Cathay Pacific Announces 600 Jobs To Be Cut At Hong Kong Head Office Until June, 200 More Expected To Follow

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Following dwindling profits Cathay Pacific announced today that it would cut 600 jobs at their Hong Kong headquarters including 25% of all management positions.

This latest move represents the pressure airlines like Cathay (and now Singapore Airlines) are under after years of good profits that now disappeared into thin air.

For years Cathay was one of the darlings for shareholder and customers with good service, modern planes and solid profits but under the surface issues started to brew such as labor issues with flight attendants and capacity problems at Hong Kong Airport.

South China Morning Post (see here) brought the story this morning that made the rounds in Hong Kong to the horror of Cathay employees in every department.

Cathay Pacific Airways confirmed on Monday morning it will shed almost 600 staff from its head office, in the biggest round of job cuts by Hong Kong’s flagship carrier in 20 years.

The airline said most of its restructuring will be finished by 2017, citing changing customer habits and a “challenging business environment” as causes.

Employees were informed on Monday that, as had already been reported in the Post, 190 management jobs would go immediately. A further 400 non-management staff will be cut by mid-June.

Those numbers account for 25 per cent of management staff and 18 per cent of non-management.

Frontline jobs, including pilots and cabin crew, will be spared. Sources familiar with the redundancies said the losses would eventually hit 800 employees, with 200 more than already announced to be culled from junior ranks.

The cuts are the first step in a three-year programme announced earlier this year aimed at turning around losses at the airline. They also mark the first major task overseen by new chief executive Rupert Hogg, who replaced Ivan Chu Kwok-leung earlier this month.

The airline business – comprising Cathay Pacific and Cathay Dragon – has been haemorrhaging cash, losing HK$3 billion in the past year. …

Cathay Pacific employs 19,000 people based in Hong Kong. Not counting frontline staff, including pilots and cabin crew, that leaves 3,000 employees in a variety of head office functions.

Savings from staff costs – HK$19.7 billion last year – could be tricky with the airline expected to add 1,300 cabin crew this year, while cutting management and costs at its headquarters.

On Monday, Cathay Pacific Local Staff Union chairman Joe Chu Yin-cheong told reporters outside the company headquarters: “It’s a bad atmosphere.” …

It was certain that the CX employees wouldn’t be exactly celebrating these news but sometimes things have to be done and cutting jobs at HQ first is probably the way that will affect the frontline procedures and service the least. Maybe the airline had way too much management and this was just the suitable situation to pull the trigger.

Regional competition has put a burden on Cathay Pacific and Cathay Dragon with many budget carriers offering decent point to point flights nowadays. Airlines in mainland China are also growing and serving destinations directly taking slices off Cathay’s cake and the airspace around Hong Kong is choking with traffic, already accounting for most of the delays with no sign that it will get better.

On top of it all expanding Hong Kong Airport is problematic and a third, much needed runway, subject to widespread criticism due to conservation issues.

Conclusion

Cathay Pacific might have reached their tipping point in terms of how much the airline can handle in terms of traffic expansion and operating as a traditional full service carrier while competition in the region is increasingly serving the needs of passengers who want to fly at a lower cost. All that while staff expenses push on the carriers profitability.

In fact Cathay isn’t the only flag carrier in this position as three days ago Singapore Airlines posted a surprise loss at its marquee brand for the first time in three years as Bloomberg reported (see here). The stock fell as much as 6 percent, the biggest intraday drop since August 2011.

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