Cathay Pacific to slash workforce, cut pay amid plunge in demand
Regional Cathay Dragon brand to be dropped, 6,000 jobs to go as hard-hit airline struggles to stem ‘cash burn’
Hong Kong’s Cathay Pacific Airways said on Wednesday it will slash 5,900 jobs and end its regional Cathay Dragon brand, joining peers in cutting costs as it grapples with a plunge in demand due to the coronavirus pandemic.
The airline will 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 ($284 million). Overall, it will cut 8,500 positions, or 24 percent of its normal headcount, but that includes 2,600 roles currently unfilled due to cost reduction initiatives, Cathay said.
“The actions we have announced today, however unpalatable, are absolutely necessary to bring cash burn down to more sustainable levels,” Cathay Chairman Patrick Healy told reporters.
Cathay shares jumped almost 7 percent in early trade, with broker Jefferies saying the announcement removed a key overhang on the stock.
Singapore Airlines Ltd. and Australia’s Qantas Airways Ltd. have already announced similarly large payroll cuts, as the International Air Transport Association forecasts passenger traffic will not recover until 2024.
Cathay, which has stored around 40 percent of its fleet outside Hong Kong, said on Monday it planned to operate less than 50 percent of its pre-pandemic capacity in 2021. After receiving a $5 billion rescue package led by the Hong Kong government in June, it had been conducting a strategic review.
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 for 2021-22, we would get a much better sense of their outlook,” she said.
Cathay will postpone
the delivery of its 21 Boeing Co. 777-9 jets on order beyond 2025, Healy said.
The decision to end regional brand Cathay Dragon is in line with rival Singapore Airlines’ pre-pandemic move to fold regional brand Silkair into its main brand.
Cathay Dragon, once known as Dragonair, operated most of the group’s flights to and from mainland China and had been hit by falling demand before the pandemic due anti-government in Hong Kong that mainland travelers.
Plans to merge Cathay Dragon into Cathay’s main brand earlier this year hit roadblocks from China’s aviation regulator because of infractions during last year’s pro-democracy protests, two sources told Reuters in May. Cathay said the airline would cease operating immediately and it would seek regulatory approval
to widespread protests deterred to fold the majority of Cathay Dragon’s routes in Cathay Pacific and low-cost arm HK Express. Healy said there would be “substantial savings” from combining Cathay Dragon’s narrowbody fleet with Cathay Pacific’s longhaul fleet. In September, Cathay’s passenger numbers fell by 98.1 percent compared with a year earlier. The airline’s shares have fallen by 41 percent since the start of January.