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MarketScreener Homepage  >  Equities  >  Hong Kong Stock Exchange  >  Cathay Pacific Airways Limited    293   HK0293001514

CATHAY PACIFIC AIRWAYS LIMITED

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Cathay Pacific to slash workforce, end Cathay Dragon brand due to pandemic

10/20/2020 | 08:03pm EST

* Restructuring to cost $284 mln

* Airline to seek changes in pilot, cabin crew contracts

* Will cut 8,500 positions but 2,600 are unfilled currently

* Share price rises as overhang lifted - Jefferies

SYDNEY, Oct 21 (Reuters) - Hong Kong's Cathay Pacific Airways Ltd said on Wednesday it would slash 5,900 jobs and end its regional Cathay Dragon brand, joining peers in cutting costs as it grapples with a plunge in demand due to the coronavirus pandemic.

The airline would also seek changes in conditions in its contracts with cabin crew and pilots as part of a restructuring that would cost HK$2.2 billion ($283.9 million).

Overall, it will cut 8,500 positions, or 24% of its normal headcount, but that includes 2,600 roles currently unfilled due to cost reduction initiatives, Cathay said.

"The actions we have announced today, however unpalatable, are absolutely necessary to bring cash burn down to more sustainable levels," Cathay Chairman Patrick Healy told reporters.

Cathay shares jumped almost 7% during early trading and closed 2.3% higher, with broker Jefferies saying the announcement removed a key overhang on the stock.

Singapore Airlines Ltd and Australia's Qantas Airways Ltd have already announced similarly large payroll cuts, as the International Air Transport Association forecasts passenger traffic will not recover until 2024.

Cathay, which has stored around 40% of its fleet outside Hong Kong, said on Monday it planned to operate less than 50% of its pre-pandemic capacity in 2021.

After receiving a $5 billion rescue package led by the Hong Kong government in June, it had been conducting a strategic review.

The airline said it was bleeding HK$1.5 billion to HK$2 billion of cash a month and the restructuring would stem the outflow by HK$500 million a month in 2021, with executive pay cuts continuing throughout next year.

BOCOM International analyst Luya You said she had expected more strategic insight from the airline on its fleet plans and route network as part of the restructuring.

"Had they revealed more on fleet planning for 2021-22, we would get a much better sense of their outlook," she said.

Cathay will postpone the delivery of its 21 Boeing Co 777-9 jets on order beyond 2025, Healy said.

EXIT THE DRAGON

The decision to end regional brand Cathay Dragon is in line with rival Singapore Airlines' pre-pandemic move to fold regional brand Silkair into its main brand, though in this case 2,500 Cathay Dragon pilots and cabin crew will lose their jobs.

Cathay Dragon, once known as Dragonair, operated most of the group's flights to and from mainland China and had been hit by falling demand before the pandemic due to widespread anti-government protests in Hong Kong.

Plans to merge Cathay Dragon into Cathay's main brand earlier this year hit roadblocks from China's aviation regulator because of infractions during last year's pro-democracy protests, two sources told Reuters in May.

Cathay said the airline would cease operating immediately and it would seek regulatory approval to fold the majority of Cathay Dragon's routes in Cathay Pacific and low-cost arm HK Express.

Healy said there would be "substantial savings" from combining Cathay Dragon's narrowbody fleet with Cathay Pacific's longhaul fleet and focusing on marketing of a single premium brand.

In the short-term, the closure of the Cathay Dragon brand will result in it being unable to carry cargo to Fuzhou, Guangzhou, Kuala Lumpur and Fukuoka, and it will only send dedicated freighters to Xiamen, Chengdu and Hanoi, it told cargo customers in a memo, indicating the routes were cut for now.

Like Singapore Airlines, Cathay lacks a domestic market to cushion it from the fall in international travel due to border closures.

In September, Cathay's passenger numbers fell by 98.1% compared with a year earlier, though cargo carriage was down by a smaller 36.6%.

Cathay shares have fallen 41% since the start of January.

The airline's share register is dominated by Swire Pacific Ltd, Air China Ltd, Qatar Airways and the Hong Kong government, with only a 12% free float.

($1 = 7.7500 Hong Kong dollars) (Reporting by Jamie Freed; Additional reporting by Stella Qiu in Beijing; Editing by Stephen Coates and Louise Heavens)


© Reuters 2020
Stocks mentioned in the article
ChangeLast1st jan.
AIR CHINA LIMITED 0.84% 8.37 End-of-day quote.-13.62%
CATHAY PACIFIC AIRWAYS LIMITED 0.27% 7.45 End-of-day quote.-35.33%
QANTAS AIRWAYS LIMITED 1.46% 5.55 End-of-day quote.-21.94%
SINGAPORE AIRLINES LIMITED -0.68% 4.35 End-of-day quote.-51.88%
SWIRE PACIFIC LIMITED 0.11% 44.4 End-of-day quote.-38.67%
THE BOEING COMPANY 2.70% 218.52 Delayed Quote.-35.32%
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Financials
Sales 2020 45 785 M 5 905 M 5 905 M
Net income 2020 -19 021 M -2 453 M -2 453 M
Net Debt 2020 53 282 M 6 872 M 6 872 M
P/E ratio 2020 -1,95x
Yield 2020 0,11%
Capitalization 47 828 M 6 170 M 6 169 M
EV / Sales 2020 2,21x
EV / Sales 2021 1,49x
Nbr of Employees 33 000
Free-Float 17,1%
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Technical analysis trends CATHAY PACIFIC AIRWAYS LIMITED
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Mean consensus OUTPERFORM
Number of Analysts 14
Average target price 7,50 HKD
Last Close Price 7,43 HKD
Spread / Highest target 19,8%
Spread / Average Target 0,94%
Spread / Lowest Target -24,6%
EPS Revisions
Managers
NameTitle
Kin Wing Tang Chief Executive Officer & Executive Director
Patrick Healy Chairman
Gregory Thomas Forrest Hughes COO, Director & Chief Service Delivery Officer
Martin James Murray Chief Financial Officer & Executive Director
Jian Jiang Cai Deputy Chairman
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