Cathay Pacific's wings clipped

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What's going on?

Shares of Hong Kong carrier Cathay Pacific fell to a 10-year low on Monday, after China’s government dragged the airline into ongoing tensions between itself and the territory.

What does this mean?

On Friday, the Chinese government “instructed” Cathay Pacific to suspend workers supporting the pro-democracy protests in Hong Kong. It also sought to ban staff members accused of being involved in the protests from flying into Chinese airspace. Cathay obliged – an abrupt change of heart from last week when it said it wouldn’t stop staff from joining the demonstrations. Then again, the workers who did show up to work weren’t exactly busy: as thousands of protestors descended on the airport for the fourth day in a row, all flights out of Hong Kong International on Monday evening were canceled.

Why should I care?

For markets: A storm is brewing…

Only an estimated 7% of the miles Cathay flies are between Hong Kong and China, but the airline’s CEO said Cathay had no choice but to comply as those operations are key to its business. The disruptions to the airline’s staffing shouldn’t have a major impact on the company with about half its flights headed to the US and Europe (albeit some over China). But a bigger worry might be the Chinese government’s involvement at all. If it’s already cracking down on Hong Kong companies in response to the protests, things stand to get much worse if tensions continue to escalate. That, together with the loss of earnings from Monday’s canceled flights, might explain why Cathay’s stock fell 5% on Monday.

Zooming out: Looks like no one’s going anywhere.

Data out on Monday showed that Chinese sales of “new energy vehicles” – a.k.a. hybrid and fully electric cars – fell in July for the first time in more than two years (tweet this). In June, Chinese consumers rushed to buy 152,000 so-called NEVs before the government reduced subsidies on them. After subsidies were lowered last month, just 80,000 were sold.

Originally posted as part of the Finimize daily email.

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