Cathay Pacific Sees "Significant Impact" To Revenue From Hong Kong Unrest

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In its July traffic report dated Aug. 21, Cathay Pacific Airways (OTCMKTS: CPCAY) announced that the protests in Hong Kong were likely to result in "a much more significant impact" to August's revenue.

"Recent events in Hong Kong over the past two months did not substantially impact our passenger business in July; however, we anticipate a much more significant impact to our revenue in August and onwards," said Cathay Pacific Chief Customer and Commercial Officer Ronald Lam.

Anti-government demonstrations began more than two months ago as protesters took to the streets of Hong Kong to show opposition to the Chinese extradition bill. Hong Kong International Airport, the world's busiest air cargo hub in 2018, saw multiple days of disruption as it became a venue for the movement causing Cathay Pacific to cancel nonessential travel.

"Traffic into Hong Kong, both business and leisure, has weakened substantially and we've also now seen ex-Hong Kong traffic starting to soften, especially on our short-haul network including mainland China, Taiwan, South Korea and South East Asia," continued Lam.

Lam was appointed executive director and chief customer and commercial officer on Aug. 16, when the company announced that Chief Executive Rupert Hogg and Lam's predecessor in the role, Paul Loo, would resign on Aug. 19.

Augustus Tang has been appointed as executive director and chief executive officer. He was formerly employed at the Swire Group, a major shareholder in Cathay Pacific.

The press release said that the combined airlines, Cathay Pacific and Cathay Dragon, saw little impact on July results stemming from the tension in Hong Kong. The group reported a 4% year-over-year increase in passenger traffic, but capacity utilization, or load factor, dipped 60 basis points to 86.1%.

However, cargo traffic declined 8.2%, with cargo and mail load factor declining 7.2%. The July result is a little worse than the trend for the company seen in the first seven months of 2019, down 6.1% year-over-year.

"Our cargo business continued to face headwinds with market sentiment softening across the board. Indeed, South Asia was the only sales region where we still saw tonnage growth compared to the previous month and year. While the market outlook remains uncertain, we continue to be vigilant as we work to mitigate the impact on our business. We are diligently matching capacity with customer demand while also strengthening our capability to carry specialized shipments," Lam provided.

Hong Kong's GDP contracted 0.4% in the second quarter of 2019 compared to the prior quarter, which prompted the government to announce more than $2 billion in economic stimulus. The stimulus is designed to address the negative impacts Hong Kong has seen from a slowing Chinese economy, tariffs and the recent civil unrest.

According to Airports Council International, Hong Kong International Airport handled 5.1 million metric tons of cargo in 2018, ranking it the top airport for cargo handled.

Shares of CPCAY are off approximately 1% on the day.

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