Buoyed by a hopefully stronger yuan as well as positive reports from the Singapore Airshow on Chinese airline strength, Hong Kong Listed Airlines soared. Short-term gains look impressive until it’s noted how far they’ve fallen from their 52-week highs. Cathay Pacific, with the highest p/e thanks to some of the best traffic growth, had less of a spurt thanks to its Hong Kong location and currency which has felt downdrafts from currencies in Australia, S. Africa, Canada, Europe, New Zealand, and the UK.
Whether these gains are warranted remains to be seen. All four have felt the economic softness in their cargo business. All four have committed to airline purchases in dollars, which makes a strong, stable yuan critical for China Southern, China Eastern and Air China. These four airlines are highly leveraged, relying heavily on short-term debt with CA/CL’S well below 1. Their saving grace has been low fuel costs along with government support.