Cathay Pacific on Wednesday toed expected lines and slashed nearly a quarter of its staff besides closing down its regional Cathay Dragon brand as it attempts to survive the travel industry chaos brought about by COVID-19.
The Financial Times said Hong Kong’s de facto flag carrier, which alongside global airlines has been hit hard by the pandemic, had in a stock exchange statement confirmed that the 8,500 jobs it planned to cut included 2,600 that had either already been eliminated or were vacant and would remain unfilled.
“The hard truth is we need to fundamentally restructure the Cathay Pacific group in order to secure our future,” Augustus Tang, chief executive said.
As a part of its restructuring plan, which will cost Cathay about HK$2.2bn (US $284m), regional arm Cathay Dragon will cease operations immediately. The group said it would seek approval for its routes to be assumed by Cathay Pacific and budget subsidiary Hong Kong Express.
Cathay’s move is the latest in a series of measures airlines around the world have taken to keep flying. Singapore Airlines said last month that it would cut 20 per cent of its staff, or 4,300 jobs.
International Air Travel Association (IATA), the global industry body, has warned that airlines around the world will burn through $77bn in cash during the second half of this year, and estimated that passenger numbers will not recover until 2024.
David Blennerhassett, an analyst at Ballingal Investment Advisors who publishes on the SmartKarma platform, was quoted by the Financial Times as saying that Cathay’s cuts were “aggressive” but he questioned whether they went far enough.
“If we continue along this path you would have to think they are going to have to go back, cap in hand, for further fundraising . . . unless there are more cuts across the board or a vaccine that is fast-tracked,” he said in the news report.
The Hong Kong government in June led a HK$39bn rescue that in return gave it the right to take a 6 per cent stake in Cathay and increase its influence over the board, Financial Times said adding that this would dilute the controlling stake held by Hong Kong conglomerate Swire Pacific and state-owned Air China, the second-largest shareholder.
Mr. Blennerhassett added that the airline was on track to burn through HK$20bn in cash in 2020.
Cathay said the restructuring plan would reduce its current monthly cash burn of HK$1.5bn-HK$2bn by HK$500m.
Patrick Healy, Cathay’s chairman, said he believed the latest measures would be enough to get the airline through the crisis. Based on the carrier’s prediction that passenger traffic would pick up next year, he said: “Our liquidity will remain strong.”
Andrew Lee, an analyst at investment bank Jefferies, told the Financial Times that a recovery in passenger numbers was dependent on Hong Kong negotiating “travel bubbles” with other destinations — a process currently under way.
The bulk of Cathay’s job cuts are expected to affect Hong Kong-based staff, with remaining pilots and cabin crew subject to pay cuts.
The airline reported a 98 per cent year-on-year drop in passenger traffic for September. It expects to operate at just 10 per cent of capacity for the rest of the year and at less than 50 per cent for 2021.
Shares in the carrier were up 3.3 per cent on Monday afternoon, but are down about 40 per cent this year.