The Hong Kong carrier, which made its first loss in 35 years in 1998, has been forced to cancel more than 90 flights since Friday when pilots began reporting sick in response to a proposal from Cathay to either take a pay cut or voluntary retirement.

Cathay shares plummeted HK $ 1.05 or 8.9 percent to end Monday morning at HK $10.75 with analysts estimating that the disruption could be costing about HK$ 20 million (US $2.6 million) a day in lost revenue.

"During the first quarter, passenger traffic was up over 1998 and load factors improved slightly but I think the current events are going to overshadow the benefits of those improvements," said David Strine, an aviation analyst at Bear Stearns Asia Ltd.

"I was actually expecting them to make money in 1999 but if this goes onfor another week or so they could very well report a loss. They could be losing between HK $15 and HK $20 million a day so that will chew up very quickly the earnings for 1999."

The consensus forecast for Cathay Pacific earnings this year is for net profit of HK $445 million, according to the May edition of Barra's The Estimate Directory. This comes after a net loss of HK $542 million suffered in 1998 as Asian economies slumped.

Cathay's passenger traffic rose more than five per cent in the first quarter and it expects a six per cent increase for the year.

Contending with a higher cost base in Hong Kong compared with regional competitors and a domestic economy still languishing in recession, Cathay has been busy cutting costs.

In tackling the last main area -- its pilots -- Cathay proposed last week a pay cut or voluntary retirement to about 600 senior pilots, or half its crew. The cut was between 18 and 20 per cent, the Hong Kong Aircrew Officers Association said.

"Longer term, in terms of a morefive to 10 year horizon, clearly there is the opportunity for competition in the aviation industry to increase in Hong Kong and I think that is really where the management see the reason to force some savings," said Peter Negline at Salomon Smith Barney.

"They have clearly been reviewing every cost area of the business and really the only one outstanding is the pilots and that is the reason why I think management is taking such a strong stance on the matter," he said.

Salaries made up about 29 per cent of Cathay's total costs and pilots accounted for about 40 per cent of the wage bill, said Mark Simpson, head of Hong Kong research, at Nomura International.

A 22 per cent cut in Grade A pilots' wages would bring annual savings of HK $500-600 million, he said.

"Longer term it will be perceived as positive. What it does to morale and quality of service is difficult to judge but at the end of the day the airline management feels that they need to address this one," said Simpson.

He is forecasting a HK$160 million loss for Cathay this year but said the dispute could be costing HK $20 million a day.

Pilots have until June 11 to respond to Cathay's proposal and a further disruption beyond that deadline was possible, Simpson said. "If they fire the pilots the disruption is going to be a continued feature and this could make quite a dent really."