Shares in airline Cathay Pacific (HK50:293) are at risk of further downside after a rebound faded.
293 – Daily Chart
Shares crashed through the $11.53 level after the recent earnings release and pierced an uptrend support. That trend then held as resistance, bringing the risk of another move lower to $10.00 initially. Strong buying could save the uptrend and would need to get back above $11.00.
Cathay warned last month that declining airfares, challenges at its budget carrier and current cargo market conditions would affect full year revenue. Passenger yields dropped by 12.3% at its leading brand and 21.6% at low-cost carrier HK Express, as rival airlines added capacity.
“HK Express continues to face short-term challenges,” Chairman Patrick Healy said after the budget airline posted a first-half loss of HK$524 million.
Air cargo continued to outperform analyst expectations in August, as volumes grew, but the outlook for the remainder of the year remains uncertain. Recent figures from data provider Xeneta showed that air cargo demand increased by a “surprise” 5% year on year in August. That was a second consecutive month of growth.
However, some of the recent growth has been due to tariff uncertainty. Xeneta said the increase in demand came as businesses look to move goods quickly by air to avoid the potential impact of tariff changes.
Capacity increased by 4% year on year in August, but it wasn’t all good news, as the average spot rate declined by 3% year on year to $2.55 per kilogram. Xenata said that airfreight spot rate performance was probably a better indicator of the underlying economic conditions.
With those comments, it is unlikely that Cathay Pacific will see a material change to its recent earnings projection. Competition in the budget airline sector will also pressure the profitability of HK Express in the near term.
