted a profit loss for the first half of 2018.

Cathay, together with its subsidiary airlines, posted slight revenue growth of 0.9 percent year-over-year, but the group saw massive profit gains over weak 2018 numbers. 

Chart: Cathay Pacific

The Hong Kong-based airline, together with its subsidiary Cathay Dragon, saw cargo revenue drop 8.9 percent. The company's overall cargo yield fell 2.6 percent over last year. Like other companies reporting this month, Cathay leaders attributed this fall to ongoing trade issues.

"The decline in cargo carried reflected weaker global trade brought about in part by U.S.-China trade tensions," according to the company's earnings report. "With the exception of Asia region, all other key markets recorded a year-on-year yield decline."

Available cargo ton kilometers (AFTK) grew 1.1 percent year-over-year, while load factor dropped 4.9 percentage points. At the same time, the amount of cargo carried dropped 5.7 percent year-over-year. Capacity growth resulted from a combination of falling volumes and additional belly space in recently acquired passenger aircraft.

Chart: Cathay Pacific

As a means of dealing with the weaker air cargo environment, company leaders said they rationalized freighter capacity and emphasized shipments of specialist cargo.

The weakness in Cathay's air cargo segment, alongside similar results reported by other airlines, gives credence to industry leaders' overall pessimism about the state of air cargo in the near-term future. 

The airline overall saw improved operating costs in the first half of 2019, due in part to larger aircrafts, fewer leased aircraft and lower fuel costs. Cathay contributed the lower fuel costs to both increased fuel efficiency and lower prices.

While the airline saw passenger revenue grow 5.6 percent in the first half of 2019, passenger yield dropped 0.9 percent. Cathay attributed this to both intense competition and the growing strength of the U.S. dollar, which hurt net revenue. 

The airline is mostly carried by its passenger side, but company leaders saw a drop in ticket bookings to Hong Kong due to political unrest in July. This comes at a time when trade tensions are ongoing, which will likely continue to put pressure on the cargo side. 

"Passenger business will continue to be affected by intense competition and cargo volume and yield is expected to remain difficult," the earnings release reads. "The protests in Hong Kong reduced inbound passenger traffic in July and are adversely impacting forward bookings."

Despite its somewhat pessimistic short-term outlook, the company reported a vague but positive medium-term outlook. Leaders noted that they were confident about Hong Kong's position as the largest aviation hub in China, as well as its connectivity with the Greater Bay Area.

Cathay Pacific's stock was up 0.78 percent at market close Wednesday, August 7 in Hong Kong.

Image sourced from Pixabay