Cathay Pacific revenue up 85.1% in 2023

Cathay Pacific has reported its first profitable year since the pandemic, bringing in a revenue of HK$94,485 million ($12,078), an 85.1% increase from 2022. This growth was driven by ‘a notable surge in demand following three years of pandemic-related restrictions,’ with the imbalance between supply and demand also resulting in high yields. Available seat kilometres were up 326% from 2022, with passenger revenue kilometres up over 397%. Passenger load factors increased by 12.1 percentage points to 85.7%. The airline expects to reach 80% of its pre-pandemic passenger flights within the second quarter of this year, with the ‘normalisation of yields seen in recent months to continue throughout 2024’. The airline ended December 2023 with a total of 137 owned aircraft and a further 93 on lease, with an average fleet age of 10.8 years (an increase of 0.3 years). In 2023, the group’s net borrowings decreased 10.3% to HK$52,764 million ($6,745), although available unrestricted liquidity also reduced 26.5% to HK$19,985. ‘During the pandemic we maintained elevated liquidity levels as a precautionary measure to navigate the uncertainties,’ confirmed Cathay, adding: ‘Now this period is behind us, we anticipate maintaining a lower yet healthy level of liquidity going forward’. A profitable year has allowed Cathay to announce its first dividend payment to ordinary shareholders since 2019, with a 2023 interim dividend of HK$0.43 ($0.55) to be paid on May 2 2024. The strong performance will also allow the carrier to begin to repay the Hong Kong SAR Government for its support during the airline’s 2020 recapitalisation, although it notes it did not need to utilise the HK$7.8 bn ($1bn) bridge loan, which expired on June 8 2023. However, despite logging its highest profit since 2010, HSBC notes that recovery in terms of available seat kilometres ‘has constantly lagged, likely due to shorter distances for flights,’ with Cathay to potentially reach only 90% ASK by Q1 2025. HSBC also forecast it has cut its estimates for recurring profits (before dividends) for 2024/2025 by 12%/22%, reflecting a slowdown in capacity ramp-up and higher costs partly offset by a slower pace of yield decline. Therefore, HSBC has downgraded Cathay Pacific’s status from Hold to Buy, but with the target price continuing at HKD9.60 ($1.23). “We argue that further traffic ramping up will come at the expense of profitability as staff costs catch up and fuel prices rise,” adds HSBC, which also point to the stock’s dilution risks from the potential conversion of outstanding warrants and convertible bonds.