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UPDATE 2-Cathay Pacific to cut 90% of flights to mainland China due to coronavirus

Jamie Freed

coronavirus@

* Will cut overall capacity by 30% over next two months

* Cuts to take place over next two months

* Cuts temporary for now - CEO in memo (Adds stock exchange announcement, analyst comments)

SYDNEY, Feb 4 (Reuters) - Hong Kong's Cathay Pacific Airways Ltd plans to cut around 30% of its capacity over the next two months, including around 90% of its flights to mainland China, as it grapples with the coronavirus epidemic, its CEO said on Tuesday.

Hong Kong reported its first death from the newly identified coronavirus on Tuesday, the second outside mainland China from an outbreak that has killed more than 420 people, spread around the world and raised fears for global economic growth.

The financial center last week ordered its airlines to cut capacity to mainland China by at least 50% due to the epidemic and its government has faced pressure from citizens to take further measures to close its borders as case numbers rise.

Cathay CEO Augustus Tang on Tuesday told staff the airline would keep monitoring the situation and adjust capacity again if needed.

"These cuts are temporary for now and driven by the commercial and operational realities at the current time, as well as the projections in short-term demand," he said.

Tang said the airline would announce "further measures" to help it get through the situation in the days ahead, without providing further detail.

The company said it would cut capacity across its network, but did not provide examples. China's civil aviation authority has urged domestic carriers to continue flying international routes, state news agency Xinhua said on Tuesday.

Cathay had already experienced a sharp fall in demand since the middle of last year due to widespread, sometimes violent anti-government protests in Hong Kong. In November it announced plans to cut capacity by 1.4% in 2020.

It had become more reliant on passengers traveling via Hong Kong, such as on journeys from Sydney to London, rather than those who have the financial center as a final destination. Such "transit traffic" tends to be less lucrative for airlines.

"If the outbreak worsens in Hong Kong specially, we can also anticipate transit volumes dry up at Hong Kong International Airport, which would be catastrophic for Cathay," BOCOM International analyst Luya You said.

"We could potentially see more drastic measures in coming weeks, such as axed routes, grounded planes, staff cuts, etc," she said. "These are of course rather extreme measures that won't be implemented lightly in my opinion."

Cathay said in an announcement to the Hong Kong stock exchange that the airline's financial position remained strong and would enable it to maintain the quality of its products and services despite the current difficult trading conditions.

The South China Morning Post first reported the planned capacity cuts.

Cathay was one of the biggest corporate victims of the SARS epidemic in 2003, which slashed demand for flights in the Asia-Pacific region by 45%.

Mayur Patel, head of Asia for flight data firm OAG, said the levels of cancellations to, from and within mainland China due to the coronavirus so far were "unprecedented."

OAG said China Eastern, Air China and Cathay's regional arm Cathay Dragon had made the steepest international cuts so far.

(Reporting by Jamie Freed; editing by Jason Neely and Mark Potter)