Cathay axes record 6,000 Hong Kong jobs and closes regional airline in HK$2.2 billion survival plan

Danny Lee
·7-min read

Key points:

  • Cathay Pacific to axe 8,500 posts: 5,900 staff made redundant worldwide, 5,300 jobs lost in Hong Kong, 2,600 unfilled roles eliminated

  • Cathay Dragon brand to stop operating with immediate effect

  • Restructuring to cost HK$2.2 billion, while HK$2 billion monthly cash burn reduced by HK$500 million per month via job cuts, airline closure

  • Hong Kong-based cabin and cockpit crew asked to sign new, cheaper contracts

Cathay Pacific announced Hong Kong’s biggest mass lay-offs in three decades on Wednesday, axing nearly 6,000 jobs in the city and closing its regional airline in a desperate restructuring attempt to survive the coronavirus pandemic.

The flagship carrier apologised for causing “great distress and anxiety” as it confirmed nearly all Cathay Dragon staff would be laid off as part of 8,500 job cuts across the group, raising concerns for Hong Kong’s reputation as an international aviation hub as well as fears it could set a precedent for other major companies.

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Around 4,000 cabin crew, 600 pilots, and 700 ground staff and office workers were told they would be made redundant in a HK$2.2 billion (US$284 million) restructuring.

In total 5,900 staff would lose their jobs “in the coming weeks”, the airline said, with 5,300 of those coming in Hong Kong. About 2,600 unfilled posts would be abolished.

Patrick Healy, the group’s chairman, called the decision “heart-wrenching” and said he was “truly sorry” for the “great distress and anxiety” it had caused the affected staff and their families.

However, he said the move had been essential to ensure the “survival of this incredible 74-year-old company”.

As part of the cuts, Cathay Dragon ceased to operate with immediate effect, putting 2,000 cabin crew, and about 550 pilots out of work, almost its entire staff. A source said just 10 Cathay Dragon pilots were being kept, so they could train others on the carrier’s single-aisle aircraft.

The job losses were the biggest in the airline’s history and the largest in at least 30 years by a Hong Kong company, after nearly 3,000 people were laid off in 1997 when leading Japanese retailer Yaohan applied for liquidation.

Graphic: SCMP
Graphic: SCMP

“We have thought long and hard over recent months, we have examined diligently all possible ways forward, and we have come to the conclusion, reluctantly, that today’s decisions must be made,” Healy said.

He added that nothing would give the airline greater pleasure than to be able to “hire back the people we are losing today when we return to growth in the future”.

Cathay has been haemorrhaging as much as HK$2 billion a month because of the pandemic, and lost a record HK$9.87 billion in the first six months of this year. Cathay expects the job cuts could reduce those losses by HK$500 million a month by 2021.

The airline’s shares jumped 2.3 per cent to HK$5.85 on the Hong Kong stock exchange, their highest price since September 18. However, its stock has fallen 43 per cent since the start of the year.

Healy said the Dragon brand had been sacrificed so the company could turn its focus on creating a “world-leading travel brand in Cathay Pacific”, and a single “low-cost leisure brand in HK Express”.

Cathay said it would apply for regulatory approval for most of the routes serviced by its regional carrier to be operated by the two remaining airlines.

Graphic: SCMP
Graphic: SCMP

Battered by the impact of Covid-19 on global travel, which had led to a 99 per cent collapse in Cathay Pacific’s daily passenger numbers, those cabin crew and pilots who remained would be asked to sign new cost-saving contracts, the airline said.

Pilots will have a week to decide whether to sign contracts significantly cheaper than their existing deals – in some cases seeing combined salaries and benefits cut by 40 to 60 per cent – or be terminated, rather than made redundant.

A “last in, first out” approach will be adopted in choosing who is made redundant, meaning junior pilots would lose their jobs over experienced ones – regardless of age, gender or race.

Chris Beebe, general secretary of the Hong Kong Aircrew Officers Association (HKAOA), expressed frustration that the company presented its plan to pilots without negotiation, but said the union was still willing to engage in talks.

Cathay Pacific shares jump on restructuring plan, 8,500 job cuts

“Pilots do have certain rights and entitlements under existing contracts that we expect Cathay to honour, and we will defend the contract,” he said.

Financial Secretary Paul Chan Mo-po, whose department led a HK$39 billion bailout of Cathay, which included HK$27.3 billion of taxpayer money, said the restructuring was key to the company’s survival.

“As Hong Kong’s most important local airline … if this life-or-death issue is not properly addressed, the situation would harm Hong Kong’s international aviation hub status and development in the region, and adversely impact other local economic activities to the detriment of the overall interests of Hong Kong,” he said.

The government also said it required Cathay to avoid making deep cuts to ensure it was in a strong position once the pandemic was over, and to “provide impetus for the relaunch of the local aviation industry as well as Hong Kong’s overall economy”.

Cathay Pacific has said it will scrap salary increases in 2021 and extend unpaid leave for non-flying staff. Photo: K. Y. Cheng
Cathay Pacific has said it will scrap salary increases in 2021 and extend unpaid leave for non-flying staff. Photo: K. Y. Cheng

As part of its efforts, Cathay Pacific would scrap salary increases in 2021, not pay a discretionary bonus this year and extend its unpaid leave scheme for non-flying staff to cover the first half of next year.

Carlson Tong Ka-shing, one of two government observers added to the airline’s board to oversee the investment of public money, told the Post: “We are well aware of our role and responsibilities and have constantly reminded Cathay management of the need to minimise the negative impact of the restructure plan to its employees and society, whilst ensuring the future financial sustainability of the group.”

Amber Suen, internal vice-chairwoman of the Cathay Pacific Airways Flight Attendants Union, said she was “completely disappointed with this decision”.

Cathay ‘optimistically’ predicts gutted flying schedule for next eight months

“We have talked to the company on the reason why they haven’t implemented any voluntary unpaid scheme before they made the decision, but then the company said they simply are not able to do so,” she said.

Union chairwoman Zuki Wong said the group had not called for any industrial action and was focused on helping colleagues come to terms with the news.

“Staff morale has been low for quite some time now, so now the situation is pretty bad,” she said.

With international air travel not expected to return to pre-coronavirus levels until 2024, Healy said the future remained highly uncertain, and called the crisis “deeper, and the road to recovery slower than anyone thought possible just a few short months ago”.

Earlier this week, Cathay Pacific said it would operate at less than half-capacity throughout 2021 compared with pre-health crisis levels, underscoring the slow pace of recovery.

The airline’s assumptions, which hinge on an effective Covid-19 vaccine by next summer, expects global air traffic to climb to 70 per cent of pre-crisis levels by the end of 2021.

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