Cathay Pacific Earnings: Strong Passenger Load Factor and Yield Amid Capacity Shortfalls

As expected, Cathay Pacific turned profitable in the first half thanks to improving passenger traffic. Seat capacity reached 51% of 2019 level in June, but management kept 70% guidance by December 2023. As such, we reduce our seat capacity forecast to 53% of 2019 level for 2023 and 90% for 2024, down from 60% and 92%. But this is more than offset by our higher load factor and passenger yield assumptions. As a result, we increase our earnings estimates to HKD 7.5 billion in 2023 and HKD 6.3 billion in 2024 from HKD 6.7 billion and HKD 3.3 billion, respectively. We raise our fair value estimate to HKD 9.70 from HKD 8.90. The shares currently trade 9% below our fair value estimate, but we would prefer a higher margin of safety. We also change our Morningstar Uncertainty Rating to Medium from High to reflect lower uncertainty as the COVID-19 pandemic subsides.