The Coronavirus Epidemic Is Seriously Hurting Cathay Pacific

As Hong Kong reels from the impact of the coronavirus outbreak, Cathay Pacific is in a world of pain and undergoing the most challenging time it has ever faced.

Cathay Pacific has further cut capacity and warned of a drop in earnings. Photo: Cathay Pacific.

The airline is ramping up its capacity reductions to 40% across February and March and it is warning its financial results for the first half of 2020 will be significantly down.

In a statement, Cathay Pacific said;

“The first half of 2020 was already expected to be extremely challenging financially.

“As a result of this additional significant drop in demand for flights and consequential capacity reduction caused by the novel coronavirus outbreak, the financial results for the first half of 2020 will be significantly down on the same period last year.”

A torrid 2019 turns into a terrible 2020 for Cathay Pacific

China is Cathay Pacific’s biggest market. The airline has a market share of over 50% between Hong and China but has cut capacity into China by 90% over the next two months. In a sign it doesn’t expect the coronavirus outbreak to lessen anytime soon, Danny Lee in the South China Morning Post is reporting that Cathay Pacific is looking at extending cancellations into April 2020.

As countries close their borders to Chinese citizens and foreign nationals who have recently been in the country, Hong Kong has been caught up in the mess.

Cathay Pacific has cut capacity into mainland China by 90%. Photo: Cathay Pacific.

Travel demand to Hong Kong had already been hit hard by the rolling 2019 anti-government protests. Amid the unrest, Cathay Pacific was cutting capacity. But there were signs of a small rebound in early 2020 in the lead-up to the Lunar New Year, with the airline reporting that bookings and yields were increasing.

The coronavirus outbreak later in January put an end to that. Other than mainland Chinese airlines, Cathay Pacific remains the most exposed airline to the impact of the outbreak and subsequent collapse in passenger numbers.

Passenger and aircraft numbers decline at Hong Kong Airport

Both passenger numbers and aircraft traffic into Hong Kong are in decline. Passenger numbers at Hong Kong Airport in January 2020 were down 11.7% on the previous January. Passenger numbers across all of 2019 were down 14.2% compared to 2018.

Aircraft traffic numbers are in an even more serious decline. While there is an overall 80% reduction in international flights to mainland China, Hong Kong Airport has also felt the impact as multiple airlines cancel services and/or reduce capacity. Aircraft traffic was down 46% in November and December 2019 compared to the previous year. In January 2020, the figure was a 40% decline.

Cathay Pacific has slashed capacity, not just into China but across much of its network. Photo: Cathay Pacific.

While non Hong Kong-based international airlines can deploy capacity elsewhere, Hong Kong-based Cathay Pacific has few options but to leave aircraft idle and look to cut costs where it can. Earlier this month it asked its 27,000 employees to take three weeks unpaid leave over upcoming months.

Pessimistic outlook

Many analysts are pessimistic the crisis will end soon. A vice president at Moody’s, Madhavi Bokil, told The Guardian yesterday;

“Extended lockdowns in China would have a global impact, given the country’s importance and interconnectedness in the global economy.”

While many companies, including Cathay Pacific, have benefited from doing business with mainland China, travel bans and disruptions to global supply chains and the movement of people demonstrate the risk of concentrating too heavily on a single market.

With the coronavirus showing no signs of peaking and governments everywhere showing a willingness to close borders and restrict travel movements, the financial pain at Cathay Pacific looks certain to continue for a while yet.