Cathay Pacific to cut 6,000 workers and kill off Dragon affiliate to survive COVID-19 pandemic

Restructuring will ‘enable the company to secure its future, so it can protect as many jobs as possible, while meeting its responsibilities to the Hong Kong aviation hub and its customers'.

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Cathay Pacific killed off its Dragon affiliate and laid off thousands of workers. (PHOTO: Cathay Pacific)

Use this oneHong Kong flag carrier Cathay Pacific made it official and announced today (21 October) that it was laying off 6,000 workers and will kill off its Cathay Dragon sister airline brand as a way to survive the COVID-19 pandemic’s effects on international aviation.

Airlines around the world have had to ground thousands of planes as the COVID-19 pandemic has virtually shut down international aviation. (PHOTO: Shutterstock)

The company said it was actually cutting 8,500 positions across the entire group, which accounts for around 24 percent of its headcount, but added that using a recruitment freeze and natural attrition, the carrier has reduced this to 5,900 actual jobs or 17 percent of its established headcount. This means some 5,300 Hong Kong-based employees will be fired and about 600 employees based outside of Hong Kong also possibly being affected subject to local regulatory requirements.

Cathay Dragon, the group’s wholly owned regional subsidiary, will cease operations with immediate effect and Cathay Pacific will take over a majority of Cathay Dragon’s routes to be operated by Cathay Pacific and HK Express, a wholly-owned subsidiary, Cathay said in a statement announcing the job cuts.

Cathay said that exit packages for staff made redundant would be more generous than stipulated by labour regulations. Globally, the group has 33,000 staff, with 26,500 working for Cathay Pacific and Cathay Dragon.

The airline also said it would be seeking contract changes with Hong Kong-based cabin and cockpit crew members that “are designed to match remuneration more closely to productivity and to enhance market competitiveness”, Cathay said. It added that executive pay cuts will continue throughout 2021 and a third voluntary Special Leave Scheme for non-flying employees will be introduced for the first half of next year. There will be no salary increases for 2021 nor the payment of the annual discretionary bonus for 2020 across the board for all employees. Outport colleagues will be subject to local arrangements.

Cathay Pacific Group CEO Augustus Tang. (PHOTO: Cathay Pacific)

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.”

Tang said the airline, in spite of its efforts to conserve cash, has been burning through up to HK$2 billion cash per month and that the layoffs and 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 percent of 2019 passenger capacity in the first half of 2021 and below 50 percent for the entire year.”

Cathay Pacific Chairman Patrick Healey. (PHOTO: Cathay Pacific)

Cathay Pacific Chairman Patrick Healy in a press conference after the company announced the job cuts said the company’s earlier recapitalisation saved the airline and that this latest move was necessary. He said the airline’s management realised the anxiety and distress the firings would cause and said he was “truly sorry” for the need to cut staff.

“Parting ways with such a large number of our outstanding colleagues is a heart-wrenching decision and we are truly sorry for the anxiety and distress this will cause among those impacted and their families,” Healy said. “We have done everything we can to minimise the number of redundancies. And we are offering generous severance packages to all those who are leaving us, which are well in excess of the statutory requirements. These departures are in no way a reflection on the people impacted. They should all be proud of everything they have accomplished with Cathay, and nothing would give us greater pleasure then to be able to hire back the people we are losing today when we return to growth in the future.”

The one-off cost of this restructuring will be approximately HK$2.2 billion and the cash savings that these three initiatives together will generate will be in the region of HK$500 million per month. “As you know,” Healy said, “despite all the cash-saving initiatives we have been aggressively pursuing to date – including deferral of aircraft deliveries, special leave schemes, and cessation of all non-essential spend – today we are still burning around HK$1.5 billion – HK$2 billion in cash per month. Cash burn at this level is clearly unsustainable, and so the actions we have announced today – however unpalatable – are absolutely necessary to bring monthly cash burn down to more sustainable levels.

Both Hong Kong International Airport and Cathay Pacific have suffered because of political protests and the COVID-19 pandemic. (PHOTO: Shutterstock)

“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. IATA now estimates it will be 2024 before global passenger demand returns to pre-crisis levels. And as you know, Cathay is more heavily impacted than most of our peers, because we are 100 percent reliant on cross-border travel. In September we carried only around 1500 passengers per day, against the nearly 100,000 we would normally expect to carry.

“Despite the sadness and distress we are all feeling today, we remain absolutely confident in the long-term future and competitive position of Cathay Pacific, in our role at the centre of the Hong Kong aviation hub, and in the critical role that Hong Kong will play in the Greater Bay Area and beyond. But for today, our focus is very much on our colleagues, and on providing all the support we can to those impacted by today’s decisions.”

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