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Cathay Pacific to axe 6,000 employees, gets rid of Cathay Dragon brand

The original plan was to make 8,000 roles redundant.

Multiple news outlets today reported that Cathay Pacific will be retrenching 6,000 employees worldwide, with close to 5,000 of these roles lost in Hong Kong itself.

The international airline was originally planning to axe up to 8,000 staff, but reduced it to 6,000 after government intervention.

The airline will also remove another close to 2,600 unfilled positions, bringing the total tally of positions lost to 8,500.

With a total workforce of 33,000 staff, the 6,000 employees axed come to under 20% of its staff strength, signifying a smaller cut that what some other airlines have undertaken.

The cuts came after Cathay Pacific Group took up a government aid worth HK$27.3 billion (S$4.8 billion) in June, which came with the condition that the airline must appoint two government selected observers to the board to oversee the investment and protect taxpayers’ money.

According to the airline, affected staff will be offered “severance packages that go well beyond statutory requirements”, and extending medical benefits and staff travel entitlements, as well as providing counselling and job transition support services.

Cathay Dragon brand to cease

As part of the cost reduction programme, Cathay Pacific Group will also sunset its Cathay Dragon brand immediately.

Cathay Dragon

According to SCMP, Cathay Dragon has 48 aircraft primarily flying to mainland China and other regional destinations, including Kuala Lumpur, Okinawa and Dhaka.

While the regional airline will cease to exist, most of the airline assets and staff will be merged into the Cathay Pacific group to be redeployed.

The airline is also seeking regulatory approval for the majority of the regional carrier’s routes to be absorbed and operated by Cathay Pacific and budget carrier HK Express within the group.

It’s likely that HK Express may take over most of the the mainland China routes, particularly those served by the smaller A320 and A321s. Cathay Pacific will most likely take over destinations served by the A330s, although we may expect some of these destinations to close altogether given the slow recovery rate over the next couple of years.

Other cost measures

Cathay Pacific will also be implementing some other cost measures to bring down its cash-burn rate, including salary freezes and new union contracts for its cabin crew and pilots.

Cabin crew and pilots will be asked to change their collective agreement terms, most likely will result in lower wages, so that “their conditions of service which are designed to match remuneration more closely to productivity and to enhance market competitiveness”, according to Cathay Pacific.

Separately, Cathay Pacific will continue to cut their executives’ pay through 2021. For all staff, there will also be no salary increases across 2021.

The airline will continue to initiate another voluntary Special Leave Scheme for non-flying employees for the first half of next year.

CEO commentary

Cathay Pacific Chief Executive Officer Augustus Tang said: “The global pandemic continues to have a devastating impact on aviation and the hard truth is we must fundamentally restructure the Group to survive. 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.

“Our immediate priority is to support those affected by today’s announcement. We are deeply saddened to part ways with our talented and respected colleagues, and I want to thank them for their hard work, achievements and dedication.”

“We have taken every possible action to avoid job losses up to this point. We have scaled back capacity to match demand, deferred new aircraft deliveries, suspended non-essential spend, implemented a recruitment freeze, executive pay cuts and two rounds of Special Leave Schemes.

“But in spite of these efforts, we continue to burn HK$1.5-2 billion cash per month. This is simply unsustainable. The changes announced today will reduce our cash burn by about HK$500 million per month.

“We have studied multiple scenarios and have adopted the most responsible approach to retain as many jobs as possible. Even so, it is quite clear now recovery is going to be slow. We expect to operate well under 25% of 2019 passenger capacity in the first half of 2021 and below 50% for the entire year.”

Final thoughts

This won’t be the last of downsizing by airlines, but it’s definitely saddening that yet another international airline is now forced to shed jobs and staff in a bid to stay afloat.

Cathay Pacific has earlier this week predicted that it will reinstate no more than 50% of its capacity by the end of 2021, and this will certainly mean that the network will be significantly reduced.

If anything, the cessation of Cathay Dragon may be the silver lining for the airline group in this pandemic.

By dropping the regional carrier, Cathay Pacific may be able to clearly segment their destinations between the mainline carrier and its budget arm HK Express, which may work out better for the group in terms of cost efficiencies and customer offering.

The regional carrier role of Cathay Dragon has long been questioned, given that the offering was similar to what is already on Cathay Pacific, making customers and investors wonder why there’s a need for two separate brands.

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