Citi has released a research report upgrading its investment rating on CATHAY PAC AIR (HKEX: 00293) from "Sell" to "Buy," while also raising its target price from HK$11.2 to HK$16.2. The bank has designated the airline as its new top pick in the Asia-Pacific aviation sector, replacing China Airlines.

Key Drivers for the Upgrade

The report highlights that robust demand from Hong Kong's local corporate and premium leisure markets, coupled with spillover long-haul transit traffic due to the Middle East conflict, has driven Cathay Pacific's passenger load factor to nearly 90% for April and May. This strong performance has alleviated previous concerns about weak outbound demand from mainland China.

Revised Earnings and Revenue Forecasts

Citi has increased its core profit forecasts for Cathay Pacific by 21% for 2026 and 66% for 2027, aligning with broader market expectations. These upward revisions incorporate higher projections for both passenger and cargo unit revenues. Specifically, the bank's forecast for passenger revenue per available seat kilometer (RASK) has been revised from previous expectations of a 10% year-on-year decline for 2026 and a 21% decline for 2027, to now predict an 8% growth for 2026 and an 8% decline for 2027. Similarly, the forecast for cargo revenue per available freight tonne kilometer (RAFTK) has been adjusted from anticipated declines of 1% for 2026 and 15% for 2027 to projected growth of 15% for 2026 and a decline of 11% for 2027.