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Cathay forecasts weak passenger demand but stronger cargo after record loss

SYDNEY (Reuters) - Hong Kong's Cathay Pacific Airways Ltd 0293.HK warned it did not expect a meaningful recovery in passenger demand for some time due to the coronavirus pandemic after posting a record first-half loss, but signalled a brighter cargo market outlook.

The airline reported on Wednesday a HK$9.87 billion ($1.27 billion) first-half loss, in line with a forecast it made last month, including HK$2.47 billion of impairment charges as passenger numbers plummeted.

“I don’t think we are expecting the second half to be better than the first half,” Chairman Patrick Healy told reporters.

Cathay expects passenger capacity to operate at around 8% of normal in August and September, down from an earlier forecast of up to 10% as travel restrictions continue, Chief Executive Augustus Tang said.

Passengers to and from mainland China are currently barred from transiting Hong Kong, though media reports said on Wednesday those restrictions would soon be eased.

“We haven’t heard any official news,” Chief Customer and Commercial officer Ronald Lam said, adding the airline could gear up to add flights at short notice if needed.

Revenue nearly halved to HK$27.7 billion in the six months ended June 30 as it slashed passenger flying to a barebones schedule due to lower demand and border restrictions, though it added more cargo-only flights as freight yields rose 44.1%.

Lam said the cargo business had peaked in May but yields remained high and the outlook heading into the peak Christmas season was positive.

Cargo revenue topped passenger revenue and accounted for 46% of total sales in the first half, up from 21% a year earlier when the freight market was depressed.

“Nonetheless, cargo is no remedy for lost passengers — at most it’s like a band-aid on a knife wound. Better than nothing but won’t stop the bleeding,” BOCOM International analyst Luya You said.

AIRCRAFT DELIVERIES DELAYED

The airline, which received a $5 billion rescue package led by the Hong Kong government, has so far refrained from large-scale job cuts but has warned it is reviewing all aspects of its business model with the results expected in the fourth quarter.

Several employees have told Reuters on condition of anonymity that they are bracing for major job cuts.

Cathay said it has rearranged its aircraft order book with Airbus SE AIR.PA to delay deliveries and plans to accept 10 jets from the manufacturer in 2020, down from an earlier 17, and eight in 2021, versus 14 earlier.

It said it is in advanced talks with Boeing Co BA.N to delay 777-9 orders and has begun sending one-third of its fleet outside Hong Kong for storing in less humid conditions.

The airline’s shares, which have a tight free float, closed 12% higher possibly on short-covering, analysts said. Still, they are down 41% so far this year.

Reporting by Jamie Freed; Additional reporting by Donny Kwok in Hong Kong; Editing by Himani Sarkar and Muralikumar Anantharaman

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