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Social media feeds are increasingly filled with posts about sunny beach resorts and lost luggage, signaling a potential travel rebound. This has sparked investor interest in struggling airline stocks. Cathay Pacific Airways, Hong Kong’s flagship airline, recently announced a promising profit forecast, indicating that the travel recovery might exceed expectations.
With a surge in travel demand, Cathay Pacific Airways expects to report a profit of up to HK$4.5bn ($576mn) in the first half of the year, ending a streak of record losses over the past three years. This projected performance not only implies a return to pre-Covid levels but also the highest profit in over a decade. Despite operating at half its pre-pandemic passenger flight traffic levels and with Chinese travelers yet to fully return, Cathay Pacific Airways remains optimistic about its prospects, especially with the upcoming peak summer travel season.
There are several factors contributing to this positive outlook. Rising air fares are a global trend within the industry, while pent-up travel desires have resulted in increased demand for long-haul flights to distant destinations. This translates into higher profit margins per passenger. Furthermore, Cathay Pacific Airways, as Hong Kong’s main carrier, does not face the same overcapacity concerns as its regional counterparts.
Given Hong Kong’s advantageous location, serving as a regional travel hub for China and southeast Asia, as well as its prominence as a cargo hub, Cathay Pacific Airways has a strong position in the market. Surprisingly, its shares have only seen a modest gain of less than 1% this year, trading at similar levels to the end of 2019, at 16 times forward earnings.
However, the future looks promising. Historically, Cathay Pacific Airways performs better in the second half of the year. Despite enduring a prolonged and intense economic downturn, the positive profit forecast should encourage investors to consider giving the stock another chance.
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