Cathay Dragon is the latest airline to be grounded as a result of COIVD-19, part of a massive restructuring at the Cathay Pacific Group as it seeks to stabilize its operations. In a stock exchange filing on Wednesday the company announced that the regional arm “will cease its operations with effect from today.”
The company will also eliminate 8,500 jobs permanently, roughly 24% of its workforce. Of these, roughly 5,300 are Hong Kong-based employees to be laid off in the coming weeks, along with 600 others around the globe. Another 2,600 roles are already empty that will not be filled. Many of the cuts will come from the Cathay Dragon arm, where 500+ pilots and 2,000 cabin crew will be made redundant. Only the training captains will be retained in order to help Cathay Pacific’s remaining pilots train on the single-aisle fleet.
For the cabin and flight deck crew that remain employed new contract terms are being imposed. Those choosing to not accept the terms can expect to be terminated from their role.
The Company’s cash losses remain at HK$1.5 to 2 billion (USD$195-260 million) per month. It is expected that the Restructuring, the main elements of which are described above, will lead to a reduction of approximately HK$500 million (USD$85 million) in monthly cash outlay by the Group in 2021. That is a significant reduction in cash burn but nowhere near enough to solve the company’s problems.
A limited view of the future
The Cathay Pacific Group is hopeful that a vaccine can help restore the passenger flows it depends on globally for its revenue. The most optimistic scenario seen by the company is that 2021 will see “well under 50 per cent of the passenger capacity it operated in 2019.” The carrier intends to begin the year well below 25% of 2019 levels, with a gradual recovery in the second half of the year, “assuming the vaccines currently under development prove to be effective and are successfully rolled out on a global scale by summer 2021”
At the time of the announcement Cathay Dragon had routes filed to 46 destinations within Asia. Of these 15 are in mainland China, the largest density of the carrier’s operations. Cathay Pacific’s mainline operations only serves two destinations on the mainland. In recent years the carrier served as many as 56 destinations, with 28 on the mainland.
The company says it will seek regulatory approval for “a majority” of the 46 destinations to be operated either by the parent Cathay Pacific or by its low-cost subsidiary Hong Kong Express. This also means that some routes will disappear from the map.
The future of the combined fleet is also unclear. The company stated that it now expects the 777X to not enter service before 2025, for example. The Cathay Dragon arm was also expected to (finally) take delivery of its first A321neo aircraft before the end of the year. The company has 32 of the type on order, previously planned to split between Cathay Dragon and HK Express. Presumably the Cathay Dragon-bound planes will now fly for Cathay Pacific, though the timing of the delivery schedule is also expected to change.
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