Cathay Pacific Airways cuts 8,500 jobs, shutters regional airline
Hong Kong airline Cathay Pacific Airways said on Wednesday that it would cut 8,500 jobs and shut down a regional airline as it caused air travel disruption due to the epidemic.About 5,300 employees based in Hong Kong and another 400 elsewhere will likely lose their jobs, and 2,400 unfilled positions will be cut. The cuts make up about 24% of the company's workforce, Cathay Pacific said in a statement.
“The global pandemic continues to have a devastating impact on aviation and the hard truth is we must fundamentally restructure the group to survive,” Cathay Pacific CEO Augustus Tang said in a statement.
Hong Kong’s Cathay Pacific will slash nearly a quarter of its staff and close its regional Cathay Dragon brand as the airline attempts to survive the travel industry chaos brought about by Covid-19. Cathay Pacific Airways Ltd. will cut about 8,500 jobs based in Hong Kong and and close its Cathay Dragon unit as part of a sweeping restructuring of the city’s flag carrier triggered by the hit to air travel from the coronavirus pandemic.
Another 600 Cathay workers outside of Hong Kong may also be affected, and 2,600 currently unfilled positions will be eliminated. The entire reductions of some 8,500 jobs amount to around 24% of Cathay’s headcount, one of the largest hits in aviation globally since the outbreak started.
“The future remains highly uncertain and it is clear that recovery is slow,” Cathay said in Wednesday’s statement. “The management team has concluded that the most optimistic scenario it can responsibly adopt is one in which, for the year 2021, the company will be operating at well under 50% of the passenger capacity it operated in 2019.”
“We have to do this to protect as many jobs as possible, and meet our responsibilities to the Hong Kong aviation hub and our customers,” Tang said.
The company said it will also shut down Cathay Dragon, its regional airline unit, with operations ceasing from Wednesday. It will seek regulatory approval for most of the routes to be operated by Cathay Pacific and its budget airlines subsidiary HK Express.
The restructuring is aimed at reducing Cathay Pacific’s cash burn to 500 million Hong Kong dollars ($64.5 million) a month, from about 1.5 billion Hong Kong dollars ($193.5 million) to 2 billion Hong Kong ($258 million) dollars a month currently, the company said.
The plan will cost about 2.2 billion Hong Kong dollars ($283.8 million), it said.
Covid-19 has had a devastating impact on aviation. As many as 46 million jobs are at risk, and airlines alone face about $420 billion in lost revenue this year. Carriers with no domestic market to fall back on, like Cathay and Singapore Airlines Ltd., have been hit especially hard as international travel has ground to a halt. Cathay’s job cuts are among the most severe in the industry, outnumbered by only a handful of others such as Lufthansa and the two big U.S. carriers, American Airlines Group Inc. and Delta Air Lines Inc.
Cathay’s restructuring is aimed at reducing its monthly cash burn to about HK$500 million ($65 million) from the current HK$1.5 billion to HK$2 billion, the carrier said in Wednesday’s statement. The plan has been approved by the airline’s board and will cost about HK$2.2 billion.
The Hong Kong-based airline also said that Dragon's operations would cease from Wednesday; Regulatory approval will be sought for most routes operated by Cathay and Hong Kong Express Airways Limited.
Executive pay cuts will continue throughout 2021 and there will be no pay increments for 2021 nor bonuses for this year for all Hong Kong employees, Cathay Pacific said. Ground staff will be offered a voluntary leave plan in the first half of next year.
Closing down Dragon is reasonable given Cathay is facing problems in the mainland market, Luya You, a transportation analyst with Bocom International Holdings Co. in Hong Kong, said on Bloomberg Television.
“It is possible that there will be more cuts and more pain in the year ahead,” You said. “Cathay’s forecast moving forward is very optimistic. Any deviation from that scenario does mean there will be more cuts.”
Cathay had already raised HK$39 billion through a recapitalization plan earlier this year, which gave the Hong Kong government a 6.08% stake in the company, and deferred delivery of aircraft to save funds.
The South China Morning Post reported late yesterday Cathay would eliminate 6,000 positions.
Executive pay cuts will continue into 2021 and a third voluntary leave plan for ground staff will be introduced in the first half of next year, Cathay said. There will be no salary increases for 2021 and annual bonuses for this year. Cathay cabin and cockpit crew that are based in Hong Kong will be asked to agree to changes in their conditions of service that will match remuneration more closely to productivity and enhance market competitiveness.
“We have taken every possible action to avoid job losses up to this point,” Augustus Tang, chief executive officer of Cathay, said in a separate statement. “The global pandemic continues to have a devastating impact on aviation and the hard truth is we must fundamentally restructure the group to survive.”
Cathay expects to see a gradual recovery in capacity in the second half of next year after operating below a quarter of its capacity in the first half, should vaccines currently under development prove to be effective and are successfully available to the mass, the company said. It will monitor the situation and adopt measures to survive the pandemic, it said. The International Air Transport Association has said that travel won’t return to levels seen before the pandemic until 2024.
In a news conference, Cathay Pacific Airways chairman Patrick Healy estimated that passenger levels will only return to pre-pandemic levels in 2024.
“The future remains highly uncertain. This crisis is deeper and the road to recovery slower and more patchy than anyone thought possible just a few short months ago,” he said.
Healy said Cathay Pacific is more affected than its peers as the airline is “100% reliant on cross-border travel,” much of which has stopped as passengers remain wary of flying amid travel restrictions. Major destinations such as mainland China and other countries like Singapore and Thailand have temporarily closed their borders to visitors.
The company was struggling with losses before the pandemic as anti-government protests in Hong Kong led to a sharp reduction in traffic last year and a change in management. When Covid-19 happened, it put the airline into a survival mode by cutting capacity and offering voluntary no-pay leaves to staff to survive in a challenging environment.
Cathay Dragon operated mainly narrow-body aircraft such as Airbus SE A320s and A321s to destinations across Asia and more than 20 mainland Chinese cities, including the lucrative Beijing and Shanghai routes. The carrier had a fleet of 48 aircraft as of June 30 and firm orders for 16 Airbus A321neo jets, according to Cathay’s website.
Cathay Pacific will be operating at less than 25% of capacity for the first half of 2021, and under 50% of capacity for the rest of the year as a whole, Healy estimated. That might pick up in the second half of the year as travel constraints will hopefully ease, he said.
In June, Cathay Pacific raised 39 billion Hong Kong dollars ($5 billion) in a recapitalization plan that gave the city’s government a stake of about 6% in the airline.
The vice chairwoman of Cathay Pacific Airways Flight Attendants Union, Amber Suen, said in a news conference that the union is “completely disappointed” with the company’s decision, and said there are others who worry that there may be future redundancies.
