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A Chinese state-run company told employees not to fly Cathay Pacific Airways, according to people familiar with the matter, a sign the fallout for Hong Kong’s dominant carrier is spreading after its employees took part in anti-Beijing protests.
China Huarong International Holdings, a Hong Kong-based unit of China’s largest bad-debt manager by assets, sent out a message to workers on Friday to choose airlines other than Cathay or its Dragonair unit when flying on business or personal trips, said the people, asking not to be identified as they aren’t authorized to speak publicly about the matter.
Cathay, whose shares tumbled Monday, has become a target after some of its employees joined the anti-Beijing demonstrations that have gripped Hong Kong for more than two months. On Friday, the Civil Aviation Administration of China issued a swathe of demands to the carrier, an indication that Beijing is prepared to take action against corporations seen as supporting — or at least tolerating — staff participation in the long-running protests sweeping the former British colony.
Representatives at Huarong International and Cathay didn’t immediately respond to requests for comment.
The authority ordered Cathay to ban all employees who supported or joined the protests from flying to the mainland. The clampdown marked one of the strongest signs that China’s government is losing patience with the demonstrations.
In response, Cathay said it took the directives very seriously. It suspended a pilot who had been detained while participating in a protest and fired two workers for “misconduct.”
In a message to Cathay staff on Saturday, Chief Executive Officer Rupert Hogg said the airline is obliged to follow the instructions from China. “As is the case with any notices issued by any regulatory authority having jurisdiction over us, we must and will comply,” he wrote.
Cathay’s operations in mainland China “are key to our business,” Hogg said. A large number of the airline’s routes to Europe and the U.S. also fly over mainland China airspace, he said.
Cathay shares lost as much as 4.7 percent to $1.25 (HK$9.82) on Monday and the shares were set to close at their lowest levels since June 2009. Swire Pacific, Cathay’s parent, fell as much as 5.4 percent.
Over the weekend, signs emerged that Hong Kong authorities used more aggression against demonstrators, with riot police videotaped beating demonstrators in subway stations.
For Cathay, the aviation regulator’s directive forces it to choose between fueling the wrath of its workers, or those of China — possibly the company’s most important market. Though the carrier doesn’t disclose a breakdown of its mainland China business, flights originating from there and Hong Kong account for about half the firm’s revenue.
The Chinese authority’s order could threaten not only Cathay’s direct flights to China but also those to Europe and the U.S. because those routes fly over Chinese airspace, Jefferies Hong Kong analyst Andrew Lee wrote in a note to clients.
The Hong Kong Cabin Crew Federation expressed “deep regret” over the Chinese regulator’s demands and criticized the CAAC for making policies restricting Hong Kong people’s legal rights and freedom, and damaging the “one country, two systems“ principle by which the city is governed.
Cathay is controlled by the U.K.’s Swire family, though the airline counts government-run Air China as its second-largest shareholder. One of the most high-profile brands in Hong Kong, Cathay became a visible target for Beijing last week after many of its employees took part in a general strike that resulted in the cancellation of hundreds of flights.
In its warning on Friday, the Chinese regulator ordered Cathay to submit a plan for boosting internal controls, flight safety and security by August 15.
Cathay’s actions, or lack thereof “have led to a severe threat to aviation safety, created negative social impact and increased the risk of flying from Hong Kong to the mainland,” according to the CAAC statement.
©2019 Bloomberg L.P.