It might please investors to cut jobs but Cathy Pacific's problems run much deeper. It needs to work out where it fits in an airline environment that is rapidly changing.
Cathay Pacific Airways Ltd., Asia’s biggest international airline, will eliminate 600 jobs in Hong Kong as part of the biggest revamp in two decades following its first loss in eight years.
The majority of affected employees will be informed Monday and over the next month, with most of the restructuring completed by the end of 2017, Cathay said in a statement Monday. No frontline employees, pilots or cabin crew will be affected, it said. Cathay, its affiliate airlines and businesses employed about 33,000 people as of June 2016.
Despite booming demand for air travel in Asia, Cathay Pacific and Singapore Airlines Ltd. are among premium carriers in the region reeling under intense competition from low-cost carriers, Chinese mainland rivals and Middle-Eastern operators such as Emirates. Singapore Air last week reported a surprise loss and announced a “wide-ranging review” of its business as well.
“Everyone is becoming more and more cost conscious,” said Andrew Lee, an analyst at Jefferies in Hong Kong. “To be able to survive, they need to control costs. I think it is a start,” he said, referring to Cathay.
Cathay will also restructure its cargo department by removing the role of cargo director.
Shares of the Hong Kong-based carrier rose 2.3 percent to HK$11.58 on Monday. The stock has gained 14 percent this year, compared with a 13 percent advance in the Bloomberg Asia Pacific Airlines Index.
Cathay is in the midst of a three-year reorganization program after reporting its first annual loss in eight years for 2016, in part from a fuel-hedging bet gone wrong.
“We’ve had to make tough but necessary decisions for the future of our business and our customers,” Rupert Hogg, who became chief executive officer on May 1, said in the statement. “We will have a new structure that will make us leaner, faster and more responsive to our customers’ needs. It is the first step in the transformation of our business.”
The job cuts will involve 190 managerial positions, representing 25 percent of management, Cathay said. It will eliminate an additional 200 jobs, mostly from junior ranks, the South China Morning Post reported Monday separately.
“Job cuts is obviously the most effective measure in the short term but Cathay’s problem is not coming from within, it’s growing competition from outside, from full-service peers in the mainland and Middle-East to budget carriers,” Yu Zhanfu, a Beijing-based principal at Roland Berger Strategy Consultants. “Cathay has been suffering decline in both yield and load factor. That’s what Cathay needs to urgently address by sharpening their competitiveness externally.”
Cathay has said it is targeting savings of about 30 percent from staff cost cuts at its headquarters. An official at Air China Ltd., which owns 30 percent of Cathay, said in March that the carrier will reduce more than HK$4 billion ($514 million) in costs over three years.
All employees whose roles will become redundant in the new structure will receive a severance package including up to 12 months’ salary, extended medical benefits including counseling and support, and additional and extended travel benefits, Cathay said.
©2017 Bloomberg L.P.
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Photo Credit: The new Chief Executive of Cathay Pacific says the job cuts are the first step in the transformation of the business. Anthony Kwan / Bloomberg