By Lisa Barrington
(Reuters) -Hong Kong's Cathay Pacific Airways on Wednesday warned of challenges at its budget carrier and uncertain cargo market conditions, sending its shares down as much as 9% after it reported a slight rise in first-half earnings.
The city's flagship airline also ordered 14 more Boeing 777-9 wide-body jets as it renews its fleet, taking its total order for the model to 35 with options for another seven.
Cathay reported a 1% increase in first-half profit to HK$3.65 billion ($465
million) on a strong jump in passenger numbers, lower fuel prices and a steady cargo performance.
But its passenger yields, a proxy for airfares, fell 12.3% at its main brand and 21.6% at its low-cost carrier HK Express as Cathay and its rivals add capacity.
"HK Express continues to face short-term challenges," Cathay Chairman Patrick Healy said of the budget airline, which posted a HK$524 million first-half loss before net finance charges and taxation.
"We are taking a long-term view and a path to profitability can be expected for the low-cost carrier as it continues to grow, increase its efficiencies, and further strengthen its fundamentals," he said in a statement.
Shares in the airline fell as much as 9% after the half-year results were announced, putting it on track for the biggest one-day decline since January 2021, while the benchmark Hang Seng Index gained 0.1%.
CARGO OUTLOOK
Based at the world's busiest cargo airport, Cathay is one of Asia's largest cargo carriers and has benefited in recent years from rising volumes of e-commerce and other goods out of China.
Cathay on Wednesday noted cargo market uncertainty caused by changes to U.S. tariffs this year, in particular the cancellation of a duty-free exemption for low-value packages from China and Hong Kong in early May.
However, the airline said its cargo business showed resilience and capacity was being redeployed to markets that remained strong.
The cargo division's half-year revenue rose 2.2% to HK$11.1 billion, while yields fell 3.4%.
Cathay's order for 14 more 777-9 planes with GE engines exercised options secured as part of a 2013 order for 21 of the jets, and adds options to purchase another seven in the future, the airline said.
Cathay said the 14 jets had a list price of $8.1 billion, but it had secured significant discounts, as is customary for major airlines. It expects the aircraft to be delivered by 2034.
The long-delayed 777-9, Boeing's latest version of its 777 plane, has not yet been certified by the U.S. Federal Aviation Administration. Boeing CEO Kelly Ortberg said last month the model is undergoing flight testing and the planemaker hopes to start deliveries next year.
Cathay said in March it was expecting its first 777-9 delivery in early 2027.
(Reporting by Lisa Barrington in Seoul; additional reporting by Sameer Manekar in Bengaluru and Donny Kwok; Editing by Jamie Freed)
