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Thursday, May 28, 2020

Cathay Pacific eyes ‘structural change’ to see the Hong Kong carrier through pandemic crisis and its aftermath

Routes and headcount face the chop during resizing of the business, analysts predict. Hong Kong’s flag carrier says it is modelling ‘varying degrees of structural change’ to protect itself from ‘catastrophic impact’ of Covid-19

Cathay Pacific is looking at “structural change” as it investigates how to downscale its business in the wake of the coronavirus pandemic, the Post has learned.

Hong Kong’s flag carrier is mulling scenarios that could reduce staff headcount, routes served and planes flown, as well as the possible consolidation of its airline brands, in drastic steps that would mirror those taken by rivals in recent weeks.

“We are currently working with colleagues from across the airline to model varying degrees of structural change that may be required to preserve our business and our collective future from the catastrophic impact of Covid-19,” the airline told its pilots, who were asked to meet management about potential changes.

“No firm direction has yet been set,” the letter emphasised.

As the carrier extended the cancellation of most passenger flights until the end of June, sources said a fresh round of effective pay cuts was set to be rolled out, with around four more weeks of unpaid leave suggested.

Most of the airline group’s 34,200 staff have signed up to take three weeks of unpaid leave, a scheme which expires in June. Staff were also asked to clear their annual leave by the end of that month.

With the industry estimating air travel demand will not return to its 2019 levels for at least another two to three years, airlines are making plans to shrink their operations, at the cost of jobs.

Hong Kong’s aviation industry and Cathay Pacific were among the first and hardest hit by the global pandemic which has infected 3.66 million people worldwide, with more than 250,000 deaths.

A Cathay Pacific spokeswoman said: “Given the very dynamic situation we are currently in, we are not taking anything off the table and we can’t rule out anything to ensure our airline business will come out from the crisis stronger and more competitive.”

The Post understands Cathay is not planning to sign up to the government’s wage-support scheme, which offers cash to firms that guarantee they will not shed staff over the subsidy period, which lasts until October.

The government package would have been worth HK$1.84 billion to Cathay Group if every one of its employees was enrolled, which would cover 9 per cent of its annual wage bill. The firm spent HK$387 million a week on staff salaries in 2019.

Since the emergence of the Covid-19 pandemic, the airline said it would lay off 433 of its roughly 13,000 flight attendants by closing its North American cabin crew bases.

Cathay Pacific has grounded nearly all flights since April after steep cuts to its schedule in February and March. Business was already struggling through several months of anti-government protests in Hong Kong and management turmoil.

Bocom International transport analyst Luya You said, given Covid-19’s impact, restructuring at this stage often implied further staff cuts because the wage bill remained one of the company’s largest fixed costs.

“It depends on what they mean by ‘structural change’ but it certainly sounds ominous. In all, it sounds more drastic, more serious, than increased cost-cutting measures,” You said.

Independent analyst Brendan Sobie said structural changes tended to involve reductions in headcount, planes and routes.

“I would expect all three as the airline group restructures and adjusts to the new environment. It could also mean broader things like model changes and consolidation in terms of brands,” he said.

He also said airlines receiving an array of government help faced a cliff edge, because the financial support was expected to run out within months, long before flight operators believed the market would fully recover.



Airlines face losing US$314 billion in ticket sales, with Hong Kong in line for a US$7.5 billion hit, according to the International Air Transport Association.

British Airways last week warned it could shed 12,000 jobs as part of “structural change” that anticipated recovery was “several years” away, which could include shutting operations at London’s second busiest airport, Gatwick.

Lufthansa Group, which is seeking billions in unconditional state aid and expects a return to normality by 2023, warned it had 10,000 “excess” jobs, though its pilot union offered a 45 per cent wage cut until June 2022 to avoid cuts.

United Airlines said Tuesday it planned to get rid of 3,450, or 30 per cent, of management and administrative roles.

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