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Wed, Oct 21, 2020 – 13:02
UPDATED Wed, Oct 21, 2020 – 1:36 pm
The CATHAY Pacific Airways restructuring removes a key overhang for the airline, but earnings recovery will hinge on the opening of the Singapore-Hong Kong (ATB) air travel bubble, the Jefferies research team said.
Jefferies equity analyst Andrew Lee said Cathay Pacific’s restructuring plans worth 2.2 billion Hong Kong dollars (384.8 million Singapore dollars) announced on Wednesday were in line with expectations.
As part of the restructuring, Cathay Pacific will cut existing jobs by approximately 17 percent. The regional arm of Hong Kong’s flag carrier Cathay Dragon will also cease operations, while Cathay Pacific’s crew compensation will be based on productivity.
The restructuring will allow the airline to reduce its cash spending by HK $ 500 million a month, it said in a statement on Wednesday.
Although there are no surprises, the key issue about the restructuring would be the positioning of the low-cost carrier HK Express, owned by Cathay Pacific, which will be given some unnamed Cathay Dragon routes, Lee said.
“Will these routes continue to operate in business class? If so, how does this change (HK Express’) position as a low-cost carrier,” he added.
Jefferies maintained “hold” on Cathay Pacific with an unchanged price target of HK $ 6.30, based on a minimum value of 0.6 times book price, with passenger recovery dependent on Hong Kong ATB with other 11 countries. However, the timing is still unknown, Jefferies noted.
Cathay Pacific shares were up 4 percent, or 0.23 Hong Kong dollars, to 5.95 Hong Kong dollars, on Wednesday’s midday trading break.
Analysts at Jefferies and DBS recently identified Cathay Pacific and Singapore Airlines as beneficiaries of the next two-way ATB between Singapore and Hong Kong. Other beneficiaries of the planned bubble between the two Asian financial centers include hotel industry players and the Singapore-listed groundhandling SATS.
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