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Aviation faces ‘biggest challenge ever witnessed’ Cathay Pacific warns

A looming global recession and geopolitical tensions are set to compound Covid-19 damage that has decimated the travel industry, the boss of Cathay Pacific warned.

The message came as the Hong Kong-based group reported an HK$9.8 billion loss for the first half of the year against a profit of HK$1.3 billion in the same period last year.

The loss was net of the group securing HK$1 billion of Covid-19 related government grants globally and included impairment and related charges of HK$2.4 billion relating to 16 aircraft that are unlikely to re-enter “meaningful economic service” again before they retire or are returned to lessors.

Total carryings dropped by 76% year-on-year to 4.4 million passengers.

The group’s two airlines – Cathay Pacific and Cathay Dragon – were flying an average of only around 500 passengers a day in April and May.

Chairman Patrick Healy said: “Despite a promising start in January, with encouraging signs that passenger demand was beginning to return following the social unrest which impacted the second half of 2019, the first six months of 2020 were the most challenging that the Cathay Pacific Group has faced in its more than 70-year history.

“The impact of Covid-19 on the group’s business and the global economy is unprecedented.

“The global health crisis has decimated the travel industry and the future remains highly uncertain, with most analysts suggesting that it will take years to recover to pre-crisis levels.”

Passenger revenue in the six months to June 30 fell by 72.2% to HK$10.4 billion as traffic slumped by 72.6%.

“This loss of revenue reflects the precipitous drop in passenger demand resulting from the extensive travel restrictions, border controls and quarantine arrangements which were implemented around the world in response to the COVID-19 pandemic,” Healy said.

“Most industry analysts are forecasting very gradual recoveries over a protracted period, and Iata is forecasting that it will be 2024 at the earliest before international passenger demand returns to pre-crisis levels.

“Not only that, but with a global recession looming, and geopolitical tensions intensifying, trade will likely come under significant pressure, and this is expected to have a negative impact on both air travel and cargo demand.

“This is the biggest challenge to the aviation industry that Cathay Pacific has ever witnessed.

“We do not expect to see a meaningful recovery in our passenger business for some time to come.

“We will continue to closely monitor market demand as we work towards progressively reintroducing passenger flights as appropriate.

By the fourth quarter of 2020, Cathay Pacific’s management will recommend to the board the optimum size and shape of the Cathay Pacific Group to meet the air travel needs of Hong Kong while meeting its responsibilities to its shareholders.

“Inevitably this will involve rationalisation of future planned capacity compared to pre-crisis plans, taking into account the market outlook and cost structure at that time. “

The group has already agreed with Airbus to defer delivery of A350-900s and A350-1000s from 2020 and 2021 to 2020-23, and A321neos from 2020-23 to 2020-25.

“Advanced negotiations” are taking place with Boeing for the deferral of B777-9 deliveries.

“This deferral of deliveries is expected to produce cash savings to the Cathay Pacific Group in the short to medium term,” Healy said.

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