After a tepid first half of the year, long-haul business travel from continent to continent appears to be getting back up to speed. The global airline industry's profits could grow 40% next year, according to the International Air Transport Association. That's welcome news for big international carriers, who are also celebrating less-menacing fuel prices.
Cathay Pacific, Hong Kong's hometown airline, is in the captain's seat for a travel rebound. Like other Asian airlines, Cathay is seeing its traffic to and from Europe starting to edge up after a year and a half of decline, as Europe seems to put the worst of its recession behind it. Traffic rose 7% on average the past four months.
And Cathay's North American business, which generates roughly a quarter of its revenue, remains solid with room for growth. Cathay is adding a flight to Newark, expanding its reach in the New York area. It will add a fourth daily nonstop flight to Los Angeles, a monopoly route for Cathay. Meanwhile chief rival Singapore Airlines is grounding its nonstop Singapore-Los Angeles and Singapore-Newark flights.
Singapore Airlines faces a more competitive landscape than Cathay. Middle Eastern rivals such as Emirates are encroaching on lucrative routes connecting Australia to Europe, and closer to home it contends with a flock of low-cost carriers branching out across Southeast Asia. Cathay has stayed relatively insulated from the low-cost threat, and has recently pushed Hong Kong's government to prevent a low-cost carrier from encroaching on its turf.
An increase in passenger traffic should fall quickly to Cathay's bottom line thanks to cuts it made in capacity when demand suffered in recent years. Operating and net-profit margins will have doubled between 2012 and 2014, says Citi's Michael Beer.
Higher debt lets it lever sales better, too—Cathay's net debt as of June 30 was equivalent to 60% of its equity. State-owned Singapore Airlines holds more cash than debt, making it safer in a downturn, but less of a leveraged play when business take off.
Cathay's stock has rallied 18% in the last three months, so some of the optimism is baked in. But shares trade at an inviting 15 times forward earnings, compared with Singapore's 19. Cathay is valued a third cheaper than its five-year average, though a spike in valuations during the financial crisis affects the comparison.
If the global economy speeds up, both Cathay and Singapore Airlines will get into the slipstream. The Hong Kong carrier is the more aerodynamic one.
Source: Wall Street Journal by Abheek Bhattacharya
from China Travel & Tourism News http://www.chinatraveltourismnews.com/
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