Cathay Pacific

Pilot pay and pensions targeted as Cathay Pacific looks to slash HK$1 billion in costs

Memo discloses almost half of company’s HK$19.7 billion spending on staff costs last year was on pilots – who represent 14.6 per cent of the workforce

PUBLISHED : Wednesday, 06 September, 2017, 2:10pm
UPDATED : Wednesday, 06 September, 2017, 11:34pm

Cathay Pacific is urging its pilots to accept pay freezes and changes in pension benefits to help Hong Kong’s flagship airline slash HK$1 billion (US$128 million) in costs amid an ongoing restructuring of the business.

An internal memo, released on Tuesday, revealed that almost half of the company’s HK$19.7 billion spending on staff costs last year was on pilots, who represent 14.6 per cent of the 26,670-strong workforce.

The memo said Cathay was seeking a 10 per cent reduction target by 2019 through a pay freeze, unspecified pension “changes” and productivity improvements.

Anna Thompson, the airline’s director of flight operations, warned the current costs were “too high”.

“To turn this company around, it is clear that we need to reduce our cost base quickly and by a significant amount and also make productivity gains,” Thompson, who sits on the airline’s management board, said.

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The pilots’ union is expected to scrutinise the financial situation of the airline independently before considering the cost savings.

Just eight months into a three-year turnaround of the company, the memo outlines a key area in which Cathay is looking to make part of the HK$4 billion savings.

It has already cut 600 head office jobs since May, as part of a range of measures to steer the airline back to profitability. The redundancies were aimed at stemming a HK$575 million loss in 2016.

In August, the company swung from a HK$353 million profit for the first half of 2016 to a HK$2.05 billion deficit year on year – a decline of 681 per cent.

Competition has been Cathay’s weakness in recent years with Gulf, mainland Chinese and low-cost carriers undercutting air ticket prices, and the company has had to respond accordingly. It has generated less money, given its high cost base as a 70-year-old airline.

Thompson said the savings target was to “ensure pilot pay and our business is on a more sustainable footing”.

Layoffs for frontline staff such as pilots and cabin crew are not expected.

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Cathay, which has a large roster of foreign pilots, has also been told by industry experts that its “above market rates” expatriate pay and benefits packages would need a rethink.

Pension changes have never been made in the modern era of the company. Following the knock-on effect of the global financial crisis in 2009, pilots were asked to take unpaid leave or redundancy.

While the pilot’s union and the airline have been in long-running negotiations, Cathay said it would in return offer a deal on better work schedules for its aircrew and the ability for pilots to move between aircraft types, and change human resources procedures that pilots have previously been unhappy about.

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More “concrete proposals” are due in the coming weeks, the airline said.

Thompson said she hoped all parties could “move forward with cost savings, productivity and efficiency gains, and improvements to working conditions, collaboratively”.

“We want to implement changes in collaboration and partnership with pilots,” she added. “Other areas of our business have already been subject to a pay freeze and redundancies. However, pilots have a seat at the table and significant say in how we realise the cost savings and efficiency gains we must make.”

A Cathay spokeswoman said: “We are committed to listening to the views of all our people. We are engaged with our pilots and have been discussing with the [aircrew officers’ association] over the past few months and we will continue to work in a collaborative manner with an aim to come to an agreeable solution.”