Analysts reviewing Cathay Pacific Airways Ltd.’s fiscal year 2022 performance note a significant divergence between market expectations and the carrier’s reported results. According to Refinitiv statistics, analysts had projected a loss of HK$4.17 billion for the twelve months ended Dec. 31. However, the airline reported a loss of HK$5.53 billion for that period, exceeding consensus estimates. The company had previously flagged a potential loss of between HK$6.40 billion (US$817.18 million) and HK$7.00 billion, a range that, while wider than analyst forecasts, underscores the technical challenges facing the carrier as it navigates post-pandemic recovery.
Capacity Constraints and Cargo Weakness
From a technical standpoint, Cathay’s capacity metrics highlight the operational drag. The airline stated that capacity decreased by 67.8% in December 2022 compared with December 2019 pre-pandemic levels. This capacity shortfall aligns with broader industry trends: during December, Air China Ltd. posted underwhelming numbers as many Chinese carriers battled capacity issues. Cathay aims to operate at 70% of pre-pandemic passenger capacity by the end of 2023, a target that specialists view as contingent on sustained easing of travel restrictions and crew availability.
The air cargo market, a key revenue stream for Cathay, showed weakness in the fourth quarter of 2022 compared with a year earlier. This decline contrasts with the passenger market, which improved as passenger and crew quarantine rules were eased in Hong Kong and mainland China. The divergence between passenger and cargo performance suggests a mixed recovery trajectory, with passenger demand rebounding while freight demand softens.
Management Outlook and Operational Trends
Cathay Chief Executive Ronald Lam on Friday acknowledged a trend of continuing improvement in operations and financial performance for the airline and its subsidiaries in the second half of 2022. Following the lifting of pandemic-related travel restrictions, short-haul leisure travel has seen a recent surge in demand. Lam expects this trend to continue in January and over the Chinese New Year season. The airline’s pessimistic view, however, comes after the firm predicted a “substantial” annual loss in November, though it stated at the time that second-half results were anticipated to improve sequentially.
The gloomy outlook is consistent with those made by other carriers, reflecting a sector-wide recalibration. Cathay said in October it planned to hire 4,000 staff over the next 18 to 24 months to rebuild staffing levels cut during the pandemic. This hiring initiative, specialists note, is a critical operational step to address capacity constraints and support the targeted 70% capacity recovery by end of 2023.
What to Watch Next
Investors and analysts will focus on Cathay’s ability to execute its hiring plan and achieve the 70% pre-pandemic capacity target by December 2023. The sustainability of short-haul leisure demand through the Chinese New Year season and into the first quarter of 2023 will be a key indicator. Additionally, the trajectory of the air cargo market in early 2023, compared with the weaker fourth quarter of 2022, will offer signals on overall revenue recovery. Currency fluctuations, with the exchange rate noted at $1 = 7.8318 Hong Kong dollars, may also affect reported figures in U.S. dollar terms.
