On July 3, investment banks slashed their target prices for Cathay Pacific, with some warning it will record deeper losses than during the Asian financial crisis, after the carrier said it expects to post "disappointing" results.

On July 3, Cathay announced that it is reducing its free baggage allowance for economy-class fliers traveling to North America.

For tickets issued on or after July 21, the maximum weight allowed for each bag has been reduced to 23 kilograms, from 32kg.

A surcharge of US$25 (HK$195) will be levied for bags weighing between 23kg and 32kg.

On July 3, CLSA lowered its target price for Cathay stock to HK$13, from HK$14.50, and cut its recommendation to "sell", from "underperform".

"We are not forecasting losses, but given volatility and potential for demand to decline in North America, it has the ability to become reality," said CLSA analyst Robert Bruce. If jet-fuel prices remain at the current level of US$171 per barrel, then Cathay will incur a HK$1.8 billion loss this year.

Cathay only just breaks even on an earnings before interest and tax basis if jet fuel falls to US$161 per barrel, Bruce said.

Cazenove slashed its target price to HK$10.00, from HK$13.50, and predicted a full-year loss for Hong Kong's flag carrier. "This would be more severe than the loss suffered during the Asian financial crisis in 1998," said Cazenove analyst Andrew Au.

Cathay may report a loss of HK$1.6 billion this year, down from a previous estimate of HK$4.3 billion profit, Au said.

The last time Cathay posted a full-year net loss was in 1998, when it recorded a loss of HK$542 million.

"Cathay is particularly vulnerable to the current uncertainties given that it has the most aggressive fleet expansion program among the Asian carriers," Au said.

HSBC cut its target price to HK$18.75, from HK$19.50. "Short-term momentum drivers remain weak," said HSBC analyst Mark Webb.

Ratings agency Standard & Poor's said it expects Cathay to raise ticket prices more aggressively and slow down its fleet expansion to preserve its profitability. Cathay shares fell 1 percent, or 14 HK cents, to end the day at HK$13.84.