Cathay Pacific to cut workforce by a quarter

October 21, 2020

Hong Kong airline Cathay Pacific on Wednesday announced it would cut 24% of its workforce and shut a regional airline in an effort to survive the drop in business caused by the COVID-19 pandemic.

Some 5,300 employees in Hong Kong and about 600 elsewhere will face redundancy, while 2,600 open positions will not be filled, the company said in a statement.

Its regional subsidiary Cathay Dragon will immediately cease operations. But the company said it would seek approval for most of those routes to be taken over by Cathay Pacific and its budget subsidiary HK Express.

“The global pandemic continues to have a devastating impact on aviation and the hard truth is we must fundamentally restructure the Group to survive,” Cathay Pacific CEO Augustus Tang said. “We have to do this to protect as many jobs as possible, and meet our responsibilities to the Hong Kong aviation hub and our customers.”

Read more: How is coronavirus changing air travel?

Airlines struggling to survive

Travel restrictions and the collapse of passenger air travel in particular during the coronavirus crisis have taken a heavy toll on the aviation industry. A number of major airlines, including Germany’s Lufthansa, have slashed jobs as a result.

In a bid to stay afloat, Lufthansa accepted a €9-billion ($10.6 billion) bailout from the German government. It also cut 20% of its leadership positions and 1,000 administrative spots — and is planning to cut 22,000 jobs or more as part of major restructuring. .

Read more: Taking a flight to nowhere with a meal to go

Losing $260 million every month

In June, Cathay Pacific raised 39 billion Hong Kong dollars in a recapitalization plan that gave the city’s government a 6% stake in the airline.

But CEO Tang said the company was losing up to 2 billion Hong Kong dollars ($260 million; €219 million) every month because of the pandemic, a situation he said was “simply unsustainable.” The restructure, he added, aimed to save around 500 million Hong Kong dollars per month.

Even before the pandemic, Cathay Pacific had been struggling — massive pro-democracy protests in Hong Kong last year had led to a plunge in traffic, particularly from the Chinese mainland.

The airline said it expected to operate well under 50% of its pre-pandemic capacity in 2021.

Coronavirus: Where the state wants control over airlines

Aid yes, interference no!

Germany is throwing Lufthansa a €9 billion ($9.6 billion) lifeline. The government bailout will give the state a 20% stake in the airline, which could rise to 25% plus one share in the event of a hostile takeover bid as Berlin says it seeks to protect thousands of jobs. Economy Minister Peter Altmaier insists there will be no meddling with corporate decisions.

Coronavirus: Where the state wants control over airlines

Smartwings seeks smart deal

The Czech Republic is seeking more control over flight group Smartwings, the parent company of Czech Airlines. Industry Minister Karel Havlicek said the government could even take over the group completely, but executives replied that no one had expressed any such desire for that to happen as they preferred a state-guaranteed credit line to see the company through the coronavirus crisis.

Coronavirus: Where the state wants control over airlines

TAP-ping into more state funds?

Portugal’s flag carrier TAP has asked for a state-backed loan to secure the survival of the company. Employees want more state control through direct financing, with Prime Minister Antonio Costa raising the possibility of nationalizing the carrier. TAP is already 50% owned by the state with a 45% stake held by Brazilian-US entrepreneur David Neeleman. TAP employees hold the remaining 5% in shares.

Coronavirus: Where the state wants control over airlines

Survival without aid? No(r)way!

Indirect state aid has come to the rescue of Norwegian, Norway’s budget carrier that has completed a painful restructuring process and secured a credit guarantee from the government. Major lessor AerCap now holds a 15.9% stake after converting lease obligations into shares. BOC Aviation holds a vital 12.67% stake in Norwegian — and BOC is ultimately controlled by the state-owned Bank of China.

Coronavirus: Where the state wants control over airlines

Singapore Airlines now Singa-poor?

Earlier this month, Singapore Airlines announced its first-ever annual loss in its 48-year history after grounding most of its fleet due to the pandemic-caused lockdowns. The carrier is already majority-owned by the government investment and holding company Temasek, which holds well over 50% of voting stock. The government has always stressed its non-involvement in the management of the airline.

Coronavirus: Where the state wants control over airlines

The worst in the pack?

Of the government-owned airlines, the Gulf carriers Emirates, Etihad and Qatar have often raised eyebrows among rivals in many parts of the world. The latter have said the airlines in question aren’t really playing fair, saying their business model is to crowd out competing airlines at any (state) cost. Before the pandemic, the three carriers had grown disproportionately for years.

Coronavirus: Where the state wants control over airlines

State control a common ingredient

Aeroflot Group, which includes Russian flag carrier Aeroflot, Rossiya and Pobeda, is another case in point. It is 51.2% state-owned. But you don’t really have to look far to find more airlines in this category. Right now, there are roughly 150 state-owned carriers around the globe, according to Wikipedia. It’s not the rule, though, as there’s an impressive total of about 5,000 airlines globally.

Author: Hardy Graupner