Cathay Pacific

‘Under intense pressure’: Cathay Pacific chief calls for hiring freeze as passenger and cargo businesses drop

CEO says “the revenue shock is beginning to be felt”, as the carrier records a drop in passenger numbers and reports “intense pressure” on cargo business profitability

PUBLISHED : Tuesday, 17 May, 2016, 10:10pm
UPDATED : Wednesday, 18 May, 2016, 8:48am

Cathay Pacific Airways’ chief executive has called on all departments in the company to curb spending by “stopping all non-essential discretionary expenditure,” freeze hiring or replacing “non-operationally critical staff,” and to review operational budgets.

“It is now necessary for us to contain costs further,” chief executive Ivan Chu Kwok-leung told staff, according to the company’s internal magazine CX World released on Tuesday.

Chu said business challenges have become more acute in recent weeks, with continued pressure on its cargo business being compounded by “a weakening trend in the passenger business”.

The company said it was not considering laying off staff in response to an emailed query.

Passenger volume at Cathay Pacific and its subsidiary Dragonair declined 0.1 per cent in April compared to the same month last year, according to operational data released on Tuesday. The company said passenger demand weakened in general across most of its markets served and competition increased. Load factor, a measure of capacity utilisation, dropped 2.3 percentage points to 84.9 per cent in the month.

Chu said yield, a measure of unit profitability, is “coming under ever-more pressure” at the airline.

Cathay had seen high growth of passenger traffic at the back of its planes while demand for its premium cabins fell below expectations.

Load factors have fallen in recent months, which Chu blamed on a tourism slump in Hong Kong, a sluggish global economy and market competition.

Chu said the three key measures to cut costs will take immediate effect.

He did not give a target or timeframe, though he described the drive as “short-term.” Chu said “big-ticket items that will help to build a better, stronger airline would not be affected, such as the reopening of its business class lounge The Pier, the opening of its new Madrid route, and delivery of its A350 plane later this month — its first new aircraft model in two decades.

The airline recorded better than expected cargo tonnage last month, but the company said yield “remains under intense pressure”.

Will Horton, a Hong Kong-based analyst for the Centre for Aviation said the need to cut costs should be viewed independently from Cathay’s steep loss from making wrong bets about oil prices. It made HK$6 billion last year, while its oil hedging loss was a bigger HK$8.5 billion.

“Cost reduction is about securing a future for growth. Hong Kong is expensive and not getting cheaper. Mainland Chinese airlines will one day restructure and significantly reduce their cost base, changing the game for everyone,” Horton said.

Cathay did not respond to the Post’s query on whether there would be any cutback on its HK$100 million planned spending to rebrand Dragonair as Cathay Dragon in a bid to enhance the premium image of the short-haul unit.

Horton said the rebrand is “at the cost of a fraction of a new aircraft” and “can deliver profits potentially higher than a new aircraft.”