Investment Summary
First Half Profit of HK$3.65 Billion, Essentially Flat
According to Cathay Pacific Airways(CX) FY2025 interim results, it recorded revenue of
HK$54.309 billion (HKD, the same below), a yoy increase of 9.5% for the first half of the year.
However, profit growth was weak, primarily due to pressure on passenger yield and the
expanded losses of its low-cost subsidiary. Net profit amounted to HK$3.651 billion, with a
yoy increase of just 1.1%. Basic earnings per share (EPS) for ordinary shares were 56.7 Hong
Kong cents, with a dividend of 20 Hong Kong cents per share, representing a dividend
payout ratio of 35%. This marks the second consecutive year of interim dividends since the
pandemic recovery.
Strong Recovery Momentum in Business Indicators, but Yield Falls from High Levels
During the reporting period, yoy experienced strong recovery momentum in its business
volume. Passenger capacity (available seat kilometres, ASK) grew by 26.3% yoy, and revenue
passenger kilometres (RPK) surged by 30.0%. The number of passengers carried reached
13,600 thousand, and the passenger load factor increased by 2.4 percentage points to 84.8%,
higher than the pre-pandemic level of 84.2%.
As global capacity supply recovered, market competition intensified, and ticket prices
retreated from historical highs. yoy’s unit revenue per passenger kilometre (yield) dropped
sharply by 12.3% yoy to 60.4 Hong Kong cents (still higher than the pre-pandemic level of
54.9 Hong Kong cents), with particularly large declines of 17.5% and 14.3%, respectively, on
routes to the Americas and North Asia. Additionally, the company expanded its long-haul
network and increased low-yield routes, which further diluted overall yield levels. This led to
revenue growth being offset by pricing pressure. The group’s passenger service revenue was
HK$37.21 billion, a 12.7% yoy increase, but the growth rate was slower than the increase in
passenger volume.
In the cargo sector, although tonnage increased by 11.4%, the cargo load factor declined by
1.3 percentage points yoy to 58.6%, and yield decreased slightly by 3.4% to HK$2.59 (still
higher than the pre-pandemic level of HK$1.88). The company’s diversified layout and
adjustments to its global network helped it cope with the changes, easing the groups
pressure. The group’s passenger stable, growing by 1.2% yoy to HK$12.76 billion.
Hong Kong Express, a subsidiary, faced challenges due to a decline in demand for Japanese
tourism caused by earthquake rumors, as well as the impact of a new route cultivation
period. Additionally, intensified competition in the low-cost market and falling ticket prices
on short-haul routes negatively affected performance. Hong Kong Express’ passenger yield
dropped by 21.6% yoy, and its pre-tax profit turned into a loss of HK$524 million (compared
to a profit of HK$66 million in the same period last year). Additionally, the share of profits
from associates (mostly from its stake in Air China) recorded a loss of HK$180 million,
though this represented a reduction in losses by HK$160 million yoy, partially offsetting the
operational pressures from the subsidiary.
Falling Fuel Prices Benefit Costs, Unit Costs Diluted
According to the consolidated financial statements, yoy’s cost structure for the first
half of 2025 showed the following characteristics: fuel costs benefitted from a 14.3%
drop in fuel prices, rising only 3.5% yoy, which led to an 11.0% decrease in fuel cost
per ATK. Non-fuel costs, driven by expanded capacity, increased by 14.2% yoy to
HK$33.71 billion. Employee costs, onboard service costs, and ground service costs
grew by 20.7%, 32%, and 23%, respectively, reflecting increased manpower and
higher route and maintenance expenses.
The expansion of capacity helped dilute unit costs, with unit ATK costs decreasing by
4.1% yoy and unit non-fuel costs dropping by 0.9%. However, the relative rigidity of
costs, the pressure of new route cultivation periods, and the decline in unit yields
weakened marginal profitability.
Other expenses showed a slight increase, with net financial expenses growing by
1.5% yoy, while aircraft depreciation and rental expenses decreased by 6.9%,
reflecting the fleet optimisation effects.
Fleet Efficiency Improvements and Cost Optimisation will be the Key Concern
In its interim report, yoy highlighted the successful integration with Hong Kong
International Airport’s three-runway system, becoming one of the first base carriers
to achieve full runway coordinated operations. This significantly improved its flight
punctuality rate to 92.3%. As of mid-2025, yoy’s fleet comprised 234 aircraft, and it
plans to purchase 14 more Boeing 777-9 aircraft to strengthen its long-haul network,
with expected deliveries by 2034 or earlier, further enhancing its long-range capacity.
From July to October 2025, yoy continued to see strong passenger demand, with the
cumulative number of passengers reaching 27,000 thousand, a 26.1% yoy increase. In
October, the monthly load factor rose to 86%, a new high for the period, driven by
holidays and business activities such as National Day, Mid-Autumn Festival, and the
Canton Fair. In terms of cargo, the cumulative tonnage from July to October grew by
7.6% yoy, with October cargo tonnage surpassing 150 thousand tonnes, a 12%
increase from the previous month. The “Cathay Fresh Cargo” and “Cathay Priority
Cargo” services saw strong demand, supporting cargo resilience. Hong Kong Express’
passenger volume in October increased by 32% yoy, with capacity and demand
growing in sync, showing the initial success of network diversification. With fleet
efficiency improvements and cost optimisation, along with strong Christmas season
bookings, profitability in the second half is expected to recover. However, the
sustainability of demand recovery on Japanese routes remains to be observed.
Investment thesis
We revised the EPS forecast of Cathay to be HK$1.20/1.40/1.63 in 2025/2026/2027.
Based on the revised financial forecast, we lift target price to HK$12.6 for the
Company, equivalent to 2025/2026/2027E 10.5/9.0/7.5 x P/E, the Accumulate rating.
(Closing price as at 11 December)
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Bachelor Degree in Tongji University of Engineering; Master Degree in East China Normal University of finance. Currently covering the automobile and air sectors. She has years of experience in investment research and is good at combining analysis for the companies with industry prospects.
