Cathay Pacific Airways posted its first loss in the past eight years and ended its plans for a dividend during the second six months of the year after tough competition from airlines in China and losses due to fuel hedging ate into its earnings. Stock at Cathay dropped more than at any time in the past seven months.
The loss reached HK$575 million, which equaled $74 million for 2016, while sales fell by 9.4% to end at HK$92.8 billion, said Cathay officials.
Based in Hong Kong, Cathay is the largest international airline in Asia. One analyst based in Hong Kong said losses at Cathay could continue into the ongoing year.
Cathay officials said the 2017 operating environment would continue to be challenging and premium travel departing from Hong Kong would be below expectations, prompting Cathay to sell those tickets at lower promotional prices to its leisure travelers.
The air carrier, whose yields from passengers have been hurt due to competition from carriers that are full service for business seats and low cost airlines for the mass market, announced it was beginning a corporate transformation that would take three years to improve its returns as well as its operational efficiency.
Cathay faces structural problems due to headwinds from competition, given airlines in China continue to expand aggressively their international capacity, pressure on yield due to weak traffic in premium class and leisure travelers become more cost conscious.
CEO Ivan Chu has watched shares of Cathay plunge 25% since he took the reins of the company during March of 2014, compared to a gain for the Hang Seng Index of Hong Kong.
The stock was down 1% in Wednesday trading in Hong Kong during the late afternoon after it fell by up to 6.9% earlier in the day.
Cathay a subsidiary of Swire Group, last suffered a loss during 2008. The carrier, in which a 30% share is held by Air China, has been increasing its discounts in premium offerings as it tries to fill its seats while competing with rivals like China Eastern Airlines.
For example, a ticket in economy class on a Hong Kong to New York direct flight on Cathay a month away now has a cost of $1,235, while passengers on Asiana Airlines as well as Korean Air lines pay $750 or less for the same seats.
China Eastern has been offering $715 tickets for a flight from Shenzhen in China to New York through Shanghai.