14 ★ FINANCIAL TIMES Thursday12 March 2020
COMPANIES
JA M I E S M Y T H— SYDNEYAustralia’s travel, tourism and educa-
tionsectors are facing crippling losses
linked tocoronavirus andtravel bans
to the most severely affected countries,
particularlyChina.Two of Australia’s biggest travel agen-
cies,Helloworld Travel nda Webjet,
scrapped earnings guidanceyesterday
andrevealed cost-cutting measures,
afterdata from Sydney airport showed a
collapse in passenger traffic. Thedrop
was worse than that experienced after
the September 11 terrorist attacks in
2001 or the 2002-03 Sars outbreak.
International traffic fell 16.8 per cent
in February and by a quarter during the
first nine days of March, according to
Sydney airport, Australia’s busiest.
Chinese passenger traffic — the larg-
est category of international visitors to
Australia — fell72 per cent in February
following a travel ban on non-residents
travelling through from mainland China
implemented on February 13.
“Everyone in the aviation and tour-ism industry is hurting and we are in
discussions with all of our partners
about the best way to support each
other,” said Geoff Culbert, Sydney air-
port chief executive.
With many Australian companies
also beginning to curb domestic travel,
analysts at National Australia Bank
warned of further weakness in coming
months. “The February decline is the
largest since data first became available
in 1985, eclipsing the falls seen after the
September 11 terrorist attack and theSars outbreak,” said Kieran Davies, an
economist at NAB. “The travel ban
should take off 0.5 percentage point
from gross domestic product growth in
the March quarter.”
Australia’s two main airlines,Qantas
andVirgin Australia, have already
scrapped their earnings guidance and
implemented cost cuts, including
reducing international flight capacity
by up to a quarter. They joincarriers
around the world hat have cancelledt
flights and tightened their financialbelts as the rapid spread of the virus,
known as Covid-19, hits travel demand.
Yesterday, Helloworld and Webjet fol-
lowed suit, both warning of a steady
slide in bookings. However, both com-
panies said they had the financial
strength to ride out the crisis. Sydney
airport said a recent A$1.4bn ($910.8m)
bond “fully refreshes our A$1.4bn of
available bank facilities”.
A sustained decline in international
visitors would pile more pressure on a
tourism industry that is already suffer-
ing from a downturn linked to an
unprecedented bush fire season, which
killed 34 people and burnt 13m hectares
of land across Australia.
Australia’s A$37bn-a-year interna-
tional education industry is alsoreeling
from the travel bans, which have pre-
vented tens of thousands of Chinese stu-
dents from returning for the start of the
college year. This week, the University
of Tasmania said it would slash the
number of courses it offered from 514 to
fewer than 120 next year due to its
“overreliance on Chinese students”.Travel & leisure
Outbreak piles more pain on Australia’s fire-hit tourist sector
Recent bush fires killed 34 people and burnt 13m hectares of land —Peter Parks/AFPP R I M R O S E R I O R DA N , A L I C E WO O D H O U S E
A N D N I C O L L E L I U —HONG KONG
Cathay Pacific as said it expects a “sub-h
stantial” loss in the first half of 2020 and
will further cut capacity as the coronavi-
rus epidemic hits global demand for air
travel.
The forecast from the Hong Kong air-
line, which was already suffering the
effects of months ofanti-government
protests n the city, comes as other air-i
lines move to cut costs and withdraw
earnings forecasts in response to the
outbreak.
“Travel demand has dropped sub-
stantially and we have taken a series of
short-term measures in response,”
Cathay chairmanPatrick Healy aids
yesterday. “These have included a sharp
reduction of capacity in our passenger
network. Despite these measures we
expect to incur a substantial loss for the
first half of 2020.”
Cathay said it was hard to predict
when the situation would improve. Mr
Healy said the airline faced an “unprec-
edented” challenge and could not rule
out further job cuts.
The coronavirus epidemic, which
originated in China, has hit theaviationindustry hard ecause of travel bansb
and quarantine measures. The Interna-
tional Air Transport Association esti-
mates the virus could reduce global pas-
senger revenue by nearly 20 per cent in
2020, or as much as $113bn.
Cathay has already cut flights to
mainland China and other destinations,
including Japan. For March and April, it
has cut capacity by 65 per cent and
expects further reductions in May.
It had been expecting newAirbus
planes but said it was in discussions
about delaying deliveries.
Yesterday, it reported net profit fell 28
per cent in 2019 to HK$1.69bn
($217.7m). That was more than the
HK$1.59bn forecast by analysts polledby Bloomberg. But profits in the second
half of the year fell to HK$344m, from
HK$2.6bn a year ago as Hong Kong’s
political crisis hit demand. Revenue was
HK$106.97bn, down 3.7 per cent but
higher than analysts’ forecasts.
Bank of Communications analyst
Luya You said any predictions Cathay
would “go belly up” were “very unrealis-
tic” and said higher demand for cargo
transport was a potential bright spot.
The company said it had started refit-
ting some of its passenger aircraft to
carry cargo to mainland China and was
considering doing the same for its Japan
services. Cathay’s cargo division was
previously hit by the US-China trade
war in 2019, with revenue falling 14 percent during the year. Ben Hartwright,
Asia-Pacific transportation sector ana-
lyst at Goldman Sachs in Hong Kong,
said thebank is using assumptions
based onthe Sars outbreak to consider
the likely impact on traffic. In this case
traffic bottomed out in the third month
of the outbreak and returned to normal
levels by month seven.
“Looking at the sector as a whole, and
the different carriers’ exposure to the
current situation, it comes down to each
one’s access to funding. That is going to
be critical while we are seeing weaker
cash flows and lower demand.”
Additional reporting by Jamie Smyth in
Sydney
See LexAirlines
Cathay braced for ‘substantial’ loss
Capacity to be cut further
as epidemic takes toll on
global demand for flights
C H R I ST I A N S H E P H E R D— BEIJING
Two months ago, the head of Chinese
electric vehicle start-upXpeng as feel-w
ing upbeat about China’s progress in
switching away from fuel-burning cars.
Tesla ad given a fillip to Chinese con-h
sumer enthusiasm for electric vehicles
with thelaunch of production n Shang-i
hai, and a rollback of government subsi-
dies had thinned competition by push-
ing out some of the weaker players, said
He Xiaopeng, Xpeng’s chairman.
At his headquarters in Guangzhou, he
told the Financial Times that 2021
would be a “turning point” for battery-
powered vehicles going mainstream.
But the coronavirus outbreak has
thrown that timeline into question. Mr
He said he remained “cautiously opti-
mistic”, but analysts warned that
China’s efforts to cushion the economic
fallout of the Covid-19 epidemic could
well benefit traditional petrol engines
over electrics.
Fostering homegrown cutting-edge
companies to follow in the footsteps of
Tesla is central to Beijing’s ambitious
strategy of leading a global transition
from combustion engines to battery-
powered cars. Booming sales growth
and generous subsidies for buyers in
recent years drew a flood of capital into
start-ups, includingAlibaba-backed
Xpeng.
But the impact of coronavirus has
made the future for many of them
uncertain, especially asplummeting oil
prices make the switch to electric vehi-
cles less appealing to price-sensitive
Chinese buyers.
“The outbreak is a real test of a com-
pany’s core competency... and the
ability to quickly adapt to the new envi-
ronment,” Mr He said. “Weaker players
will be more vulnerable.”
China’s electric car start-ups, already
grappling with theend of a venture capi-
tal boom nd tepid demand, are nowa
facing parts shortages and a dearth of
customers — a combination that threat-
ens bankruptcy for some.
New York-listedNio, which has been
forced by acash crunch o take drastict
steps including staff cuts and the sale of
key businesses, said last monthit had
secured about Rmb10bn ($1.4bn) in
investment from the government of
Hefei, in the central province of Anhui,
needs car sales since it’s a huge part of
the economy. If they put too much
emphasis on EVs they risk not pushing
the whole sector out of recession.”
Three cities in southern Guangdong
province have so far introduced addi-
tional incentives such as subsidies for
buyers, but only Guangzhou, where
Xpeng is based, explicitly supported
electric vehicle sales.
For Chinese start-ups including Nio,
Xpeng andWM Motor, reduced compe-
tition is the potential silver lining
ofindustry consolidation parked bys
the withdrawal of government support.
But funding has become more diffi-
cult to secure, with investors increas-
ingly choosy about which electric vehi-
cle groups to back, and that trend will
only accelerate, said Rupert Mitchell,
chief strategy officer at WM Motor.
WM, which countsBaidu amongits
backers, confirmed last week that it had
cancelled annual bonuses for workers
and delayed until June the payment of
an extra month’s salary that was nor-
mally paid around the lunar new year,
after failing to meet 2019 targets.L AU R E N C E F L E TC H E R— LONDON
O RT E N C A A L I A J— NEW YORK
R O B I N W I G G L E S WO RT H— OSLOA handful ofhedge funds betting on
bonds or volatility ave reaped profitsh
from the turbulence in financial mar-
ketsoverthepastfortnight.One of the biggest gains came fromRoy
Niederhoffer’s New York-based compu-
ter-driven hedge fund firm.
RG Niederhoffer Capital Manage-
ment’s flagship diversified fund — one of
the world’s oldest quant hedge funds —
has gained 37 per cent this year, after
losing 28 per cent in 2019 when markets
rose.
“This is a sad situation that has cre-
ated the ultimate in conditions for our
strategy,” Mr Niederhoffer told the
Financial Times. “This is the kind of vol-
atility we haven’t seen since the [global
financial crisis].”
His fund tries to calculate when mar-
kets have become too fearful or too
greedy and then buy futures in bonds,
stocks and other assets to profit as they
correct.
The performance gains come after
years of sluggish returns for much of the
hedge fund industry, leading some
investors to pull their cash out. Many
managers have complained that mar-
kets dominated by central bank stimu-
lus have been hard to trade. Investors
said that a bout of sharp volatility could
offer them the chance to prove them-
selves again.
Some funds betting on bonds have
profited as bond yields, which move
inversely to prices, have tumbled over
the past two weeks, driven by investor
expectations of further interest rate
cuts to combat the economic damage
caused by coronavirus.
Danny Yong’sDymon Asia Macro
hedge fund gained 20 per cent in Febru-
ary and is now up more than 20 per cent
this year. It has profited from bets on ris-
ing bonds and falling stocks, as well as
wagering against the currencies of
export-dependent countries.
Mr Yong said he was still positioned
for a sell-off in risk assets and expected
the S&P 500 — which has ropped fromd
more than 3,300 to around 2,750 — to
fall to 2,580 in the coming weeks.
“The US will be hit hard, and will
shockingly be the least prepared among
the developed economies,” he said. He
expects “significant global supply chain
disruption” and a “destruction” of
demand as people have to stay at home
because of the virus.
Mr Yong also expects monetary stim-
ulus to have little impact in stimulating
economic growth. “When people fear
for their lives, even if interest rates are
negative, or cash handouts were given, it
will take a while before they build the
confidence to leave their homes to start
spending again,” he said.
Brevan Howard, one of Europe’s best-
known hedge fund firms, has been bet-
ting on falling bond yields, and its flag-
ship fund rose 5.2 per cent in February,
taking gains this year to 3.8 per cent,
according to a person who had seen the
numbers.
Meanwhile Brevan’s FG Macro fund,
run by traderFash Golchin, gained 16.
per cent last month and is now up 14 per
cent this year.
Horseman Capital’sRussell Clark, a
longtime bear who has been betting
against stocks for years, has also gained.
His Horseman Global fund is now up
more than 20 per cent this year, accord-
ing to investors.Financials
Hedge funds
make gains
on back of
volatility
Automobiles. rowth concernsG
Virus short-circuits China’s electric car goals
Beijing’s efforts to cushion
economic fallout stand to
benefit petrol vehicles more
While most carmakers have restarted
China production lines that were halted
at the height of the outbreak, there is
lingering fallout. California-based Tesla
reopened its Shanghai factory on Febru-
ary 10 ahead of many rivals, but drew
customer complaints last week after
shipping its newest Model 3 cars with
older hardware due to delays in obtain-
ing parts.
Mr He sees Tesla’s success in China as
important for local start-ups too, as it
shows consumers that success for elec-
tric vehicle makers is possible. “It’s only
when the overall market grows bigger
that we will have more value,” he said.
Policy support from the central gov-
ernment remains core to the survival of
many electric vehicle makers. But while
the commerce ministry has signalled
that a new round of support is in the
pipeline, some analysts reckon local
governments will opt to throw their
financial weight behind the traditional
fuel-burning car market, swayed by its
sheer size.
“There’s only so much pie to hand
out,” said Mr Le. “The governmentin exchange for moving its headquarters
to the city from Shanghai.
But the cash needed to relocate will
mean the company — whose sharehold-
ers includeTencent nd which was oncea
the frontrunner of a handful of Chinese
start-ups poised to take on Tesla — could
face more pressure if sales do not pick
up, Jeff Chung, analyst at Citi, wrote in a
research note.
“For many of the already weak elec-
tric vehicle start-ups the one-two punch
of supply chain disruption and slow
sales is likely to be a knockout combo,”
said Tu Le, founder of Sino Auto
Insights, a consultancy.
Hopes of a recovery in the world’s
largest car market this year have been
dashed, withindustry groups predicting
that the coronavirus has locked China in
for a third year of falling sales.
Electric vehicle sales are still reeling
from subsidy cuts and have been hit
even harder than traditional fuel cars,
with the number sold plummeting 54
per cent in January, according to data
from the China Association of Automo-
bile Manufacturers.Building boost: electric car start-up
Xpeng has benefited from incentives
provided by the local administration
in Guangzhou —Giulia Marchi/Bloomberg‘For many
alreadyweak
start-upsthe one-two
punch ofsupply
chaindisruption
and slowsales is
likely to bea knockout
combo’Coronavirus hits China’s
hybrid/electric car sales
New-energy passenger vehicle sales
(’ )
Sources: Wind; China Association of Automobile
ManufacturersContracts & Tenders
ft.com/house&home
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ASIA: +852 2905 5554MARCH 12 2020 Section:Companies Time: 3/202011/ - 17:19 User:andrea.crisp Page Name:CONEWS3, Part,Page,Edition:USA , 14, 1