As Cathay Pacific wields jobs axe, ‘Swire prince’ culture survives
SINGAPORE (Reuters) – Lossmaking Cathay Pacific Airways Ltd. hired McKinsey & Co. consultants earlier this year to advise on a transformation plan, drawing on turnarounds at regional rivals such as Qantas Airways Ltd. and Japan Airlines Co. Ltd.
Battered by competition from Chinese and Middle East airlines and hobbled by missteps in fuel hedging, Cathay in January completed a strategic review, and later announced its biggest job cuts in almost two decades.
Following McKinsey's subsequent input – which has not been previously reported – Greg Hughes, Cathay's Chief Operations and Service Delivery Officer, said more than 740 initiatives had so far been identified to cut costs, boost productivity and improve customer service – including easier access to higher “frequent flyer” status, more economy-class seats on Boeing 777 airliners, and on-demand dining for business-class fliers.
"We were very keen on learning from them the best way to go about a transformation," Hughes told Reuters. "They have done thousands of them, and we haven't."
Steve Saxon, McKinsey's aviation expert partner in Shanghai, said the firm's policy is to decline comment on client work.
Hughes said McKinsey's involvement ended after its consultants helped structure the three-year transformation program, which is being carried out by Cathay Pacific staff and aims for HK$4 billion ($512 million) of savings from lowering costs and boosting productivity. "We have always wanted our transformation programme to be something that our people own and can deliver upon," he said.
But, as Cathay chases a return to profitability, it looks set to continue a practice that some current and former employees say may be the biggest obstacle to a real change of culture: The airline's unusual executive rotation system.
Under this system, so-called "house staff" at unlisted British conglomerate John Swire & Sons Ltd. – which owns a majority stake in Hong Kong-listed Swire Pacific, which, in turn, owns 45 percent of Cathay – rotate positions at group companies every few years.
This could, in theory, see a Coca-Cola refrigeration manager at a Swire-owned plant in China take charge of Cathay's operations in France.
Supporters of the scheme say it brings a fresh eye and diverse experience to the job, and helps succession planning.
"If they go through all these different areas they learn to look at things from different perspectives," said Achim Czerny, associate professor of aviation management at The Hong Kong Polytechnic University.
Critics, though, say it's a costly, twotiered relic that leads to short-term and conservative thinking and can demotivate talented middle-managers, who feel excluded from the scheme. Some blame it for Cathay being slow to spot the strategic threat from rival airlines.
"It's a bit of a colonial culture," said Terence Fan, an assistant professor specializing in transport at Singapore Management University. "There's certainly a lot of complacency."
Cathay declined to say whether McKinsey had examined its rotation system, but said it planned to keep it in place as part of its transformation program.
Founded as an import-export business in Liverpool in 1816, John Swire & Sons opened its first China office 70 years later. Still family-controlled, it also owns majority stakes in maintenance group Hong Kong Aircraft Engineering Co. Ltd. (HAECO) and Swire Properties Ltd.
As a management service fee, the companies pay John Swire & Sons 2.5 percent of their profit before tax and non-controlling interests.
The arrangement doesn't give Cathay much incentive to hire top executives from outside as it pays Swire regardless. Air China Ltd. and Qatar Airways are major Cathay shareholders, though Swire gives them little say in the airline's day-to-day operations.