Amidst mounting competition from Chinese and regional airlines, Cathay Pacific Airlines Ltd. is experiencing a lot of delays. The airline was recently reprimanded for operational shortcomings by the local aviation regulator. However, among the few, Hong Kong’s flagship carrier’s shares have increased over the last six months, exceeding peers. It might yet be underappreciated.
Cathay Pacific, the Hong Kong flag carrier, has been struggling to overcome the challenges it faced over the years. Despite using the tagline “Move Beyond” in its marketing, the airline has been facing numerous issues. After being hit by pandemics and other setbacks, Cathay Pacific was hoping to return to full capacity and a positive trend in its fortunes by 2024.
Cathay Pacific Airways seems to be enjoying a good year in terms of profitability. The company is confident that its full-year results, which are scheduled to be released in March, will show that it has finally ended a three-year period of annual losses.
However, the airline is facing several other challenges, including a severe shortage of pilots, low morale among the cabin crew, a poor stock price, and customer complaints regarding flight cancellations.
The head of the region has expressed concern to the public after more than 80 flights were canceled since Christmas Eve. This week, John Lee stated that “providing passengers with satisfactory service is the basic requirement for airlines.” The Hong Kong Aircrew Officers Association, which represents pilots in Hong Kong, has demanded an investigation into the cancellations and pilot shortages.
One local politician who supports Beijing, Gary Chan, had his ticket to mainland China canceled this week. He expressed regret that it would be “difficult not to develop a lack of trust” towards the airline.
The issues faced by an airline have resulted in a loss of trust among its employees. This airline was previously recognized as the best in the world by Skytrax consultancy four times, with the most recent recognition being in 2014. “You used to be at the top of the Premier League,” said a pilot who has been working with the airline for over 25 years. However, due to recent events, the airline has now fallen to almost the bottom.
As of last month, the pilot headcount at Cathay was nearly 40% less than the levels in 2019, despite their active hiring drive, as reported by the HKAOA. The number of cabin crew members was also almost 50% less than pre-Covid data, according to the flight attendants union.
According to Jason Sum, an equity research analyst at DBS Bank, manpower is the biggest obstacle to Cathay’s capacity expansion. “Replenishing their ranks with pilots is a formidable task due to the strong demand for pilots around the world,” he explains.
Cathay had to eliminate 8,500 positions in 2020 and discontinue the Cathay Dragon brand due to the pandemic. Currently, the airline is in the process of rebuilding its staff. The company also faced a pilot exodus following a salary reduction of up to 40%. Some foreign pilots were also turned off by the political crackdown and strict zero-Covid hotel quarantine laws in Hong Kong.
According to a pilot for Cathay, the airline is currently “flying on borrowed time”. Over the past year, a number of pilots have exceeded the allowed 900-hour rolling flying limit. Some pilots have reported that they are currently flying around 100 hours per month, which is more than the estimated 85 hours per month, minus leaves. In contrast, rival airline Singapore Airlines has stated that it has welcomed back the majority of its more than 3,000 pilots, with only a small number leaving. Last month, the airline said it was expecting to reach 92% of its pre-pandemic operations.
DBS’s Sum is positive about Cathay’s earnings trajectory over the medium term but predicts that the airline will struggle to achieve its objective of reaching 100% pre-pandemic capacity by the end of 2024 unless it offers a more competitive pay package for pilots.
Cathay has apologized for the flight cancellations and announced that its Chief Operating Officer and Service Delivery Officer, Alex McGowan, will lead a task team to identify and resolve the underlying issues. In a statement, he said that the disruption caused was far below the standard to which they hold themselves.
As Cathay Pacific airlines establishes its new identity with a home base in the Greater Bay Area – an 11-city metropolis circle in southern China, the airline is also moving closer to Beijing. This move comes in response to Beijing’s criticism of the airline in 2019 over certain staff members’ involvement in Hong Kong’s pro-democracy movement. A senior Cathay executive confirmed last month that the airline plans to establish itself as the premier carrier in the Greater Bay Area and create an “extended headquarters” in Shenzhen by 2022.
Some employees at Cathay are still pessimistic about the company’s outlook. A senior captain at the airline who intends to resign in the next few months and move to the United States stated that “Cathay now has such a poor reputation among the international pilot community.” He added that “most of us are preparing a backup plan.”
