Exclusive | Cathay Pacific restructuring will target noncore businesses and job cuts loom in bid to survive pandemic, CEO hints
- In wide-ranging interview with the Post, Augustus Tang notes need for quick, decisive action in airline’s restructuring
- Analysts suggest catering and airport services operations could be under threat
In the biggest hint yet that redundancies were imminent, Augustus Tang Kin-wing said the airline’s overall cost competitiveness and efficiency had to match its rivals in what he described as “the new travel industry” already in the throes of shedding thousands of jobs.
“We will have to do some rationalisation of the routes, and right-sizing the airline is inevitable,” Tang said. “Because of the state of the industry, there is a need for us to take decisive action rapidly.”
Tang said survival depended on whether the carrier could adapt to a post-pandemic era, where fewer people would fly for some years to come, as well as a recovery dictated by the availability of a vaccine.
In a wide-ranging interview, the Cathay boss declined to reveal which noncore businesses were being reviewed and whether they would be sold. But analysts have suggested its catering and airport services businesses could be under threat.
The CEO added that Cathay Pacific and Cathay Dragon capacity would remain at about 10 per cent of pre-virus levels towards the end of this year.
“When the major source of revenue is down, the passenger revenue is decimated, you’ve got to look at the cost and look at every aspect to minimise the cost,” Tang said. “So, we will take a look at things that are noncore and the options available.”
Hong Kong Airlines cabin crew face 30 per cent pay cut for four months
Rival carrier Singapore Airlines has said it plans to cut 4,300 jobs despite raising S$11 billion (HK$61.8 billion) to weather the storm. British Airways has cut more than 8,000 jobs so far, and US carriers are poised to lay off thousands of staff.
Morningstar analyst Ivan Su said Cathay’s airport ground support and catering businesses could be at risk.
“I think the recapitalisation plan has provided sufficient liquidity for Cathay to survive through much of 2022, but there’s no guarantee that the group turns cash-flow positive by then,” he said. “For this reason, I think Cathay is considering disposing of noncore assets to raise much-needed cash just in case travel recovery comes slower than expected.”
Cathay avoided a collapse in June, thanks to a HK$39 billion bailout from shareholders and the government. It lost a record HK$9.87 billion in the first six-months of 2020, and its passenger numbers dropped to 1 per cent of the 100,000 customers it flew daily before the virus stopped global travel in its tracks.
Cathay Pacific grounds two-fifths of passenger fleet as it aims for ‘survival’
Since 2016, the group’s subsidiaries and associates have generated a combined HK$9.2 billion net profit, while the airlines racked up losses of HK$7.2 billion.
However, the pandemic has hit the group’s non-airline businesses hard, and Cathay Pacific Catering, which has a two-thirds market share at Hong Kong International Airport, took a HK$526 million impairment charge in the first half of this year.
Hong Kong Airport Services, which has a 42 per cent share at the airport, was “adversely affected”, according to Cathay’s interim report, while the airline’s laundry business also took a HK$658 million hit.
“With Covid-19 essentially dismantling previous years of expectations and planning, it makes complete sense to dispose of the assets that no longer align with the airline’s present trajectory first and foremost,” said Luya You, Bocom International transport analyst.
“Even without a directly stated goal, we’ve seen airlines and travel companies across the world start offloading noncore assets as liquidity needs remain high.”
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Cathay Pacific warns of historic HK$9.9 billion loss due to coronavirus pandemic
Last month, Korean Air sold its in-flight catering and duty-free business for US$834 million.
You said it was likely lay-offs would include disposing of unwanted businesses and associated staff on top of redundancies.
While the International Air Transport Association said a full recovery to pre-virus levels was not expected until 2024, a year later than initially forecast, Tang also said the restoration of passenger capacity and flights was far away.
He said the airline would continue to burn a significant amount of cash, and the airline was losing up to HK$2 billion a month, down from as much as HK$3 billion.
“Instead of generating cash, you will be depleting cash for quite some time before you reach a certain critical passenger number, and you will be neutral, and you will be incremental,” said Tang, who did not specify what level of capacity was needed to allow it to stop burning cash.
He also refused to say if the airline would seek a second bailout package from the government, insisting he was focused on the task at hand.
Even if the airline filled half of its flights, You said, it would still be losing money, with typical industry break-even load factor at between 60-70 per cent per plane.
Tang, who said he was staring at a “long and uncertain road”, said he hoped the market would recover sooner rather than later, but there were some unavoidable decisions to be made.
“We have to take some actions and make sure we can survive and fulfil our obligations and commitments to Hong Kong, and protect as many jobs as possible,” he said.
