Not everything is great at Cathay Pacific Airways (HKG:0293) of Hong Kong, which is one of the leading airline businesses in the world, and the largest of Asia.
The company declared their first full-year loss since the global financial crisis of 2008 on Wednesday, adding that there are three main reasons for this poor financial result – competition from carriers in mainland China, a strong Hong Kong dollar, and overcapacity. This is only the third time Cathay has posted a full-year loss since 1946.
Cathay Pacific Stock Goes Down By 5 Percent
The stock of Cathay Pacific took a tumble after the disclosure. It went down by about 5 percent to reach the lowest point in the last seven months. The stock was down by a further 2.8 percent on Thursday as well. The Cathay stock has plunged by more than 25 percent since Ivan Chu took over as the CEO.
But this was not totally unexpected. Earlier, the airline has issued a warning that their results will be weak. In late 2016, Cathay Pacific also stated that demand for premium class seats on long-haul routes was weak. The outlook is not expected to pick up anytime soon. This year is going to be particularly challenging according to the company.
Cathay has acknowledged the challenging landscape and is currently reviewing the business, the first time they are doing this in the last couple of decades. They are expected to shift a few flights to the short-haul routes and cut a number of jobs to reduce costs. They have designed a three-year plan to re-jig the operations.
The Financial Results of Cathay Pacific
The Hong Kong airline business posted a net loss of $74.01 million or HK$575 million for 2016. A year back, they had made a profit of HK$6 billion. Sales have gone down by 9.4 percent in 2016, with revenue from sales at HK$92.8 billion.
Incidentally, the average estimate of 13 analysts had the net income at HK$384.86. Eventually, however, the net income proved to be substantially less than that. One analyst had even forecasted a profit of HK$27.10 million.
John Slosar, the Chairman of Cathay Pacific (HKG:0293) said, “The operating environment for our airlines was difficult in 2016, with a number of factors adversely affecting their performance. Intense and increasing competition with other airlines was the most important. We expect the operating environment in 2017 to remain challenging”.