-->Asian Airlines Dive as Cathay Says May Ground Fleet
Mon April 14, 2003 01:56 AM ET
By Katie Hunt
HONG KONG (Reuters) - Shares in Hong Kong's Cathay Pacific Airways Ltd, Asia's fourth-largest carrier, dived to a 17-month low on Monday after it said it might have to ground its passenger fleet in May if the deadly SARS virus continued to scare away travelers.

Cathay's bleak warning -- made in an internal memo -- spooked other Asian airline stocks, with Singapore Airlines Ltd, China Southern Airlines Co Ltd, China Eastern Airlines Corp Ltd and Taiwan's China Airlines and EVA Airways all shedding between two and six percent.

Since the outbreak of the virus in Hong Kong over a month ago Cathay's stock has tumbled nearly 20 percent, destroying roughly HK$10 billion (US$1.28 billion) in market value.

"I think while the WHO ban is in place, passenger travel will be decimated. If it is not lifted by the end of May, then Cathay will make a loss this year," said Mark Webb, a Singapore-based analyst at HSBC.

A World Health Organization (WHO) advisory warning against visiting Hong Kong and neighboring Guangdong province in southern China has prompted countless business and leisure travelers to postpone or cancel trips to Hong Kong.

Cathay's stock was down 6.7 percent at HK$8.35 by the midday break after hitting HK$8.30, its lowest level since November 2001 but still well above its post-September 11 trough of HK$5.90.

Severe Acute Respiratory Syndrome, or SARS, has hit Hong Kong and southern China especially hard and has forced airlines throughout the Asia-Pacific region to slash services. It has been spread to about 20 countries by air travelers, infecting about 3,200 people worldwide and killing more than 130.

SIA LOSSES?

Cathay is regarded as the major airline most vulnerable to the fall-off in demand from the SARS crisis but others such as Singapore Airlines, Asia's most profitable carrier, have also been hit.

"SIA could also make a loss if SARS drags out. But I think Qantas should be okay. It has cut costs quite aggressively and has its domestic market," said Ann Lim, analyst at Daiwa Institute of Research.

Singapore Airlines shares fell nearly three percent to S$8.70 on Monday morning. The carrier has cut 20 percent of capacity.

Australia's Qantas Airways Ltd has said it will cut 1,000 jobs, warning that its bottom line will come under pressure as the virus and the war in Iraq hurt passenger demand.

China Southern, the mainland's largest carrier and the first in Greater China to report March traffic data, said passenger traffic rose 4.3 percent compared with March 2001, but business on key Hong Kong routes suffered.

The airline said the number of paying passengers multiplied by the distance flown (revenue passenger kilometer (RPK), on its Hong Kong routes slipped 11.7 percent. RPK is a key measure of an airline's performance.

Thai Airways International Plc, meanwhile, said on Friday that it expects second quarter net profit to be hurt by the SARS outbreak and by the war in Iraq. Its shares were not traded on Monday as the Thai bourse was closed for a public holiday.

CASH-BLEEDING CATHAY

Cathay said in an internal memo seen on Saturday that it might have to ground its passenger fleet next month if demand falls further, and said it was"hemorrhaging" approximately US$3 million per day.

The carrier later issued a statement saying it has no plans to stop operations at a future date.

Tony Tyler, director of corporate development at Cathay, told Reuters on Sunday:"If demand falls still further, we will have to respond accordingly. Clearly we can't rule out any particular course of action, but we will respond to circumstances."

Analysts said the airline, which is viewed as having a strong balance sheet compared with others in the region, could cut jobs to help reduce costs. Cathay has already stopped"non essential expenditure" and it is offering staff voluntary unpaid leave.

HSBC's Webb also noted Cathay had roughly HK$8.9 billion (US$1.14 billion) in short-term liquid funds.

Early last month, Cathay reported a six-fold increase in net profit to US$510 million and expressed confidence about its long-term future, but on Friday the airline issued its first ever profit warning.

Cathay Pacific has canceled 42 percent of its daily flights as tourists and business travelers delay or call off visits to the territory.

Cathay said it is carrying roughly 10,000 passengers per day, compared with 30,000 ordinarily.

"We forecast that the number of passengers could fall to less than 6,000 per day in May in which case we will have to consider grounding the entire passenger fleet," Nick Rhodes, Cathay's Director of Flight Operations, said in the memo seen on Saturday.

Cathay's cargo business, which makes up a third of annual revenues, should help the airline weather the steep drop in passenger numbers. Monthly cargo figures have shown consistently strong growth.

(US$1=HK$7.8)

Wie passt das alles so schön!