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Saturday, September 25, 2021

Hong Plans for Travel Return Cathay Pacific Airways Limited (0293.HK) is a Buy

Hong Kong’s Cathay Pacific Airways has reported a record annual loss of $2.8bn for 2020.

Its poor results were due to a sharp downturn in travel during the pandemic along with major restructuring costs.

Cathay Pacific had previously warned it expected its second-half losses to be worse than the record first-half loss of $1.3bn.

Last year’s loss compared with a profit of $220m in 2019, when profits were hit by political turmoil in Hong Kong.

Stability and an end to the Pandemic promise lots of upside

The Hong Kong Tourism Board (HKTB) announced a series of flexible short-term and medium-to-long-term strategies to prepare for the return of tourists, attract high-yield visitors, and drive the sustainable growth of the tourism industry.

“Despite the start of vaccinations against COVID-19 worldwide, the pandemic situation remains volatile and unpredictable,” said HKTB Executive Director Mr. Dane Cheng. “We consider it unlikely Hong Kong will see a full resumption of cross-border travel in the next three to six months. However, we do expect it to be possible for Hong Kong to welcome tourists from selected markets.”

“In formulating our strategies for 2021/2022, we focused on two major areas. Firstly, we saw a need to offer support to the trade and boost the ambience in Hong Kong, while ensuring the city has continued exposure on the international stage ahead of the resumption of international travel. Secondly, we anticipate competition for tourists will be intense once the pandemic is over, with rival markets going to great lengths to bring visitors back. The HKTB is therefore setting aside resources for large-scale promotions so that Hong Kong will stand out against competing destinations.”

Mr. Cheng stressed that the HKTB would maintain a flexible approach and be prudent in its use of resources while the pandemic continued. “Most of our additional funding of more than HK$700 million for 2020/21 has not been used because of the pandemic, and the remainder will be returned in full to the Government,” he said. “For 2021/22, the HKTB will receive additional funding of HK$765 million, similar to the amount allocated in last financial year.”

The HKTB will have a marketing budget of HK$1,138 million for the 2021/22 financial year, including recurrent funding. Details of the deployment of the marketing budget is listed below:

Short-term strategies (35%) – Focusing on bringing back visitors to Hong Kong as soon as possible

  1. The HKTB has been boosting local consumption and encouraging the people of Hong Kong to explore the city. When the pandemic situation has stabilized, the organization will launch a new Spend-to-Redeem program called “Staycation Delights” to offer an additional option for Hong Kong people to enjoy more experiences local tourism has to offer.
  2. Launch a large-scale promotional platform called “Open House Hong Kong” when cross-border travel gradually resumes. The campaign will leverage exclusive experiences and citywide offers to drum up visitors’ desire to travel to Hong Kong.
  3. Revamp its Mainland strategies and will increase marketing resources for the Greater Bay Area (GBA) to attract visitors to travel to Hong Kong for leisure. 

Medium-to-long-term strategies (40%) – Capturing the high-yield visitor segment

  1. The HKTB is conducting a holistic review of Hong Kong’s tourism brand and positioning. The organization will formulate a long-term promotional strategy for sustainable development of the local tourism sector. When cross-border travel gradually resumes, HKTB will launch large-scale promotions on the new tourism brand on multiple channels, including digital platforms in source markets worldwide, together with partnerships with major international media outlets to present Hong Kong’s reinvented tourism image.
  2. Join hands with other cities in the GBA to globally promote and build the GBA tourism brand. 
  3. Create and enhance a digitally enabled travel experience for visitors through a one-stop e-solution platform. 

Ongoing initiatives (25%) – Supporting the trade and maintaining Hong Kong’s international exposure

  1. Continue to enhance the subsidy schemes and sponsor trade members’ participation in trade events to help hasten their business recovery.
  2. Strengthen support for the MICE and cruise sectors and their promotions, and bid to host more international conferences in Hong Kong. We will provide support for the gradual resumption of cruise tourism when the global pandemic situation has stabilized. 
  3. Organize mega events and support other events in the city to maintain Hong Kong’s international exposure.

The 2021/22 Work Plan is based on an estimate of the pace of tourism recovery. Actual deployment of resources will be subject to factors such as the pandemic situation and progress towards the resumption of international travel, and will be evaluated and adjusted according to prevailing conditions.

S. Jack Heffernan Ph.Dhttps://www.knightsbridgelaw.com
S. Jack Heffernan Ph.D. Economist at Knightsbridge holds a Ph.D. in Economics and brings with him over 25 years of trading experience in Asia and hands on experience in Venture Capital, he has been involved in several start ups that have seen market capitalization over $500m and 1 that reach a peak market cap of $15b. He has managed and overseen start ups in Crypto, Mining, Shipping, Technology and Financial Services.

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