Cathay Pacific to reveal another massive hit from COVID

On January 22 last year, Cathay Pacific took the unusual step of issuing a press release with the first sentence all in bold: “Due to the evolving information from health authorities, we will allow crew members and front-line airport employees to wear surgical face masks when on duty at their discretion,” it said, blazed across the top.

Strange as it might seem now that masks are ubiquitous, the policy was well ahead of its time – and an omen of the chaos about to hit global air travel – coming just as the coronavirus was discovered in Wuhan.

A day later, regional unit Cathay Dragon suspended flights to and from the Chinese city for a month.

On January 26, the suspension was pushed to the end of March, and then matters snowballed as the pandemic took hold, ripping travel plans and the aviation industry apart.

The extent of the damage from 2020 on Hong Kong’s flag carrier will be revealed later today when Cathay releases its annual results. The airline has already warned the numbers won’t be pretty following a first-half loss of HK$9.87 billion (US$1.3 billion).

Even after a recapitalization in July that raised HK$39 billion and cost-reductions through layoffs, pay cuts and a skeleton flight schedule, Cathay was still burning through as much as HK$1.5 billion a month at the end of the year. Passenger traffic has slumped 99% from pre-pandemic levels.

“Our passenger business continues to face significant challenges,” Chief Customer and Commercial Officer Ronald Lam said in a statement on Cathay’s December traffic figures.

He’d been similarly downbeat in other monthly missives, apart from an optimistic note in the October release amid plans to open a travel corridor with Singapore. Lam described the bubble as “a hugely encouraging development.” It was soon snuffed out and the plan shelved due to a virus flareup in Hong Kong.

How Cathay saw the COVID crisis unfolding:

• Jan. 28: Cathay Pacific and Cathay Dragon will be progressively reducing the capacity of our flights to and from mainland China by 50% or more from Jan. 30 to the end of March.
• Feb. 17: Our performance deteriorated rapidly in the last week of January as the coronavirus situation became more severe. We saw significant cancellation of bookings within a short period.
• March 16: The challenge we are currently facing is unprecedented.
• April 16: Passenger demand dropped rapidly and tremendously in late March following the introduction of arrival restrictions on all non-resident visitors to Hong Kong, including transit passengers.
• May 15: This is the biggest challenge to aviation we have ever witnessed.
• Aug. 14: In addition to the COVID-19 pandemic, we have to contend with a looming global recession and geopolitical tensions.
• Sept. 14: We are weathering the storm for now, but the fact remains that we simply will not survive unless we adapt our airlines for the new travel market.
• Oct. 19: We expect we will be operating approximately 10% of our pre-pandemic passenger flight capacity for the rest of 2020 and under 50% for overall 2021.
• Nov. 5: Executive pay cuts will continue throughout 2021 and a third voluntary special leave scheme for non-flying employees will be introduced. There will be no salary increases for 2021.
• Dec. 16: We are still not seeing any meaningful improvement in our passenger business.

The pandemic came on top of a difficult 2019 for Cathay, when it was hit by political unrest in Hong Kong that at some points spread to the airport, paralyzing operations there.

The upheaval also contributed to a change in senior management, with Augustus Tang taking over as chief executive officer and Patrick Healy becoming chairman.

After the buffeting of 2020, this year hasn’t been much better.

While vaccines are starting to roll out globally and there’s talk the worst of the pandemic may be over, Hong Kong is still largely shut down to international travel due to mandatory 21-day quarantine requirements for returning residents (non-residents from outside mainland China, Macau and Taiwan aren’t allowed to enter the city).

A recent law requiring flight crew to quarantine has added to Cathay’s woes – and a further HK$300 million to HK$400 million to its monthly cash drain.

At its lowest points last year, Cathay flew just a few hundred passengers a day. On Dec.ember28, over the typically busy Christmas period, the airline, its vast international network in tatters, carried just 490 travelers.