The chart of the day shows bearish wagers on the airline's stock rose to HK$417 million ($54 million) on Oct. 22, a 50 percent increase since police fired tear gas at pro-democracy demonstrators on Hong Kong streets. Short interest climbed to 2.2 percent of freely tradeable shares, an 18-month high, according to Markit Group Ltd. data compiled by Bloomberg. Singapore Airlines Ltd. saw the ratio of shorts, where investors sell borrowed securities with the aim of buying them back at lower levels, decline during the period, the data show.
Cathay Pacific moves half of all air traffic originating in Hong Kong, where protesters forced the shuttering of shopping malls during China's Golden Week holidays and curtailed access to the central business district. Although Ebola remains mostly confined to parts of Africa, the Severe Acute Respiratory Syndrome (SARS) epidemic saw airlines flying empty planes when it struck Hong Kong a decade ago.
"It's really a bad time for Cathay," Linus Yip, a strategist at First Shanghai Securities in Hong Kong, said by phone. "Cathay's earnings won't be too good as tourists may avoid Hong Kong for their year-end trips on concern over mounting protests. At the same time, the spread of the Ebola virus may scare off long-haul travelers."
Cathay Pacific shares have fallen 2.3 percent amid the protests, compared with the 1.5 percent drop for the Hang Seng Index. China's tourism board has stopped approving mainlanders' group tours to Hong Kong as demonstrators seeking electoral reforms occupied shopping areas and disrupted transport. Mainland tourists accounted for 75 percent of the city's 54 million visitors last year.
A potential decline in ticket sales will make it difficult for Cathay to improve passenger yields, which suffered from intensifying competition from Middle East-based carriers in the first half of 2014, Yip said. Cathay hasn't seen booking cancellations in the past few weeks, the airline said in an emailed response to after Bloomberg contacted it.
Source: Wall Street Journal by Jonathan Burgos
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