Since Then, There Is No Secret Behind The Restructuring Of Ka Cathay Pacific 2.2 Billion

Cathay Pacific's layoff plan, which has been widely circulated for months, has finally come to an end. GANGLONG (aviation Code: KA) has come to an end.

On the morning of October 21, Cathay Pacific announced in the Hong Kong stock exchange that it would cut 8500 jobs as a whole, accounting for 24% of the group's 35000 employees. The scale of layoffs exceeded the previous market expectation of 6000. This is the largest layoff in Cathay Pacific's history, after cutting 600 jobs in 2017 due to fuel hedging losses.

At a press conference held on the same day, Patrick Healy, chairman of Cathay Pacific Group, said: "the company made this difficult decision after careful consideration. Cathay Pacific is facing unprecedented difficulties due to the epidemic situation. The passenger revenue has dropped to 2% - 3% of the pre epidemic situation. Although the capital restructuring plan previously announced has enabled the company to avoid bankruptcy, it is also difficult for the company to burn money for a long time. The restructuring will reduce cash expenditure by about HK $500 million per month. "

It is understood that since September, Cathay Pacific has held several rounds of meetings with a number of trade unions to discuss the restructuring plan. Trade unions have put forward various salary reduction plans and actively strive to avoid large-scale layoffs.

Relevant personnel of Cathay Pacific Flight Attendants Union told the 21st century economic report that they had met with representatives of the management four times. The employees hoped to ride out the difficulties with the company, and put forward suggestions such as extending the voluntary unpaid leave and re launching the "half career flight plan", but the management has not made any statement. Among them, the Hong Kong Dragon pilots' Union has submitted five major proposals to Cathay Pacific and dragon, including the implementation of the "half pay plan" of reducing monthly salary by half in the coming year. However, these pay cuts are clearly not enough to get Cathay Pacific out of trouble in the short term.

Cathay Pacific said that of the 8500 jobs that have been laid off this time, about 2600 jobs have been created due to the freezing of recruitment, the closure of overseas bases and the natural loss of some 2600 jobs. In the next few weeks, about 5300 Hong Kong based employees will be actually reduced, and about 600 non resident employees may be affected.

This is another "self-help" measure after the launch of the previous capital restructuring plan. On June 9, this year, Cathay Pacific announced a capital restructuring plan, raising a total amount of about HK $39 billion, including the "11 for 7" share issue, which raised about HK $11.7 billion, of which the Hong Kong SAR government invested HK $27.3 billion.

As the leading local airline in Hong Kong, Cathay Pacific is facing unprecedented operational challenges and financial pressure, the financial secretary of Hong Kong, Mr. Chen maobo, said on October 21. The restructuring of Cathay Pacific's business is a commercial decision. "Although the two observers appointed by the SAR government did not have the right to vote, they have provided the company with reference on the arrangement and reminded the management of the company to minimize the impact on employees and society."

Cathay Pacific expects the cost of the restructuring plan approved by the board of directors to be HK $2.2 billion. The news boosted Cathay Pacific (00293. HK) shares rebounded 5% in the early trading and narrowed to 2.3% and closed at HK $5.85/share by the end of the 21st. So far this year, Cathay Pacific shares have fallen more than 40%.

Will there be another round of layoffs?

Compared with other international aviation hubs, Hong Kong's aviation industry is highly dependent on international flights. As the largest airline in Asia, the epidemic has brought unprecedented challenges to Cathay Pacific's business, and Cathay Pacific accounts for 57% of the passenger traffic and 41% of the cargo volume of the Hong Kong International Airport.

All along, Cathay Pacific mainly aims at high-end business customers to create a brand image of "high, rich and handsome". However, in recent years, Asian low-cost airlines have sprung up like mushrooms, constantly eroding the market share of traditional airlines in short-term flights. In July last year, Cathay Pacific completed the acquisition of Hong Kong Express, which means Cathay Pacific has controlled three of the four local airlines in Hong Kong. In addition, the three major airlines in the mainland have opened up a number of direct routes to the United States and Europe in recent years, resulting in great competition in the long-term routes of Cathay Pacific, which can be said to be "belligerent".

According to the restructuring plan, Cathay Pacific Dragonair Co., Ltd., a subsidiary of Cathay Pacific, will cease operation on October 21. The company plans to seek the approval of the regulatory authority to operate most of Cathay Pacific Dragonair's routes by the company and its wholly-owned subsidiary, Hong Kong Express Airlines Limited. Cathay Pacific said all 2500 Dragonair employees would be fired.

The 35 year old airline has come to an end. Cathay Pacific Dragonair, formerly known as Dragonair, was founded in May 1985 by Cao Guangbiao, Bao Yugang, Huo Yingdong and Chinese funded institutions. It started operation in July of the same year. Cathay Pacific acquired Dragonair wholly in 2006.

Chuang Tai Liang, executive director of the Institute of global economics and finance, Liu zode, Chinese University of Hong Kong, told 21st century economic reporter: "if the epidemic situation continues to restrict cross-border tourism, Cathay Pacific believes that there will be another round of layoffs with almost no income. The funds previously injected by the SAR government can only last for about one year. Dragonair's positioning is mainly Hong Kong flights to and from the mainland, while Cathay Pacific focuses on international routes. The merger will help Cathay Pacific save costs. "

He said frankly that before the outbreak of the epidemic, Cathay Pacific's annual income reached 100 billion Hong Kong dollars. At present, the only way for Cathay Pacific to really get out of the predicament is for the SAR government to resume the entry-exit exchanges of Hong Kong as soon as possible, relax the quarantine conditions and increase the source of flight passengers.

At present, Cathay Pacific Dragonair has about 46 destinations, mainly connecting the mainland routes, but also including all parts of Asia, such as Chiang Mai, Thailand and Hanoi, Vietnam.

Affected by the suspension of operation on this day, on October 21, according to the website of the airport authority of Hong Kong, six flights originally scheduled to depart from Hong Kong needed to be cancelled, and another six departing flights had to be cancelled. The affected flights are mainly to Beijing, Guangzhou, Shanghai, Chengdu and other mainland cities.

At the same time, Cathay Pacific's low-cost brand, Hong Kong Express, was spared the layoff plan. The predecessor of Hong Kong Express is Hong Kong United Airlines, which was established in 2004. At first, it mainly used passenger transport between second tier cities such as Ningbo in Zhejiang Province and Hong Kong. However, since around 2013, it has greatly expanded Northeast Asian routes such as Japan and South Korea, which is the first and the only low-cost airline in Hong Kong. Cathay Pacific pointed out in its interim report that the Hong Kong Express had a loss of HK $779 million from March 23 to August 1.

"The last straw"

Founded in 1946, Cathay Pacific has been monopolized in the aviation industry of Hong Kong for many years. Cathay Pacific has been honored as the "world's best airline" by Skytrax in more years.

However, in recent years, the stock price of Cathay Pacific has fallen all the way due to the repeated losses of performance, social conflicts, epidemic situation and other attacks. The latest stock price has dropped by more than 70% compared with the historical high of more than HK $20 at the end of 2010. More unfortunately, it was excluded from the Hang Seng Index in November 2017, losing its "blue chip" status for more than 30 years.

In fact, Cathay Pacific's performance has been mired in the performance before the outbreak of the epidemic, and the impact of the epidemic has become the "last straw" to overwhelm Cathay Pacific. Since 2016, Cathay Pacific has been in a dilemma of loss for consecutive years, with a total loss of HK $1.834 billion in two years. After a brief turnaround in 2018, another HK $434 million was lost in the second half of 2019.

All along, the operating cost higher than other competitors is Cathay Pacific's major weakness. According to the interim performance report, as of the end of June, Cathay Pacific Group had more than 33000 employees worldwide, 1200 fewer than the 34200 employees announced at the end of last year. Among them, the number of employees in Hong Kong is 27600, about 600 less than that announced at the end of last year. Cathay Pacific's net loss in the first half of this year was as high as HK $9.87 billion, during which staff expenditure amounted to HK $7.42 billion, accounting for more than 20% of operating expenses.

In order to save costs, the group announced in March and April this year that all stations in Vancouver and the United States would be closed and 433 crew members would be cut. In the first half of this year, the staff expenditure of Cathay Pacific and Hongkong dragon was HK $7.42 billion, a year-on-year decrease of 17.9%, which was the first double-digit decline in staff expenditure of the group in the past decade.

As the epidemic continues to spread, the global aviation industry has been greatly impacted. Cathay Pacific has already embarked on the capital restructuring plan described in the announcement and implemented a number of cash preservation measures, including suspending unnecessary expenses, delaying aircraft delivery, launching special leave plans and implementing salary reduction for senior management.

Due to the impact of the epidemic situation, non Hong Kong residents still have to undergo compulsory quarantine when entering the country, resulting in weak demand for flights. According to the data released by Cathay Pacific on October 19, Cathay Pacific Airways and Cathay Pacific dragon carried 47060 passengers in September, a sharp drop of 98.1% compared with the same period in 2019; the daily passenger carrying capacity was only 1568, and the revenue passenger kilometers decreased by 97% over the same period last year. Passenger carrying capacity fell 48.8 percentage points to 24.9%. In the first nine months of this year, the number of passengers carried decreased by 83.2% compared with the same period last year.

The 21st century economic news reporter found that although Cathay Pacific's passenger traffic volume has begun to recover gradually since the second quarter, it has rebounded by more than 2.4 times in September compared with the low level of 18500 passengers in April. However, compared with 3.01 million in January this year, it is still a drop in the bucket.

"The future is still very uncertain, and the pace of recovery is clearly quite slow. According to the prediction of the International Air Transport Association, the air passenger volume will not return to the level before the epidemic until 2024. Assuming that the currently developed vaccine is proven to be effective and can be successfully launched globally in the summer of 2021, the company expects that the passenger transport capacity in the first half of 2021 will be far less than 25%, and that in the whole of 2021 will be less than 50%. " Cathay Pacific chief executive Deng Jianrong said. (Editor: Lin Hong)