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Shares of Cathay Pacific rebound, but the airline may still be in a 'very tough place'
CNBC
Wed, 14 Aug 2019 05:32

Shares of Cathay Pacific rebound, but the airline may still be in a 'very tough place'

CNBC
Wed, 14 Aug 2019 05:32

A view from a Cathy Pacific Jet which see another Cathay Pacific Jet Park in Hong Kong International Airport in Hong Kong, China.

Shares of Cathay Pacific rebound, but the airline may still be in a 'very tough place'
23 May 2019

NurPhoto | Getty Images
Shares of Hong Kong airline Cathay Pacific rebounded on Wednesday.

Still, "much uncertainty" remains ahead in the market, according to Luya You, analyst for transportation research at Bocom International.
"We believe ... the most prudent way to treat the stock right now is to downgrade to neutral," You — who disclosed ownership in Cathay Pacific stock — told CNBCs "Squawk Box" on Wednesday. "Its very, very hard for us to know whats going to happen in the next upcoming days or even upcoming weeks simply because right now Cathay Pacific is unfortunately stuck in a very, very, very tough place."

Shares of Cathay Pacific jumped 2.83% on Wednesday.
Right now Cathay Pacific is unfortunately stuck in a very, very, very tough place
Luya You

Analyst for transportation research at Bocom International
Cathay in the spotlight amid protests
Yous comments came as Hong Kong continues to be rocked by protests that have lasted for weeks and have seen outbursts of violence. Recent rounds have left operations at the citys airport disrupted for two days.

For its part, Cathay Pacific has come under increased scrutiny from Beijing, with the Chinese aviation regulatory body issuing a "major aviation safety risk warning" to the airline last week. The Civil Aviation Authority said that "on multiple occasions," Cathays flight personnel have participated in "violent assault," according to CNBCs translation.

"The incidents pose a serious threat to aviation safety, causing adverse social impact and as a result is increasing inbound aviation safety threats from Hong Kong to the mainland," it said.
It also ordered the carrier to provide identification information for its crew on mainland-bound flights, and said that crew members that do not receive the authoritys approval wont be allowed into its airspace, including on flights bound for other destinations.

Asked if other airlines could benefit from the misfortunes of Cathay Pacific, You said it was possible but "its a little bit too early" at the moment, as the Chinese aviation authority was "still waiting" to see the carriers response.

"If things do significantly ... deteriorate then potentially yes, you know, the other airlines such as Air China, China Southern, even foreign airlines at Hong Kong International Airport could benefit from any displaced demand that goes from Cathay to anywhere else," she said.
Very critical period
Looking ahead, You said it was "very hard to say" how Cathay Pacific was likely to respond further to the current situation.

"Everybodys waiting to see their official response," You said. "Theyve already issued their verbal response, their verbal agreement to Chinas new standards but weve yet to see really a lot of mass actions." She added that it is a "very critical period" for Cathay Pacific as investors wait to see if China "agrees" that the firm has taken sufficient measures.

If Beijing disagrees, then there could be more restrictions for Cathay Pacific, she said, adding that it would be "absolutely catastrophic" for the airline if it were to lose certain access or a "very, very large part of their market."

So far, Cathay Pacific has suspended two pilots, fired two ground staff and issued a warning email to its employees. The airlines top shareholder and manager, Swire Pacific, has also voiced support for China and vowed to follow Chinas aviation regulations.

— Reuters and CNBCs Grace Shao contributed to this report.