Cathay Pacific: We Reduce Traffic Estimates as Pilot Shortage Lingers

Cathay Pacific’s year-to-May seat capacity missed our expectations as we underestimated the impact of the pilot shortage. The load factor was also lower than expected on rising competition. As such, we reduce our passenger traffic (in revenue passenger kilometer) estimates by 19% for 2024 and 3%-8% for 2025-28. We keep our 2024 earnings estimate at HKD 5.6 billion as well-contained operating costs and higher passenger yield estimates offset the lower traffic. However, after factoring in higher jet fuel prices, we reduce our earnings estimates by 5%-16% for 2025-28. As a result, we cut our fair value estimate by 10% to HKD 9 per share. The shares are trading at a 7% discount to our fair value estimate, but we prefer Air China (the H-share) for a larger upside.