Cathay declines after carrier gives scant details on revamp

Cathay Pacific Airways Ltd. shares dropped the most in three months after the carrier’s planned business revamp fell short on details, failing to soothe investor concerns over a slide in earnings.

Changes at Asia’s biggest international airline “will start at the top” and the carrier will eliminate some positions as part of a review, with key changes taking effect by mid-year, Cathay said in a statement Wednesday. The stock fell 3.9 percent to HKD10.40 in Hong Kong yesterday, the biggest loss since Oct. 13.

“We wanted to see hard changes, things like cutting capacity, what sort of savings level they hope to achieve,” said Mohshin Aziz, an analyst at Maybank Investment Bank Berhad in Kuala Lumpur. “Not only did we want more decisive actions, but more sharing of how the plan is going to be implemented. We had neither.”

With premium travel declining and the diminishing role of Hong Kong as a transfer hub for Chinese outbound travelers, Cathay has been struggling to revive earnings. It also has a challenge at hand as Emirates and other Middle Eastern airlines expand more into Asia, luring passengers with frills. Cathay shares have slipped 33 percent since Ivan Chu took over as chief executive officer in March 2014 as the airline reported its smallest half-year profit in more than two years.

“If the statement is any indication, it could well be that he may not be there for long,” Shukor Yusof, founder of aviation consulting firm Endau Analytics said by phone, referring to Chu. “They haven’t embraced the changes. They’ve lacked the vision to grow the company and that has been one of the main reasons for the decline in the company’s performance and profit.”

A spokeswoman said the company doesn’t comment on speculation when asked whether Chu will be replaced. Chu has been at the helm of the carrier for about three years now. His predecessors John Slosar and Tony Tyler both held the top job at the marquee airline for about three years. In both instances, the then chief operating officer was promoted to the chief executive’s role.

The airline is looking at ways to pare costs as mounting competition from Chinese and Middle Eastern carriers have eaten into Cathay’s premium long-haul customer base, causing passenger yields – a key measure of profitability – to drop to a seven-year low. Bloomberg