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Cathay Pacific shares fall to 7-year low

Cathay Pacific shares fall to 7-year lowCathay Pacific Airways Ltd. shares tumbled in Hong Kong to the lowest level in more than seven years after Asia’s biggest international carrier scrapped its profit outlook and said it is conducting a “critical review” of its business.

The shares plunged 5.4 percent to HK$10.18 as of 11:45 a.m., headed for the lowest level since June, 2009, making Cathay Pacific the worst performer on the MSCI Asia Pacific Index Thursday. The company, which reported an 82 percent slump in net income in the first six months of the year, said in a stock exchange filing Wednesday that the second half “is no longer expected” to be better.

Economy-class seats are seen onboard an Airbus Group SE A350-900 aircraft operated by Cathay Pacific Ltd. during a media event in Hong Kong, China,  May 30, 2016. (Bloomberg)

Economy-class seats are seen onboard an Airbus Group SE A350-900 aircraft operated by Cathay Pacific Ltd. during a media event in Hong Kong, China, May 30, 2016. (Bloomberg)

At least two brokerages cut their ratings on the stock after the outlook warning. Cathay Pacific Chief Executive Officer Ivan Chu has struggled to revive earnings amid a drop in passenger yields – a key measure of profitability in the industry. Singapore Airlines Ltd. has also warned of tougher days as competition with Middle East carriers increases. With Chinese airlines offering more direct services to the US and Europe from the mainland, Cathay Pacific’s Hong Kong hub is no longer so critical for travelers.

“Any targets, any projections they had have been thrown into the wind,” Mohshin Aziz, an analyst at Malayan Banking Bhd. in Kuala Lumpur, said by phone Thursday. “They will have to relook at their network. They should put their arsenal on where it still works for them.”

HSBC Holdings Plc cut its rating on Cathay Pacific to reduce from hold, and Jefferies Group LLC reduced its recommendation to underperform from hold.

After announcing first-half results in August that missed analyst estimates, Cathay Pacific Chairman John Slosar said the business outlook “remains challenging” and the carrier warned that premium travel was declining.

“Since the interim report was issued, the outlook for our airlines’ business has deteriorated,” the carrier said in the statement Wednesday. “Overcapacity and strong competition is putting particular pressure on our passenger business, with continued shortfalls in revenue compared with forecasts and heavy pressure on yield.”

Cathay and its unit Dragonair carried 1.8 percent more passengers in the first eight months of this year, taking the number to 23.3 million. Yields – the money earned from carrying a passenger for one kilometer – slumped 10 percent in the first half amid increased competition.