Augustus Tang
Cathay Dragon brand is to be retired and 8,500 jobs eliminated as Cathay Pacific Group struggles with a cash burn of HK$1.5 to $2 billion a month. Augustus Tang, Chief Executive, has told staff this in a letter in which he repeatedly says sorry, but warns it is about the airlines’ very survival. Mr Tang said passenger travel is estimated not to return to pre-Covid levels until 2024. The savings will cut losses by about $500 million a month. Analysts were quick to predict that it will not be enough. “If you are still losing $1 billion, or more, a month, is that not completely unsustainable?”
Here’s Mr Tang’s letter in full:
Dear colleagues,
The global pandemic continues to have a devastating impact on aviation and on our business. Our passenger airlines are wholly dependent upon cross-border travel, making the situation even more challenging for us than many of our global peers. In September we carried around 1,500 passengers a day compared to the nearly 100,000 we would normally expect to carry.
We have taken every possible action to avoid job losses up to this point. We have scaled back capacity to match demand, deferred new aircraft deliveries, suspended non-essential spend, implemented a recruitment freeze, executive pay cuts and two Special Leave Schemes. We have taken every conceivable measure to protect the maximum number of livelihoods.
Our recent recapitalisation has enabled us to continue to operate. Thanks to the HKSAR Government, our shareholders, our business partners, and most of all thanks to our outstanding people, so far we have been able to weather the storm.
But in spite of these efforts, we continue to burn HKD1.5-2.0 billion cash per month, which is unsustainable. The future remains highly uncertain but regrettably it is quite clear now that recovery will be slow. IATA predicts that passenger travel will not return to pre-COVID-19 levels until 2024.
We have listened to the views of different employee groups and studied multiple scenarios. We have adopted the most responsible approach to retain as many jobs as we possibly can. Even so, we expect to operate well under 25% of 2019 passenger capacity in the first half of 2021 and well below 50% for the entire year.
Unfortunately, we will not survive without further measures. The hard truth is that we need to fundamentally restructure the Cathay Pacific Group in order to secure our future. This is the only way we can meet our responsibilities to the Hong Kong aviation hub and our customers, and to protect as many jobs as possible.
To achieve these goals we must create a more focused, more efficient and more competitive business. This means focusing on two clearly segmented passenger brands, harnessing Cathay Pacific’s premium experience and strong brand recognition, complemented with the low-cost model of HK Express. Sadly, this means that we have decided to cease Cathay Dragon operations and retire the Cathay Dragon brand. Over its 35 years, the Cathay Dragon brand has earned a well-deserved reputation for excellence thanks to its outstanding service and distinct hospitality, delivered by a remarkable team.
But the toughest aspect of today’s announcements is that we must part ways with many of our talented and respected colleagues. Approximately 8,500 positions across our entire Group (including Cathay Dragon) will be eliminated, which accounts for around 24% of our Group’s established headcount of 35,000. However, through a recruitment freeze and natural attrition, we have been able to reduce the impact on actual jobs to approximately 5,900 (or 17%).
Unfortunately, this still means that approximately 5,300 Hong Kong-based employees will be made redundant in the coming weeks, with some 600 employees based outside of Hong Kong also possibly being affected. This is a heart-wrenching decision to have to make, for which I am truly sorry.
Following this message, our People team will email all employees with more details. We will handle the process as swiftly and supportively as we can, and the vast majority of those affected will be informed today. The severance packages we have put together are designed to support those impacted as much as we can. Nevertheless, this will undoubtedly be a time of great anxiety and distress for those of you leaving, and for that I am deeply sorry.
In addition to these redundancies, in order to secure a sustainable future, we also need to enhance our productivity. To this end we will be asking our Hong Kong-based pilots and cabin crew to transition onto new conditions of service. These new contracts will continue to provide comprehensive benefits for all our flight crew, but they will enable us to remain market competitive in the current environment. Again, this is not an easy decision, but maintaining a competitive business model is essential to our survival.
As a continuation of our ongoing cash preservation measures, there will be no salary increases for 2021, nor the payment of the annual discretionary bonus for 2020 across the board for all employees. Executive pay cuts will continue throughout 2021, and a third voluntary Special Leave Scheme for non-flying employees for the first half of next year will be introduced. We are grateful for the exceptional support many of you have shown for our first two Special Leave Schemes and I sincerely hope that you will show your support again.
A combination of everything we are announcing today – the redundancies, the transition onto new conditions of service, and the efficiencies gained by discontinuing Cathay Dragon operations – will together reduce our monthly cash burn from today’s HK$1.5 – 2bn by about HK$500m per month, thereby helping to bring our losses onto a more sustainable footing. As you can see from these figures, actions on this scale are urgent and absolutely necessary to stem the losses and secure our future.
For those of you leaving the company please know that the decisions we have had to make are in no way a reflection on you. You should each be proud of everything you have achieved during your time with the Group.
The coming weeks will be emotionally fraught, for which I am truly sorry, and you have my assurances that the redundancy process will be carried out respectfully, fairly and with as much support as possible. I know our team and I know that you will do everything to support each other as well. I want to extend a heartfelt thank you to all of you for your hard work, achievements and dedication. Nothing would give me more pleasure than to welcome back many of you to rejoin us when we are growing and recruiting again.
We are a resilient company and a proud Hong Kong brand known and respected all over the world. And whilst this is unquestionably an extremely challenging time, I am confident in this plan and I know we will prevail. We remain absolutely confident in the long-term future of Cathay Pacific and the Hong Kong aviation hub.
The next few weeks and months will be tough, made worse as we part ways with people who have all contributed so much to our company. I ask you particularly at this time to look out for one another. Today’s decisions are necessary, brought about by the global pandemic, but it is the human impact of today’s announcements which must be our priority for now.
Yours sincerely,
Augustus Tang
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