Trying to regroup and survive under the pressure of epidemic situation
Cathay Pacific and Dragonair started their origins many years ago. Unlike Cathay Pacific, which mainly operates long-distance intercontinental routes, Cathay Dragonair mainly operates regional routes from Hong Kong to the mainland, Hong Kong to Southeast Asia, and Hong Kong to East Asia. In its acquisition announcement in July 2006, Cathay Pacific said that its international network and Dragonairs main network between Hong Kong and the mainland were complementary.
After more than ten years of cooperation, Cathay Pacific announced on October 21 that Cathay Pacific dragon airlines would stop operation. Cathay Pacific intends to seek regulatory approval to operate most of Cathay Pacific Dragonair routes by Cathay Pacific and its wholly-owned subsidiary, Hong Kong Express.
According to the information provided by Cathay Pacific to reporters of the daily economic news, the restructuring will ensure the future development of Cathay Pacific, try its best to retain the largest number of jobs, and fulfill its responsibilities to Hong Kongs aviation hub and customers. In addition, Cathay Pacific Airways (including Cathay Pacific Dragon Airlines) will cut about 8500 jobs as a whole, accounting for 24% of Cathay Pacifics total jobs. In addition to the layoff plan, Cathay Pacific will require cabin attendants and pilots in Hong Kong to agree to change their conditions of service in order to achieve the objectives including making salaries closer to productivity and enhancing market competitiveness.
Cathay Pacific said it would continue to implement the current senior management pay cut throughout 2021 and introduce a third round of voluntary special leave to non crew members in the first half of next year. All employees will not receive any salary increase in 2021 and no discretionary year-end bonus in 2020.
Deng Jianrong, chief executive of Cathay Pacific, said: the epidemic is sweeping the world and continues to bring a heavy blow to the aviation industry. We must carry out a fundamental restructuring, otherwise the group will not be able to continue to operate in the end. Only in this way can we retain as many jobs as we can, while fulfilling our responsibilities to our aviation hub and customers.
In addition, Deng Jianrong said that at present, the top priority is to provide support to all employees affected by the announcement. Cathay Pacific will provide employees who are affected with exit plans far higher than the statutory requirements. It will also extend the duration of medical benefits and air tickets, and provide counseling and transitional support services. The severance payment will not be hedged against pension contributions.
Passenger revenue reduced by 70% in the first half of the year
Cathay Pacific is facing the dual pressure of internal development and external environment. After the first loss in eight years in 2016, Cathay Pacific launched a three-year enterprise transformation plan in the first half of 2017, including the reduction of 600 employees and the restructuring of the headquarters team structure. In late July 2019, Cathay Pacific announced that it had completed the acquisition of Hong Kong Express.
Affected by the epidemic situation, the difficult business environment has become more severe. According to Cathay Pacifics performance report for the first half of 2020, passenger revenue in the first half of 2020 decreased by 72.2% to HK $10.396 billion.
Facing many tests, Cathay Pacific also carried out a series of self-help measures. In June this year, Cathay Pacific announced a total of HK $39 billion of capital restructuring plan, in which the Hong Kong SAR Government subscribed for HK $19.5 billion of preferred shares and provided HK $7.8 billion of transitional loans. At the same time, Cathay Pacific allocated HK $11.7 billion of Rights Shares to existing shareholders.
In addition, in this years semi annual report, Cathay Pacific Airways said that it would make recommendations to the board of directors on the most appropriate scale and mode of operation of Cathay Pacific in the future in the fourth quarter of 2020, so as to meet the demand of Hong Kong Aviation Tourism and fulfill its responsibilities to shareholders. Considering that the current market prospect and cost structure are quite different from those before the crisis, it is inevitable that the original will be the future The planned carrying capacity is optimized.
According to Cathay Pacific, the restructuring cost of about HK $2.2 billion will be appropriated from internal resources. Cathay Pacific has embarked on the recapitalization plan and implemented a number of cash preservation measures, including suspension of non essential expenses, delay of aircraft delivery, introduction of special leave plan and implementation of senior management pay reduction. Despite its efforts, Cathay Pacific still loses HK $1.5 billion to HK $2 billion a month in cash. The restructuring is expected to reduce the groups cash expenditure by about HK $500 million per month in 2021.
Self rescue measures to deal with epidemic crisis
Qi Qi, a civil aviation expert, told the daily economic news that Cathay Pacific has basically exhausted its cash flow reserves for many years due to multiple factors in the half year of 2019 and the new epidemic situation since the beginning of 2020. Although there was a strategic and rescue blood transfusion under the HK $39 billion recapitalization plan, Cathay Pacific could not resume its original international flights and it was difficult for Cathay Pacific to share the dividend from the strong recovery of the mainland aviation market under the uncertain international epidemic situation.
In short, if the global epidemic situation is not improved, the international aviation market will never recover. As Hong Kongs largest base, Cathay Pacific Airways will never be able to go out of the dark moment. The suspension of operations and large-scale layoffs in this restructuring are also tactical and strategic adjustments, which can be described as hemostasis. Qi Qi said.
Civil aviation expert Lin Zhijie told reporters that Cathay Pacific will be more impacted in the epidemic because it has no deep hinterland of the domestic market. At present, the operation of Cathay Pacific is not very good. In the first half of the year, the whole Cathay Pacific Group lost 9.8 billion Hong Kong dollars. In recent months, it has also continued to make losses, basically including 11.7 billion yuan of shareholders capital increase. Therefore, it is necessary to take a further restructuring plan to survive.
In addition to survival pressure, the industry believes that Cathay Pacifics brand operation mode is also worth considering.
Lin Zhijie analysis said that for the aviation group, according to the mode, different brands are more mainstream. From the market level, there are many challenges in the brand model of aviation group according to the market region, which is difficult to go long-term, and the epidemic situation accelerates the disadvantages of the model. Qi Qi said that Cathay Pacific did not do a good job in the differentiation of strategic positioning with Dragonair is a major reason for this situation, now stop operation in the civil aviation industry is very sorry. For the future, Cathay Pacific said the outlook is still very uncertain, and the pace of recovery is obviously 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. Therefore, the management team believes that the most optimistic solution that can be taken in a responsible manner is to reduce the passenger transport capacity of the company in 2021 to far less than 50% in 2019. Source: Daily Economic News Author: Zhang Honglei, editor in charge: Wang Xiaowu_ NF
Lin Zhijie analysis said that for the aviation group, according to the mode, different brands are more mainstream. From the market level, there are many challenges in the brand model of aviation group according to the market region, which is difficult to go long-term, and the epidemic situation accelerates the disadvantages of the model. Qi Qi said that Cathay Pacific did not do a good job in the differentiation of strategic positioning with Dragonair is a major reason for this situation, now stop operation in the civil aviation industry is very sorry.