Post by : Meena Ariff

Cathay Pacific Airways, the leading airline of Hong Kong, announced on Wednesday that it is facing several serious challenges. Even though the airline made a small increase in profit during the first half of the year, concerns about falling ticket prices, losses from its budget airline, and changes in cargo shipping caused its shares to drop nearly 10%.

Cathay Pacific has long been known for its strong position in Asia’s airline market. But like many airlines in the region, it is now dealing with a tough business environment as air travel slowly returns to normal after the COVID-19 pandemic.

Slight Profit Rise, But Big Worries

Cathay reported that its profit rose by 1% in the first half of the year. The total profit was HK$3.65 billion, which is about US$465 million. This was helped by a big increase in the number of passengers flying with the airline, cheaper fuel prices, and steady performance from its cargo business.

However, there was a major problem: airfares dropped. The average amount of money Cathay made from each passenger (called "yield") fell by 12.3% for the main airline. For its budget airline, HK Express, the drop was even worse—21.6%.

Cathay said this was because more airlines are flying again after the pandemic, which creates a lot of competition and pushes ticket prices down.

Budget Airline Struggles to Fly High

Cathay’s low-cost airline, HK Express, had a very difficult time. The airline lost HK$524 million in the first half of the year before subtracting finance charges and taxes.

Cathay’s Chairman, Patrick Healy, admitted that the budget airline is facing short-term problems. However, he said the company is still looking at the long-term future and believes that HK Express will become profitable over time.

Still, investors were not happy with this news. On Wednesday, Cathay’s shares dropped 9.66%, making it the airline's biggest one-day fall since January 2021. This came even though Hong Kong’s Hang Seng Index rose slightly by 0.3% that same day.

A market expert in Hong Kong said the financial results were "as expected," but the performance of the budget airline was “not impressive” and worried investors.

New Aircraft Orders Despite Market Troubles

Even with current challenges, Cathay is making big moves for the future. The airline has placed an order for 14 new Boeing 777 9 wide-body aircraft to replace older planes in its fleet. These new aircraft are part of a long-term plan to improve services and become more fuel-efficient.

With this latest order, Cathay now has 35 Boeing 777-9s on order, and it has the option to buy 7 more in the future. These new planes are expected to arrive gradually by the year 2034.

While the total price for the 14 new planes is US$8.1 billion based on Boeing’s list prices, Cathay confirmed it got significant discounts, which is common for large airline orders.

Cargo Business Shows Strength Amid Uncertainty

Cargo (air shipping) has been a major business for Cathay, especially since its base is at the world’s busiest cargo airport. Over the past few years, the airline has earned a lot from shipping goods and online shopping parcels, especially from China.

However, this year, things are changing. The United States changed its trade tariffs and removed the duty-free exemption for low-value packages from China and Hong Kong starting in May. This has created uncertainty in the cargo market.

Cathay noted that the cargo division still managed to stay strong. Its cargo revenue rose 2.2% to HK$11.1 billion, but cargo yields dropped 3.4% due to market shifts.

To deal with changes, Cathay is now moving its cargo planes to routes where business is still strong and demand remains high.

Why Are Asian Airlines Struggling With Prices?

Airlines across Asia are currently dealing with a big problem: ticket prices are falling. After the pandemic, airfares went up sharply because there were fewer flights and people were eager to travel again.

Now, as more and more airlines have restarted operations, especially in China and Hong Kong, there are many more flights available. This means fierce competition among airlines to attract passengers, leading to lower fares.

For example, another major airline in the region recently shared that its ticket yields dropped by 3.5% for regular flights and 4.7% for its budget airline.

Delayed Delivery for New Boeing Jets

The Boeing 777 9 is Boeing’s newest model of long-distance planes. However, it has not yet been approved for use by U.S. aviation authorities. The plane is still going through testing and safety checks, and Boeing hopes to begin deliveries by next year.

Cathay said it expects to receive its first 777 9 in early 2027, depending on when the aircraft is officially certified.📉 What Lies Ahead for Cathay Pacific?

Even with its long-standing reputation and solid management, Cathay Pacific is facing a challenging future. The airline is trying to balance short-term problems with long-term investments in new aircraft and services.

• It must manage the losses from HK Express
• Deal with lower ticket prices across the board
• Watch out for trade changes that affect its cargo business
• Wait for the delivery of new aircraft to modernize its fleet

While the company remains hopeful, investors and market watchers are keeping a close eye on how Cathay handles these ongoing issues.