1H net profit of HK$353m was down 82% y/y
1H net profit was only 5.1% of our full-year forecast and 7.0% of Bloombergconsensus. The disappointing results were caused by the 10.1% y/y drop inpassenger yield and weakness in the cargo business (cargo yield was down17.6% y/y). In comparison, we were forecasting a 4% drop in passenger yielThe HK$3.3bn savings (after taking into account hedginglosses) from fuel were not enough to offset the decline in revenues.
CX adversely affected by restrictions on corporate travel
Management said that premium class demand, particularly on long haul routeswas adversely affected. Strong competition and adverse currency movementsalso affected yield. Corporate travel originating in HK was well belowexpectations, particularly to London and New York.
Cargo demand was weak in 1H2016
Strong competition and overcapacity put downward pressure on yield.Shipments from HK / China to North America accounted for the majority oftheir shipments, and rates were under pressure because of overcapacity.
2H to be impacted by the same factors
Management expects the operating environment in 2H 2016 to be challenging,with passenger yield to continue to be under pressure. Cargo demandcontinues be dampened by overcapacity and economic fragility. Given thesecomments, consensus numbers for 2016E look optimistic, in our view.