Cathay Pacific Airways, Asia's number four carrier by market value, said high fuel prices and an uncertain global economy are forcing the Hong Kong-based airline to cut costs, and warned that first-half earnings may be "disappointing."
Economic certainty in Europe and the United States has reduced air cargo volumes and passenger traffic, eroding the earnings of competitors such as Singapore Airlines.
Cathay will probably miss the full-year profit consensus of more than HKD$4 billion (USD$515.37 million) as investors were not expecting a "bad" first-half, said Nomura analyst Jim Wong.
The airline reported a net profit of HKD$2.81 billion for the six months ended June 2011, down from a record HKD$6.84 billion a year earlier.
Cathay said on Wednesday its cargo business had showed no sign of a sustained recovery, the pressure on economy class yields persisted and premium class yields had softened.
"In response to the challenging environment we face, we are reducing costs where possible, including through a reduction of capacity," chief executive John Slosar said.
"This is not just a Cathay Pacific problem. It is clearly an industry wide issue, and continued high fuel prices in particular are hitting airlines hard across the globe."
Fuel costs typically account for around 40 percent of airlines' operating costs.
Cathay, which had already warned of a challenging 2012, said in its latest staff magazine that many companies had been paring back travel plans and leisure passengers were starting to adopt a wait-and-see approach.
The airline will also reduce both passenger and cargo capacity, deploy more fuel-efficient aircraft on long-haul flights, speed up the retirement of its older Boeing 747-400 aircraft and put a hiring freeze on new or replacement ground staff.
However, it was still on track to take delivery of 15 new aircraft this year, with six already in operation, Cathay said.
Cathay, which is about 30 percent-owned by Air China, said capacity growth would be reduced to 2 percent from the previously targeted 7 percent.
It would aim for 4 percent total cargo growth, down from a 7 percent target.
Capacity at its Dragonair unit was set to grow 9.2 percent against a target of 7.3 percent, due to new destinations and increased frequencies on regional and mainland routes.
Cathay, which operates 21 747-400 passenger aircraft, said three of these would be retired this year, with five more leaving in 2013 and one more in early 2014, bringing that fleet down to 12 aircraft.