Cathay Pacific: Reducing Passenger Capacity Assumption Amid Staff Shortage

Cathay Pacific’s flight cancellation and schedule cut reveal a shortage of staff, especially that of experienced pilots. We think Cathay is unlikely to resolve the challenge in the near term after reviewing its pilot counts. As such, we reduce our passenger capacity assumption by 9% in 2024 and by 6% in 2025. We now assume passenger capacity will reach 82% of 2019's level in 2024 and 98% in 2025. Accordingly, we cut our 2024 earnings estimate to HKD 3.9 billion from HKD 6.3 billion; and for 2025, to HKD 4.7 billion from HKD 6.5 billion. Our estimates for 2026 and beyond are unchanged as we anticipate the staff shortage would have been resolved by then. Our fair value estimate remains HKD 9.70. Despite the capacity constraint, we continue to prefer Cathay over its mainland Chinese peers for a better supply/demand dynamic, a healthier balance sheet, and lower currency depreciation risk.