Cathay Pacific: a chance to regain altitude as turbulence subsides

Receive free Cathay Pacific Airways Ltd updates

We’ll send you a myFT Daily Digest email rounding up the latest Cathay Pacific Airways Ltd news every morning.

Posts about sunny beach resorts and lost luggage are increasingly common on social media feeds. Such hints of a travel rebound have rekindled investor interest in depressed airline stocks. Friday’s bumper profits forecast from Hong Kong’s flagship airline is a sign the travel recovery may be even better than hoped.

Cathay Pacific Airways expects to report a profit of up to HK$4.5bn ($576mn) in the first half on the back of a surge in demand for travel. That would end a streak of record losses over the past three years.

The expected performance implies not just a recovery to pre-Covid levels, but the largest profit in over a decade. The gains come despite Cathay operating at just around half its pre-Covid passenger flight traffic levels. Chinese travellers have yet to fully return. It also comes before the peak summer travel season.

There are plenty more tailwinds. Rising air fares are a global industry trend. Pent-up travel desires have resulted in a surge in demand for long-haul flights to far-off destinations. That means higher margins per passenger. Operating margins at the end of last year had already surpassed pre-pandemic levels. As Hong Kong’s main carrier, Cathay does not face the same overcapacity concerns as other regional peers. 

Hong Kong’s geographic proximity to China as well as south-east Asia has made it an easy choice to serve as a regional travel hub. It has also been a cargo hub for more than a decade, ranking among the top globally by total cargo tonnage.

Yet shares have gained less than 1 per cent this year. They trade at 16 times forward earnings, at the same levels from the end of 2019.

There is likely to be better yet to come. Cathay Pacific’s second half has historically been stronger than the first. The airline has been buffeted by a prolonged and intense economic storm. But the upbeat forecast should encourage investors to consider giving the stock a second chance.