HONG KONG - Shares in Hong Kong flag carrier Cathay Pacific plunged more than 5% on Thursday after it scrapped its profit outlook for the second half of the year, citing competition and overcapacity.
Cathay Pacific said it no longer expected business to improve in the latter half of the year
The Hong Kong-based firm said it no longer expected business to improve in the latter half of the year -- a departure from its previous forecast. Net profit for the first six months of the year stood at HK$353 million (US$45.5 million).
Shares in the company were trading as low as HK$10.16 ($1.31) per share, down 5.58% from Wednesday's close.
"Since the interim report was issued, the outlook for our airlines' business has deteriorated," company secretary David Fu said in statement issued late Wednesday to the Hong Kong Stock Exchange.
"It is no longer expected that the Cathay Pacific group's results for the second half of 2016 will be better than those of the first half," it said, adding the firm was engaged in a "critical review" of its operations against a "difficult revenue picture".
Despite a rising appetite for air travel in Asia-Pacific the Hong Kong airline is competing against firms that are aggressively expanding in the region as well as low-cost carriers, including fledgling Chinese rivals.
"Overcapacity and strong competition is putting particular pressure on our passenger business, with continued shortfalls in revenue compared with forecasts and heavy pressure on yield," he said.
It has also suffered huge hedging losses as the price of oil plunged, which should have provided a boost to Cathay's bottom line.
Oil hedging is when an airline locks in prices of fuel -- a huge chunk of most airlines' outlay costs -- at a pre-determined level for a certain amount of time.
In the first six months, Cathay recorded hedging losses at HK$4.49 billion.