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Cathay Pacific Airways:November operating data diverge

Cathay Pacific (CX) released November operating data whichshowed declining passenger traffic as the airline cut capacity, but, finally, a cargo traffic increase. Highlights of the monthly figures include: Passenger traffic down three months in a row.CX reported a third consecutive month of passenger traffic declines (and fourthof the last five months) of -3.5% YoY while capacity was cut -4.3% - the third month in a row of capacity cuts. Overallpassenger load factor rose 0.7 ppt YoY to 79.2%, the first YoY increase since June.
Passenger load factors fell on all regional routes. CX is emphasizing capacity increases on regional Asian routes, but take-up in demand during the month was less than capacity growth in China or in Northeast and Southeast Asia. Demand in premium cabins remains weak.

Pricing continues to be underpressure in all cabins. Cargo traffic finally growing again, though only 2.8% YoY.Cargo traffic rose 2.8% as capacity increased 5.1% YoY, the largest increase of 2012. The YoY traffic growth was the first realincrease since March 2011. Load factor still fell -1.4 pptYoY to 63.9%, equal to the 11M YTD load factor. CX has still not recorded a YoY monthly load factor increase since August 2010. Cargo outlook remains uncertain, hard to call inflection. CX stated demand from hi-tech product launches remains, butnormal, sustained year-end peak demand this year is unlikely. November volumes were better than October, which does not fitthe historical peak season pattern.
View maintained. We remain cautious on CX shares, and whilethe market is already focusing on 2013 multiples, it is likely to be another challenging year for the airline. Risks include a quicker-than-expected recovery in cargo.Where our call could go most wrong would be a rapid recovery in the air freight market as well as on long-haul passenger services.