HONG KONG, February 5: Cathay Pacific Airways Ltd shares have taken off this year after a steady decline over the second half of 1997 but the Hong Kong carrier is facing a trying 1998 with slumping passenger figures clouding the skies."Cathay has got considerably more worries than the industry in general," said Ian Wild, regional aviation analyst for SocGen-Crosby Securities."Our forecasts at the moment expect the carrier to have lost money in the second half of 1997 and we also anticipate that they will be taking some fairly substantial provisions into their 1997 accounts for rationalisations and reorganisation."
Cathay announced in January it was laying off 760 staff worldwide due to the downturn in Asian regional markets and said 1998 showed little hope of improvement for the airline.
Analysts said Cathay may also book costs for a move to Hong Kong's new airport at Chek Lap Kok in July and is due to take deliveries of new airplanes this year -- a decision that is causing some analysts to raiseeyebrows.
"I think the management has been pretty candid with the fact that traffic has been declining quite quickly," said Lehman Brothers analyst Philip Tulk."And there are only so many things the airline can do in terms of restraining capacity given the fact that they are taking on a whole bunch of new airplanes this year and next year which means load factors will inevitably fall this year."
Cathay has four Boeing Co 777-300 aircraft, five Airbus Industrie 340-300 aircraft and one Airbus 330-300 on order for delivery this year.Three planes are on order for delivery 1999.
The financial crisis in Asia has triggered a drop in passenger figures and tourism to Hong Kong suffered setbacks as the territory became a relatively expensive destination amid the depreciation of currencies around the region.
Hong Kong has stuck to its currency peg to the US dollar as other currencies around the region have devalued, but while a removal of the peg would shore up tourism and Cathay's revenues would be translatedinto a weaker currency, analysts said it could ultimately compound Cathay's problems.
"If the peg goes, Cathay's revenues would improve but its balance sheet would weaken because Cathay has foreign exchange debts," said Goldman Sachs analyst Jean-Louis Morisot.
Corporate Hong Kong would suffer as a whole if the peg was broken, analysts said. "The importance of business traffic to Cathay is probably more significant than it is to most airlines," said Wild.
Compared to other airlines in the region, Cathay is, however, seen to be somewhat sheltered from the market slump by its rich cashbox. Analysts said smaller private airlines elsewhere in the region faced bigger difficulties.Low prices for jet fuel, one of the Cathay's larger costs, were also seen to shed positive light.
Morisot said it was difficult to imagine Japan's economic troubles getting much worse. The Japanese market is one of the most crucial markets for Cathay. "And the yen appreciation of recent days is also pretty encouraging for Cathay,"he added.
On the bright side there was also the regional air cargo market which has been buoyant in recent months.
"I'm told bookings are pretty solid for the next few months but after that, it is difficult to say because a lot of the cargo volumes are electronic goods which are fairly difficult to predict considering what is happening in Asia," Morisot said.
Analysts remained cautious on Cathay shares. SocGen-Crosby has a "sell" recommendation while Lehman's Tulk said he was not really optimistic on a two-year view.Goldman Sachs recently upgraded Cathay to "market performer" as the stock hit a low of HK$4.70 in January.The shares have reached a high of HK$8.65 this year and closed at HK$7.55 on Wednesday.
Copyright © 1998 Indian Express Newspapers (Bombay) Ltd.
