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Cathay's shares rebound

Cathay Pacific Airways Ltd and other Asian carriers, whose shares outperformed airlines in Europe and the US this year, may hold on to gains as demand in China and from computer parts makers fills seats and cargo space.

Cathay Pacific shares have risen 25 percent this year and Taiwan's EVA Airways Corp has gained 54 percent, aided by a recovery in travel and increasing shipments of electronics. The strength of further stock gains will hinge on converting expanding sales into profit, investors said.

"Economic growth is still on track, and in Asia the flow of cargo and passengers seems" stronger than in the US and Europe, said Mark Tan, an analyst at UOB Asset Management, which manages S$4.5 billion (US$2.5 billion), including Singapore Airlines Ltd shares.

"But we have to see yields going up, and not just traffic recovery" for airlines' share gains to last.

Asian carriers grounded planes and slashed fares after the September terrorist attacks in the US turned off travelers and swelled losses for airlines already hurt by slowing economies.

Most of the region's airlines say traffic has rebounded, spurred partly by China's growth and shipments for information technology products, and will expand further in coming months.

"We're expecting cargo demand to steadily grow in the second half as there is still demand to ship IT products," said Crimson Lee, a Korean Air Co spokesman.

The airline predicts a return to profit in 2002 from a loss of US$490 million in 2001, helped by "more travel in the second half," Lee said.

Other carriers expect the same, with Cathay Pacific and Singapore Air among those resuming or adding flights in anticipation of seasonal traffic gains from summer vacationers and the ramping up of cargo shipments ahead of Christmas.

Morgan Stanley analyst Chin Y. Lim favors carriers that rely more on freight as rates rise, with Korean Air, the world's No. 4 cargo carrier, and EVA Air (長榮航空), relatively attractive buys, he said.

For other investors, the presence of management that managed to generate profit in a slump adds allure. Winson Fong, who helps manage US$2 billion at SGY Asset Management Ltd, said that's the reason he counts Cathay and Singapore Air as his top picks.

Japan Airlines Co may also gain as its merger rival Japan Air System Co in October eases competitive pressure at home.
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