Cathay Pacific to slash workforce, end Cathay Dragon brand because of COVID-19
21 October, 2020
Hong Kong's Cathay Pacific Airways said on Wednesday (Oct 21) it'll slash 5,900 jobs and end its regional Cathay Dragon brand, joining peers in cutting costs since it grapples with a plunge in demand due to the coronavirus pandemic.
The airline may also seek changes in conditions in its contracts with cabin crew and pilots as part of a restructuring that would cost HK$2.2 billion (US$283.9 million), it told the stock exchange.
Overall, it will cut 8,500 positions, or 24 % of its normal headcount, but that includes 2,600 roles currently unfilled due to cost reduction initiatives, Cathay said.
"The global pandemic continues to have a devastating impact on aviation and the hard truth is we should fundamentally restructure the group to survive," Cathay chief executive Augustus Tang said in a statement.
Singapore Airlines and Australia's Qantas Airways have already announced similarly large payroll cuts, as the International Air Transport Association forecasts passenger traffic won't recover until 2024.
Cathay, which has placed around 40 % of its fleet outside Hong Kong, said on Monday it planned to use less than 50 per cent of its pre-pandemic capacity in 2021.
After obtaining a US$5 billion rescue package led by the Hong Kong government in June, it had been conducting a strategic review that analysts expected would bring about major job losses.
The airline said it was bleeding HK$1.5 billion to HK$2 billion of cash a month and the restructuring would stem the outflow by HK$500 million a month in 2021, with executive pay cuts continuing throughout next year.
BOCOM International analyst Luya You said she had expected more strategic insight from the airline on its fleet plans and route network as part of the restructuring.
"Had they revealed more on fleet planning 2021-22, we would get yourself a much better sense of their outlook," she said.
The decision to end regional brand Cathay Dragon is consistent with rival Singapore Airlines' pre-pandemic proceed to fold regional brand Silkair into its main brand.
Cathay Dragon, once referred to as Dragonair, operated most of the group's flights to and from mainland China and have been hit by falling demand prior to the pandemic because of widespread anti-government protests in Hong Kong that deterred mainland travellers.
Plans to end the brand earlier this season hit roadblocks from China's aviation regulator due to infractions during last year's pro-democracy protests, two sources told Reuters in-may.
Cathay said the airline would cease operating immediately and it could seek regulatory approval to fold nearly all Cathay Dragon's routes in Cathay Pacific and low-cost arm HK Express.
"Now that Cathay has chosen staff count and the elimination of the Dragon brand it knows how big is the airline and the structure in the years ahead and can complete its new fleet and network plan," said Brendan Sobie, an independent aviation analyst.
Like Singapore Airlines, Cathay lacks a domestic market to cushion it from the fall in international travel because of border closures.
In September, Cathay's passenger numbers fell by 98.1 % weighed against a year earlier, though cargo carriage was down by a smaller 36.6 %.
Cathay shares have fallen 43 % because the start of January. In July, it reached agreement with Airbus to delay the delivery of A350s and A321neos and said it was in advanced talks with Boeing about deferring its 777-9 orders.
The airline's share register is dominated by Swire Pacific, Air China, Qatar Airways and the Hong Kong government, with only a 12 per cent free float.
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