The Hong Kong flagship airline Cathay Pacific (CPCAY) has no domestic business whatsoever. The whole territory of Hong Kong itself is a little smaller than the city of Los Angeles. An international carrier struggles to get much mileage out of that.
So Cathay and its shares are a pure play on Covid-19 recovery. It has stayed in the air thanks to its freight business. Even that has been hurt, and badly, by the pandemic.
On Wednesday, the airline reported a record annual loss. No surprise there, all things considered. The HK$21.65 billion (US$2.76 billion) spill of red ink all over the bottom line for 2020 includes the decimation of its travel business but also costs to restructure and to try to get out of the whole mess.
Cathay shares were little budged by the news. They closed down 0.6% on Wednesday, though they've shed 40.7% of their value since the start of last year. The company was struggling even before Covid-19. It has been a torrid time for Cathay shareholders since the start of last decade, just after the company recovered from the Global Financial Crisis. The shares are one-third the price of where they stood in December 2010.
It's a hell of a time to operate an airline, particularly an international one. Cathay's revenues for 2020 fell 56% to HK$46.9 billion (US$5.98 billion). Even freight flights have been difficult to orchestrate given travel bans. Popular routes such as Hong Kong to Britain have totally stopped by government order at times, even for freight, when Covid restrictions crack down hard.
A teammate at my tennis club is a Cathay cargo pilot. Even they have had to work around the two weeks (three weeks if you've been in a high-risk country) of quarantine that Hong Kong currently requires if a pilot goes anywhere outside the city. This means he works three-week shifts solid overseas, comes back for the two-week quarantine, has a couple weeks off at home, then does it all again.
For 2020, Cathay's total cargo carried dropped 34% while the number of paying passengers plunged 87%. That's 4.6 million folks flying, mainly students heading to schools and college overseas, down from 35.2 million the year before.
When will this airline recover? And can Cathay management get the upswing right? That's far from certain, given the pre-existing conditions that only got worse under Covid-19.
Cathay's top brass have had serious issues mismanaging fuel hedging in the past. They also handled the pro-democracy protests in Hong Kong poorly, conducting a witch hunt for staff who had posted pro-democracy musings online in a Beijing-fawning way that hardly endeared them to the millions of people who took to the streets. They'll say that step was forced on them, when China threatened to cut off its lucrative air space if dissident-leaning flight crews were manning the planes.
Cathay will hope China can be its savior, both in terms of customers, because Chinese travelers had just become the dominant global force pre-pandemic, and in terms of health policy to enable travel again.
China has just launched what it calls the world's first "vaccine passport." It's a digital health certificate that it hopes ultimately can be used by Chinese international travelers. The certificates launched on Monday on the superapp WeChat from Tencent Holding (TCEHY). It can record your vaccine status and all the Covid-19 antibody tests you've had.
The health certificate will generate a QR code that only the issuing authority can decrypt and read... or so the public statements out of China go. In Hong Kong, many people would be highly suspicious of that.
Folks in China are used to sharing pretty much any information that the government demands. You need to get a green QR code on your smartphone to do just about anything on the mainland right now, even enter a grocery store or bank or get on a bus. Health-code tracking systems follow a user's location to see if they've been near anyone else who got infected.
Not everyone worldwide is so comfortable with their government knowing where they are and where they've been, all the time. The vaccine passport won't be any use outside China, where for now it's available only to Chinese citizens, unless other governments recognize it as well.
"China stands ready to discuss with other countries the establishment of mutual recognition mechanisms for health code information on the basis of accommodating each other's concerns," foreign affairs spokesman Zhao Lijian says.
Chinese President Xi Jinping proposed during a G20 meeting last year that countries standardize the system. But there's going be all kinds of concerns over what any government is doing with everyone's health details and how they're keeping that information secure.
Privacy issues will make it extremely difficult for such sharing to occur. Then again, in the "old days" we had to carry vaccine records such as the World Health Organization's Yellow Card for yellow fever, cholera, smallpox and plague. That paperwork, named for the color of the paper rather than the fever, didn't track your entire health history over time, however, but just showed when you'd got a shot.
Here in Hong Kong, we'll see if the government starts allowing mutual recognition of the Chinese system and if we then have it forced upon us. Macau will also likely take part. But the health-record systems even of these parts of greater China have not been very linked up so far.
It can't come quick enough for Cathay. The 2020 loss was worse than the HK$19.9 billion estimate set by 13 analysts polled by Refinitiv and was down from a HK$1.69 billion profit in 2019.
Cathay in January said it would slash passenger capacity by around 60% and cargo capacity by 25% to account for the flight-crew quarantine requirements. That step added HK$350 million or so of monthly cash burn to its existing HK$1.0 billion to HK$1.5 billion burn.
The airline will hope it can get back to burning fuel, not cash, as soon as possible. Precisely how that happens, as countries come to their own mutual recognition systems that cry out for some kind of international coordination, remains to be seen.