said it would eliminate 8,500 positions, including laying off about 5,900 workers—mostly in Hong Kong—in the coming weeks. The 74-year-old carrier will also immediately shut Hong Kong Dragon Airlines Ltd., also known as Cathay Dragon, but will continue to operate budget carrier HK Express.
The restructuring will cost about $284 million and Chairman Patrick Healy said the cuts are necessary to ensure the company’s long-term sustainability after the carrier was saved from collapse by a $5 billion funding package led by the Hong Kong government in June.
The global aviation industry has been slammed with a near shutdown of its normal business as countries closed borders and restricted travel when the coronavirus swept the globe earlier this year.
Cathay’s staff cuts, at 24% of its 35,000 positions, are conservative compared with the nearly 30% average among American, European and other Asia-Pacific airlines, said Luya You, an analyst at Bocom International Securities in Hong Kong. The carrier is a major employer in the city, which was struggling to draw travelers—even before the pandemic—because of monthslong social unrest.
cut a total of more than 32,000 jobs after restrictions expired that accompanied government aid.
Other than cutting jobs, Cathay will ask cabin crew and pilots to agree to new conditions, including pay cuts. Overall, the company said its restructuring will reduce monthly cash burn by about $65 million dollars in 2021, from the current range of $194 million to $258 million dollars.
Kelvin Lau, an aviation analyst at Daiwa Capital Markets in Hong Kong, said this reduction is crucial as airlines are now focused on having enough cash to tide them over as opposed to making a profit.
“A leaner cost structure is good for them in the coming one to two years at least,” he said.
Cathay said it expects to be operating at well below 25% capacity in the first half of 2021, but plans to see a gradual recovery in capacity in the second half of the year assuming an effective vaccine can be rolled out globally by the summer.
“The future remains highly uncertain. This crisis is deeper and the road to recovery slower and more patchy than anyone thought possible just a few short months ago,” Mr. Healy said at a news briefing. He cited predictions by the International Air Transport Association that passenger travel won’t return to pre-pandemic levels until 2024.
“Cathay is more heavily impacted than most of our peers, because we are 100% reliant on cross border travel,” he said. “In September we carried only around 1,500 passengers per day, against the nearly 100,000 we would normally expect to carry.”
Analysts said Hong Kong’s planned first air-travel bubble with Singapore, which won’t require travelers to quarantine, could help spur a gradual recovery for airlines in both cities.
“Both cities have no domestic markets; they are each others’ first lifelines,” said Ms. You. “It will be interesting to see if it works.” If it succeeds, she expects it to lead to the first of what could be larger travel bubbles in the Asia-Pacific region that could include China, Japan and South Korea.
In early October, Cathay started a trial on a flight between Hong Kong and Singapore, using rapid Covid-19 testing technology. This would test and refine a system to support progressive and safe reopening of travel, said Lavinia Lau, Cathay’s commercial director, in a statement.
Cathay’s Hong Kong-listed shares jumped 6.6% after the restructuring announcement before giving up some of its gains, closing the day up 2.3%.
Write to Chong Koh Ping at [email protected]
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