CATHAY PAC AIR launches the "Midfield Battle"

Author | Zhou Zhiyu

Editor | Zhang Xiaoling

If the strong recovery after the pandemic is the "first half" of the aviation industry, then Cathay Pacific's mid-term report for 2025, released on August 6, undoubtedly sounded the whistle for the "mid-game."

The financial report shows that Cathay Pacific recorded a profit attributable to shareholders of HKD 3.651 billion in the first half of the year, basically flat compared to the same period last year, and announced an interim dividend of HKD 1.3 billion. For a company that has just emerged from a historic crisis, this is a solid answer.

However, while revenue reached HKD 54.309 billion, a year-on-year increase of 9.5%, Cathay Pacific's net profit growth was only 1.1%. This is a clear signal, announcing that the "tailwind" era, where high profits could be easily obtained through supply-demand imbalance, has ended.

The so-called "mid-game" is no longer about the speed of "recovery," but about the depth of "gameplay." As high ticket prices become a thing of the past, as global capacity floods in leading to intensified competition, and as the macro environment is filled with uncertainty, how to maintain profitability, compete for market share, and plan for the future has become a tough battle for Cathay Pacific and the entire industry. This financial report is the prologue to this "hard battle."

As Cathay Group Chairman Augustus Tang said, "The strong foundation built over the past few years has made us more resilient than ever... But these fluctuations affecting the entire aviation industry will also impact our company."

"As more and more passenger capacity is introduced into the market, the imbalance between supply and demand has been addressed. Therefore, you can see that profits have also adjusted." Augustus Tang's remarks accurately summarize the core challenges facing the global aviation industry today.

This is not a dilemma unique to Cathay Pacific. Looking globally, from Southwest Airlines in North America to the three major airlines in mainland China, they are all experiencing the troubles of "increased revenue without increased profit" to varying degrees. Cathay Pacific's data is highly representative: in the first half of the year, consolidated passenger volume increased by 30% year-on-year, but passenger revenue per unit fell by 12.3%.

Behind this phenomenon are two levels of structural changes.

With the large-scale recovery of global capacity, fierce price wars have fully unfolded. Cathay Pacific increased flights by 50% on North American routes and 30% on European routes, directly leading to a reduction in ticket prices. This is similar to the logic of "price for volume" used by mainland Chinese airlines in the domestic market, except that Cathay Pacific's "battlefield" is on international routes.

Cathay Pacific's Chief Customer and Commercial Officer, Ronald Lam, admitted that the proportion of low-yield "transit passengers" has rebounded to nearly half of pre-pandemic levels. This means that Cathay Pacific must sell more tickets to compensate for the decline in profit per ticket. This is equally applicable globally, as the growth of high-profit "point-to-point" direct business travelers is being diluted by more price-sensitive leisure and transit passengers.

If the decline in yield is a "common problem," then the performance of subsidiaries and cargo operations reflects the unique challenges of regional markets.

The subsidiary Hong Kong Express has turned from profit to loss, with a loss of about HKD 500 million. Cathay Group CEO Augustus Tang attributed this to the short-term impact of the Japanese market and the growing pains of strategic expansion. Rumors about earthquakes in Japan in the first half of the year significantly slowed down travel demand to Japan in June, which affected performance to some extent. However, aside from this factor, this performance also reflects the fierce competition in the low-cost airline market within the Asian region, where cultivating and maturing new routes requires time and cost, and the doubling of scale comes at the short-term sacrifice of profitability Once a "cash cow" during the pandemic, the freight business is now facing the direct impact of global trade conflicts. Liu Kaishi admitted that the U.S. tariff policy on China has affected the freight demand from the mainland to the U.S. via Hong Kong. Although Cathay Pacific partially hedged its losses by flexibly reallocating capacity to Southeast Asia, India, and other regions, the dual decline in freight load factor and yield still indicates that this "golden route" faces numerous challenges in the future.

Challenges certainly exist, but Cathay Pacific's management has proposed its solution with a massive investment plan exceeding HKD 100 billion. The purchase of 14 Boeing 777-9 wide-body aircraft will bring the total number of new aircraft to be received in the future to over 100. This substantial investment bets on the long-term future of Hong Kong as an international aviation hub and whether the Greater Bay Area story can translate into strong profits.

"Our future growth still relies on the support from the nine major cities in the Greater Bay Area," Lin Shaobo's statement clearly indicates Cathay's strategic focus.

"Rooted in Hong Kong, backed by the motherland, connecting the world," this is not just a simple slogan but an inevitable choice for Cathay after recognizing the future of the industry. As global point-to-point market competition becomes increasingly fierce, leveraging the mainland of China, the world's most promising aviation market, and utilizing Hong Kong's unique hub position is key for Cathay to build its core competitive barriers.

Its strategy can be interpreted as capturing high-value passenger sources from the mainland in the most efficient way within the red ocean of the international transit market. From hiring mainland employees to launching "Taste of China" in-flight meals, and seamlessly connecting Greater Bay Area travelers through "sea, land, and air intermodal transport," Cathay is fully committed to transforming its unique strategic positioning into unique commercial value.

The logic of the market has been rewritten, with fierce market competition replacing the broad-based dividends of the recovery period. The sudden halt in net profit growth is a reality that Cathay and all airlines must face.

When the feast of high ticket prices comes to an end, who can win the future? Cathay's answer is: to lock in future capacity advantages with firm long-term investments while deeply penetrating the mainland market in the most market-oriented way to compete for the highest value passenger sources.

What it is betting on is not only the future of the Hong Kong hub but also whether it can stand out in the "home ground" competition against mainland Chinese airlines, relying on superior international services and networks. This is not only a question that Cathay needs to answer but also a core focus for the market to judge who can emerge victorious in this global aviation industry's "new throne qualification competition."