Cathay Pacific saw its target price downgraded yesterday as fuel prices continue to soar sky high.

Still, the Hong Kong-based airline has no plans to cut flights. It may, however, redirect some.

Chief Executive Tony Tyler said in an article in its internal magazine that Cathay Pacific may make the route changes to boost revenue.

"We need to fly to where the passengers are," he said, adding that planes may also be slowed to cut fuel usage.

Meanwhile, Credit Suisse has downgraded Cathay Pacific's earnings' forecast for 2008 and 2009 by 25 and 24 percent, respectively, to HK$4.17 billion and HK$4.59 billion, as the bank believes that higher fuel prices are getting more difficult to offset.

Sam Lee, an analyst with the bank, said in a research report that the negative-earnings impact for Cathay Pacific can only be partially offset, despite the airline raising fuel surcharges by 70 percent in June, compared with the same time last year.

Credit Suisse has raised the forecasted price of jet fuel by between 42 and 51 percent, to $125 to $140 per barrel, for 2008 to 2010.

It also estimated that a $1 per barrel increase in fuel prices will lower 2008 net profits by HK$187 million, or 4 percent, with no change in the fuel surcharge.

It revised Cathay Pacific's target price from HK$17.60 to HK$14.80. Shares in the airline dropped 5.04 percent yesterday, closing at HK$15.44.

In response to the rising fuel costs, Cathay Pacific put "cost savings" on its agenda, although Tyler said no flights will be cut.

But the airline will look at what can be done in terms of raising fuel surcharges and increasing its yield, he said.

Last month, the Hong Kong Civil Aviation Department approved the passing of a 37 percent fuel surcharge increase onto passengers, effective June 1.

"Investors should avoid buying into airline stocks in the short term," said Terence Tsui, an Asian equity analyst at ACE & Company.

(HK Edition 06/11/2008 page2)