UBS has released a report stating that Cathay Pacific will increase its fuel surcharge again starting April 1, with an approximate rise of 34%. This brings the cumulative increase to 174% compared to levels before the Iran conflict at the end of February. The bank estimates that the total increase will raise average ticket prices by about 11% compared to pre-conflict levels. UBS maintains a "Buy" rating on the stock with a target price of HK$14.9. The report notes that while adjusting ticket prices is a more effective lever to offset cost pressures, it is estimated that, all else being equal, a 1% increase in ticket prices can only offset the impact on earnings from a US$3.7 per barrel rise in fuel prices. Therefore, the current fuel surcharge mechanism can only partially alleviate cost pressures. Additionally, the airline's ability to pass on profit pressures will depend on the price elasticity of flight demand, with revenue from price-sensitive leisure travelers often experiencing a more significant decline.
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