Cathay's(CX) traffic numbers show that Influenza A virsus is affecting traffic - CX's number showed a reversal in pax traffic from April 5.3% gain. We were concerned about lower traffic in 2H09, but was expecting the liberalisation of Cross straits traffic between China and Taiwan to lead to a decline. It appears that Influenza virus has taken a lead. Year to date, pax traffic has fallen by 1-9%. We are estimating -1.5% for the full year. We are not tweaking our traffic assumption for Cathay for the moment and still maintain our Sell call on the stock with a HK$9.57 price target. CX also indicated that premium traffic continues to fall unabated. Cargo traffic moderated to a 14.2% decline vs 14.7% in Arpil, but CX has indicated that there are signs that the bottom has reached in terms of volume. Nothing was mentioned about yield,
Implications of Cathay's number on SIA- Clearly, the threat of infection is deterring traffic. However, Cathay has a substantially greater exposure to North Asia in comparison to SIA. However, even so we suspect that SIA's passenger traffic in May would be dismal and unlikely to improve significantly from the 17.7% decline seen in April. SIA will release its traffic numbers on Monday. If numbers do not show an improvement, that will pour cold water onto the recovery story. We have a Sell recommendation on SIA and based on current price, the stock has greater downside risk in comparison to CX.
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