Corporate DispatchPro

Cathay is still overweight after layoffs

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Cathay Pacific’s layoffs may not be the last. Hong Kong’s beleaguere­d airline is cutting around 8,500 jobs, or 24% of the group’s headcount, and shutting down sister brand Cathay Dragon. That’s less severe than some other carriers, although shareholde­rs took it well. The cuts will moreover only slow the cash burn rate. With travel expected to remain depressed next year, more savings will need to be found.

Cathay has so far avoided a hard landing. In June, the airline was handed a lifeline in the form of a HK$39 billion ($5 billion) recapitali­sation led by the government, giving it an effective 6% stake. News of the cost cuts on Wednesday sent the carrier’s shares up as much as 6.6% in morning trade.

The cuts affect 17% of existing jobs, excluding 2,600 unfilled positions. Cathay says this, combined with renegotiat­ed remunerati­on packages and the closure of Cathay Dragon, will reduce the group’s monthly outlay by about HK$500 million in 2021, slowing the cash burn rate to somewhere between HK$1 billion to HK$1.5 billion a month. That’s still a lot, and others have cut more. In August Australia’s Qantas Airlines announced plans to shave 30% off its pre-pandemic staffing level; American Airlines planned to lay off a similar ratio in October.

The restructur­ing will cost HK$2.2 billion up front. That, plus negative cash flows, will keep pressure on the company’s reserves, which stood at HK$7.4 billion at the end of June. A sharp rebound in traffic might provide relief, but in Cathay’s most optimistic scenario for 2021, less than half of its pre-covid capacity will be used. Worse, the Internatio­nal Air Transport Associatio­n anticipate­s global passenger travel won’t return to pre-covid-19 levels until 2024.

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