Lufthansa CFO quits
27th April 2012
HSBC has upgraded Cathay Pacific from a 'Reduce' to a 'Hold' rating, meaning that its stock is expected to perform in line with the broader sector, citing benefits from a drop in fuel prices—something that the report states is counterbalancing growing challenges within the airline’s cargo business.
Fuel costs have seen reductions of 19% on last year, with analysts estimating that a 5% in fuel prices could lead to a 12% EBIT boost and a 15% rise in Cathay’s recurring profits for 2025. Based on this HSBC has raised the airline's profit forecast for 2025-2027 by 7%, also raising its target price for Cathay shares from HKD 9.20 ($1.19) to HKD 9.40 ($1.21).
Despite this, the airline may still face up to HKD 400 million ($51.56 million) in losses next year due to its fuel hedging strategy, the report details. This locks in some fuel purchases at higher-than-forecast prices.
A notable headwind identified by HSBC is within Cathay's cargo business, after a sharp drop in China-US e-commerce shipments has led to cancellations of several charter cargo flights since April.
“We expect a softening of general air cargo demand between the Chinese Mainland and the United States due to the ongoing tariff situation and de minimis rule changes from early May,” said Lavinia Lau, Cathay Pacific chief customer and commercial officer in April. This de minimis rule change on US import tariffs means that a tariff exemption on merchandise valued at less than $800 shipped from China and Hong Kong to the US will be removed.
Figures published by WorldACD show that during the 17th week of the year – between April 21 and April 27, 2025 - tonnages rose slightly after declining for four weeks, in the wake of tariff hikes imposed by both Washington and Beijing but do remain 15% lower in comparison to the same week of the year prior. Spot rates also fell to $4.18 per kilo after peaking at $5.63.
HSBC now values Cathay at 1.05 times its projected book value, reflecting balanced risks and opportunities ahead.