Both airlines have stood out for over half a century as aviation powerhouses and prestigious brands
NEW DELHI • They’re both pillars of their economies, highly regarded by customers and totally reliant on international travel. They’re also in deep financial strife and shedding thousands of jobs because of the virus crisis.
Cathay Pacific Airways Ltd and Singapore Airlines Ltd have stood out for over half a century as aviation powerhouses, prestigious brands atop a lucrative market fuelled by Asia’s economic boom. The pandemic has severely hurt the pair, but Hong Kong-based Cathay is likely in a tougher spot, analysts say.
Cathay said on Wednesday it is laying off nearly 6,000 people — including about 600 pilots — and eliminating 2,600 vacant positions, which combined amount to about 24% of its total workforce. It’s also shuttering regional airline Cathay Dragon and redoing contracts for pilots and cabin crew. The goal is to reduce unsustainable cash burn by HK$500 million (RM300 million) a month.
“In these straitened times, we must focus on a single world-leading premium travel brand — Cathay Pacific — complemented by a single low-cost leisure travel brand — HK Express,” Cathay chairman Patrick Healy said on Wednesday, referring to the budget carrier the company acquired last year.
Cathay’s cull follows Singapore Airlines saying in September that it was cutting 20% of its workforce, or 4,300 positions, not long after it raised US$11 billion (RM45.65 billion) from a rights issue and loans. Cathay also raised billions of dollars in a restructuring in June that, among other things, resulted in the Hong Kong government getting a stake and two observer seats on its board.
The outlook remains challenging at best, with Cathay warning that it will be operating at well under 50% of pre-pandemic passenger capacity next year. And that’s its most optimistic scenario. Cathay’s shares fell 3.1% yesterday morning, erasing the previous day’s gain.
Singapore Airlines is in a better position because its staff costs are about 20% lower than Cathay’s, said K Ajith, an analyst at UOB Kay Hian Pte Ltd in Singapore. Still, he raised his rating on Cathay to ‘Buy’ and also upgraded Singapore Airlines to ‘Buy’ yesterday.
“We’re expecting Singapore Airlines’ earnings to show some improvement in the fiscal year second quarter, while for Cathay it will be in the first half,” he said. “This improvement in earnings for Cathay will be driven by its cargo business.”
Passenger numbers have dwindled alarmingly at both Cathay and Singapore Airlines, which are even more vulnerable than most during this crisis as they don’t have any domestic market to help fill some of the void left by the lack of international travel due to border closures.
“The future remains highly uncertain,” Healy said on Wednesday. “This crisis is deeper, and the road to recovery slower and more patchy than anyone thought possible just a few short months ago.”
When Singapore Airlines announced its job cuts in Septem- ber, including at its SilkAir and Scoot units, CEO Goh Choon Phong said it wasn’t clear which airlines globally would survive.
The city-state’s flag carrier initially managed to resist job losses thanks to aid from a government job-sup- port programme. Like Cathay, Singapore Airlines dominates the aviation industry in its home market, saying it supports more than 12% of its GDP and 375,000 jobs.
Beyond the similarities lies a striking difference: Cathay has to balance its Hong Kong roots with its ties to Beijing. The airline was criticised by China last year after staff took part in anti-government demonstrations, and then faced a backlash for acquiescing to Chinese demands.
More broadly, the unrest in Hong Kong meant Cathay was stuck with a slump in revenue prior to the pandemic as people refrained from travelling to the city. Cathay issued profit warnings toward the end of 2019 and said, even then, that the short-term outlook was challenging and uncertain.
The rise of Chinese carriers also complicates Cathay’s position as they are capable of engaging in price wars and could reduce the relevance of Hong Kong as a hub with their direct flights from the mainland to the US and Europe. — Bloomberg