Key Takeaways
BNP Paribas downgraded Cathay Pacific Airways Ltd. (00293.HK) to ‘Neutral’ and slashed its price target by 18%, warning that rising fuel costs will squeeze the airline’s profitability.
"The price increase can only offset about 70% of the March jet fuel price increase," BNP Paribas said in its research report, noting its calculations account for the airline's 30% fuel hedging.
The bank lowered its target price on the Hong Kong-based carrier to HKD10.7 from HKD13.1 after Cathay raised its long-haul fuel surcharge to HKD1,560. While this equates to a roughly 15% increase in ticket prices on key routes, it is not expected to fully cover a jet fuel cost basis of approximately HKD0.12 per available seat kilometer.
The downgrade reflects significant profit pressure expected later this year. BNP Paribas lowered its earnings forecasts for Cathay by 13% to HKD7.5 billion for the current year and by 5% to HKD8.9 billion for the next.
The bank's analysis is predicated on an updated forecast for average jet fuel prices of USD140 per barrel in 2026, a substantial increase from the USD86 average in the second half of last year. The report suggests prices may normalize to around USD80 starting in the second half of 2027.
While Cathay Pacific may see a short-term benefit from increased transit demand for Asia-to-Europe travel due to disruptions in the Middle East, the higher fuel surcharges are expected to negatively affect overall passenger demand and load factors from the second half of 2026.
The downgrade to a 'Neutral' rating suggests limited upside for the stock until fuel cost pressures subside. Investors will be closely watching Cathay Pacific's next earnings release for concrete data on how margins are being impacted by the higher operating costs.
This article is for informational purposes only and does not constitute investment advice.
