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Cathay Dragon axed with thousands of redundancies

Regional carrier Cathay Dragon ceased operations for good this week.

In a devastating blow for Hong Kong’s airline industry, Cathay Pacific Group confirmed this week that it will be axing its regional subsidiary, Cathay Dragon, with almost 6,000 redundancies across the entire group.

The restructuring of the city’s flag carrier has been driven by the impact of the coronavirus pandemic which has drastically reduced customer demand.

In a statement, the group said the restructuring will “enable the company to secure its future, so it can protect as many jobs as possible whilst meeting its responsibilities to the Hong Kong aviation hub and its customers.”

The restructuring includes 5,300 Hong Kong-based employees and a possible 600 employees overseas being made redundant. Meanwhile, remaining cabin and cockpit crew will be asked to agree to changes in their conditions of employment “to match remuneration more closely to productivity.”

Executive pay cuts will continue throughout 2021 and there will be no salary increases next year. No employee bonuses will be paid for 2020.

“The global pandemic continues to have a devastating impact on aviation and the hard truth is we must fundamentally restructure the group to survive,” said Cathay Pacific chief executive officer Augustus Tang. “Our immediate priority is to support those affected by today’s announcement. We are deeply saddened to part ways with our talented and respected colleagues, and I want to thank them for their hard work, achievements and dedication.”

Cathay said it will be offering severance packages “well beyond statutory requirements”, as well as extending medical benefits and staff travel entitlements and providing counselling and job transition support services.

“We have taken every possible action to avoid job losses up to this point,” said Tang. “We have scaled back capacity to meet demand, deferred new aircraft deliveries, suspended non-essential spend, implemented a recruitment freeze, executive pay cuts and two rounds of Special Leave Schemes.”

But despite these efforts, Cathay continues to burn HK$1.5 to 2 billion cash per month. It's hoped the changes announced this week will reduce cash burn by HK$500 million per month.

“It is quite clear now recovery is going to be slow,” said Tang. “We expect to operate well under 25% of 2019 passenger capacity for the first half of 2021 and below 50% for the entire year.”

Cathay Pacific Group traffic figures for September show significantly reduced demand with a decrease in passengers carried of more than 98% compared to September 2019.

“September rounded off what has been an incredibly difficult summer, traditionally the peak passenger travel season of the year,” said Ronald Lam, Cathay Pacific Group chief customer and commercial officer. “We continued to operate minimal capacity - just nine per cent in September - a marginal increase from about eight per cent in August… We assume we will be operating well below a quarter of pre-pandemic capacity in the first half of next year but will see a recovery in the second half of the year - only assuming the vaccines currently under development prove to be effective and are widely adopted in our key markets by summer 2021.”

The group is now seeking regulatory approval for Cathay Dragon's flight routes to be taken over by Cathay Pacific or its budget subsidiary airline, HK Express.


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