Cathay Pacific share price in death spiral

Not even the lure of 500,000 free air tickets to Hong Kong could revive the ailing Cathay Pacific share price. The counter continued to be in sluggish form after the announcement by Hong Kong government. Year-to-date, Cathay Pacific share price fell by 6.89%.

The unprecedented disruption caused by COVID-19 to air travel will be remembered by many for generations. For Cathay Pacific, the past three years had been nothing short of a prolonged terrifying nightmare due to the travel restrictions and strict quarantine requirements for Hong Kong-based aircrew. No doubt about it, these measures inflicted substantial impact on Cathay Pacific’s business. Whilst most countries had reopened in 2022, Hong Kong closely followed China’s zero COVID policy, at a hefty price to the economy of Hong Kong.

Then, on 14 December 2022, the Asian financial hub stunned the world with the announcement of the lifting of all COVID-19 restrictions on travellers. Surely, the worst must be over for Hong Kong. Could this herald the bottom of Cathay Pacific share price?

According to IATA, the airline industry had been the most profitable for decades in the period from 2010 to 2019. Cumulatively, the combined profits of the airlines amounted to a staggering US$220 billion. This is in stark contrast to the period from 2000 to 2009, a chaotic period marked by 9/11 terrorist attacks, SARS and the global financial crisis. The solid airline growth during the period of 2010 to 2019 would have continued its momentum if not for the emergence of COVID-19 in 2020.

Incidentally, Warren Buffett’s Berkshire Hathaway invested about US$7 billion to US$8 billion in American Airlines, Delta Airlines, Southwest Airlines and United Airlines in 2016. Perhaps, Warren Buffett might have been seduced by the IATA report to make the move as most investors know that the investment guru had eschewed investing in airlines.

However, the unfolding COVID-19 in 2020 caused shares of the four US airlines to plummet, prompting Warren Buffett’s company, Berkshire Hathaway to dump the airline shares. In the process, they incurred losses of about US$2.5 billion to US$3.5 billion. The panic move by Warren Buffett raised much questions on whether the guru practised what he preached when he claimed “to be greedy when others are fearful”. Let’s be clear about it: big boys like Warren Buffett can afford to lose billions. However, retail investors would surely not be able to stomach such losses. In this regard, retail investors must be clear about their strategy if they are looking at bottom-fishing airline stocks.Note that this is an opinion article and not meant to be a financial advice. Please do your due diligence or engage financial advisors before investing in the stock market. I am not vested in Cathay Pacific at the moment. Whether Cathay Pacific share price will surge or collapse has no impact on me. Thus, this article is not meant to induce readers to make any form of investment decisions.

Cathay Pacific share price faces long road to recovery

If investors are betting that the reopening of Hong Kong will be a strong catalyst for Cathay Pacific share price, they may be disappointed to note that [This is a premium article. The rest of the content is blocked and can be accessible by SG Wealth Builder Members only. To read the full content, please sign up as member.]

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