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Cathay Pacific

Loss-making Cathay Pacific extends HK$900 million annual outlay on pilots’ homes

Setback for company’s cost-cutting mission comes during impasse with pilots’ union over cuts to pay and perks

PUBLISHED : Monday, 11 December, 2017, 3:57pm
UPDATED : Tuesday, 12 December, 2017, 9:51am

Cathay Pacific Airways will continue giving large housing benefits to pilots for a year, it emerged on Monday, in a setback to its cost-cutting attempts during an impasse with the aircrew union over cuts to pay and perks.

The loss-making airline will maintain its arrangement of paying a total of HK$900 million (US$115 million) to more than 1,000 eligible pilots annually – including HK$100,000 per month to the most senior aircrew – in accommodation perks. That is despite an earlier indication that it would cut the arrangement.

Hong Kong’s flag carrier is looking to make HK$4 billion in cuts over three years, including by shedding jobs. It lost HK$2.05 billion in the first half of 2017, after a full-year loss of HK$575 million in 2016.

In a statement, an airline spokesman said: “The new accommodation and rental assistance arrangements will, to a large extent, provide similar assistance. They are intended to be short-term measures while we continue to pursue long-term options to lower our cost base.”

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The reinstatement of the accommodation perks came on Friday, as union pilots started voting on industrial action. If passed, the motion would formally mandate the pilots’ union, the Hong Kong Aircrew Officers’ Association (HKAOA), to prepare for industrial action in any eventuality, should the company cut pay and perks without a union agreement.

On Monday the union welcomed the continuation of housing perks.

“We’re glad the company decided to extend the housing assistance,” Chris Beebe, HKAOA general secretary, said.

Cathay Pacific had earlier urged its more than 3,200 pilots to accept pay freezes and changes in pension benefits to help slash HK$1 billion from its outgoings. The airline was seeking a 10 per cent reduction by 2019 through a pay freeze, unspecified pension changes and productivity improvements.

Last week it announced it would give cabin crew a one per cent pay rise and an annual bonus capped at HK$35,000 for most staff, excluding the likes of directors, senior managers and captains.

Beebe said the union was “very disappointed that the bonuses that they provided to some of the employees don’t extend to all of the pilots”.

A union pilot source was stunned by the extension of the housing allowance. The decision led to the source to wonder if the airline had seen “an upturn” in the projections of the profit-loss forecast the airline would deliver in 2018, citing the pay rise and staff bonuses offered last week.

Around 1,000 of the longest-serving Cathay Pacific pilots based in Hong Kong receive the housing benefit called the Accommodation and Rental Assistance Policy Agreement (ARAPA), the deal which was continued on Friday.

In a September 5 memo to rank-and-file pilots, the company described this perk as “an area in which significant savings can be made”. On September 29, the airline formally notified pilots and the union it would terminate the housing package after three more months, to avoid the payments rolling on automatically for three more years. It made it clear “the company is unable to afford this”.

Another pilot source signalled that relations between the pilots and the company were still strained despite the housing payment climbdown, which came soon before the three months’ notice ended.

“The biggest issue is the lack of respect. The pilots are really [unhappy] and are giving it to management,” the source, familiar with the negotiations, said.

Transport research firm Crucial Perspective said the attempts to cut pilot costs were so far not going well for Cathay Pacific.

“This is indeed a setback for Cathay Pacific’s cost-cutting efforts,” Crucial’s chief executive Corrine Png said. “Unfortunately, it’s challenging to take back these privileges without significant resistance, even though the legacy housing benefits may look too generous with hindsight.”

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Staffing is the second largest expense for Cathay Pacific, after fuel. Restructuring the housing benefit, Png said, amounted to five per cent of the company’s total staff costs.

Almost half of the company’s HK$19.7 billion spending on staff last year was on pilots, who make up 14.6 per cent of the 26,670-strong workforce.