Cathay Pacific Airways jumped to the highest in a month on Wednesday after it announced a HK$2.2 billion (US$284 million) restructuring that will see the biggest job cuts in its history and the closure of the Cathay Dragon brand.
The shares of Hong Kong’s flagship carrier advanced as much as 6.5 per cent to HK$6.10 in the morning session, before trading 3.2 per cent higher at HK$5.90 at 2.30pm local time. They are on course for the highest close since September 18.
The carrier has lost almost a third of its value since tumbling from the year’s high of HK$9.025 on January 22, a day before China imposed a sweeping lockdown in Wuhan, the epicentre of the coronavirus outbreak on the mainland, to curb the pandemic.
Cathay plans to eliminate 8,500 jobs, making a total of 5,300 staff redundant in Hong Kong and close its wholly-owned unit Cathay Dragon Airlines with immediate effect, it said in a Hong Kong stock exchange filing before the market opened for trading. The South China Morning Post first reported the restructuring on Tuesday.
Despite implementing various cost saving measures “the company’s cash losses remain at HK$1.5 to 2 billion per month,” Cathay said in the filing. The restructuring is expected to reduce its cash burn by about HK$500 million as a month in 2021, it added.
The carrier’s restructuring comes as the global aviation industry bears the brunt of Covid-19, which led to the grounding of more than 90 per cent of the global airline fleet earlier this year. The International Air Transport Association expects the airline industry to lose US$77 billion in the second half of 2020, or some US$300,000 per minute.
Cathay Pacific’s market capitalisation has collapsed by 20 per cent since the end of January 2019 to HK$38.1 billion as it struggles to overcome the crisis. A HK$39 billion cash call and bailout from the Hong Kong government in July helped stabilise its operations, while a plan for air travel bubble with Singapore also shored up sentiment in recent weeks.
“The Hong Kong government’s travel bubble scheme and upcoming cost restructure programme should support sentiment and profitability of Cathay Pacific,” Kelvin Lau, equity analyst at Daiwa Capital Markets in Hong Kong said in a recent report.
He added that the restructuring will help Cathay maintain a lean cost restructure in the next two to three years.
Daiwa raised Cathay’s target price by 19.4 per cent to HK$6.90, noting its share price has limited downside as it has lagged behind Chinese carriers by over 15 per cent and the Hang Seng Index by 30 per cent year to date.
Investment bank Jefferies, meanwhile, maintained its “hold” rating on Cathay, with a target price of HK$5.72.
“We believe this [restructuring] removes a key overhang for Cathay Pacific but earnings recovery depends on opening of Air Travel Bubble [whose timing is unknown],” it said in a report on Tuesday.
