Hong Kong-based Cathay Pacific Airways Ltd announced on Wednesday that it would cut 5,900 jobs and end the regional Cathay Dragon brand in an effort to work with like-minded people to cut costs as demand eases due to the coronavirus pandemic.
The airline will also seek changes to the terms of its cabin crew and pilot contracts as part of a restructuring that would cost Hong Kong dollars 2.2 billion (US $ 283.9 million), it said to the exchange.
A total of 8,500 jobs or 24 percent of the normal number of employees will be cut. However, that includes 2,600 jobs currently vacant due to cost-cutting initiatives, Cathay said.
“The global pandemic continues to wreak havoc on aviation and the hard truth is we must fundamentally restructure the group to survive,” Cathay chief executive officer Augustus Tang said in a statement.
“The future remains highly uncertain and it is clear that the recovery is slow,” said Cathay in Wednesday’s statement. “The management team has concluded that the most optimistic scenario it can responsibly apply is one where the company will operate for 2021 with well below 50 percent of the passenger capacity it operated in 2019.”
Cathay’s announcement came a day after Hong Kong announced that the unemployment rate rose from 6.1 percent in July through September to 6.4 percent in June through August, the highest level in nearly 16 years.
The coronavirus is having a devastating impact on aviation. Up to 46 million jobs are at risk, and airlines alone have lost around USD 420 billion in revenue this year.
Singapore Airlines Ltd and Qantas Airways Ltd of Australia have also announced significant wage cuts as the International Air Transport Association predicts that passenger traffic will not recover until 2024.
Cathay struggled with losses prior to the pandemic as anti-government protests in Hong Kong last year resulted in a sharp drop in traffic and a change in management. The pandemic put the airline into survival mode, forcing it to reduce capacity and offer voluntary unpaid leave to its employees.
The airline, which has around 40 percent of its fleet stored outside Hong Kong, announced on Monday that it would operate less than 50 percent of its pre-pandemic capacity in 2021.
Cathay Pacific has around 40 percent of its aircraft stored outside of Hong Kong [File: Tyrone Siu/Reuters]After receiving a $ 5 billion bailout in June, the Hong Kong government conducted a strategic review that analysts expected would result in significant job losses.
The airline said it was bleeding between $ 1.5 billion ($ 193.6 million) and $ 2 billion ($ 258 million) in cash per month, and the restructuring would reduce the outflow by $ 500 million. Contain dollars ($ 64 million) per month in 2021, with executive wage cuts continuing into next year.
BOCOM International analyst Luya You said she expected the airline to provide more strategic insight into its fleet plans and route network as part of the restructuring.
“If they had revealed more about the fleet planning for 2021-22, we would get a much better idea of their prospects,” she said.
The decision to end the regional Cathay Dragon brand is in line with rival Singapore Airlines’ pre-pandemic to make the regional Silkair brand its main brand.
Cathay Dragon, once known as Dragonair, operated most of the group’s flights to and from mainland China and was hit by falling demand prior to the pandemic due to widespread protests against the Hong Kong government that deterred travelers to the mainland.
Low-cost regional airline Cathay Dragon will cease operations immediately as part of Cathay Pacific’s cost-cutting plan [File: Paul Yeung/Bloomberg]Plans to end the brand earlier this year have come up against roadblocks at the Chinese Aviation Administration due to violations of protests against democracy last year, two sources told Reuters in May.
Cathay said the airline will cease operations immediately and seek regulatory approval to fold most of Cathay Dragon’s routes into Cathay Pacific and the low-cost arm HK Express.
“After choosing the number of employees and eliminating the Dragon brand, Cathay knows the size of the airline and the future structure and can complete her new fleet and network plan,” said Brendan Sobie, an independent aviation analyst.
As with Singapore Airlines, Cathay lacks a domestic market to cushion the decline in international travel due to border closings.
In September, Cathay’s number of passengers fell 98.1 percent year-on-year, although freight traffic fell by less than 36.6 percent.
Singapore and Hong Kong said on Oct.15 they wanted to reopen their borders for the first time in nearly seven months, replacing quarantine with coronavirus testing. The travel bubble could start with one flight a day, according to Edward Yau, Hong Kong’s Minister for Trade and Economic Development.
Cathay shares have fallen 43 percent since early January. In July an agreement was reached with Airbus SE to delay the delivery of the A350 and A321neos. The company was in advanced discussions with Boeing Co to postpone its 777-9 orders.