Can Cathay Pacific get its act together, or is it time for Hong Kong authorities to take a stake in the airline?

Cathay Pacific Airways CEO Ronald Lam Siu-por found himself in the hot seat when he faced an aggressive panel of Hong Kong lawmakers who criticised the carrier’s “chaotic” management, slow pace of recovery and worsening service.

Members of the Legislative Council’s economic development panel did not hold back as they grilled him on a string of recent problems that hit the city’s flag carrier.

Cathay cancelled 786 flights between December last year and February for reasons that ranged from internal planning failures, an “unanticipated and sustained increase” in pilot absences because of seasonal illness and increased flights over the year-end holiday season.

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With an ongoing manpower shortage, the company was also forced to push back its target for restoring full pre-pandemic capacity from the end of this year to the first quarter of next year.

CEO Lam apologised handsomely as he told the lawmakers: “I admit that this situation hasn’t been satisfactory and we’ve disappointed our customers for causing all these inconveniences.”

He assured them that Cathay did not have any structural manning problems, had learned from its bad spell and that similar incidents would not occur again.

But critics worry the unsatisfactory recent events have hurt Hong Kong’s reputation as an international aviation hub, questioning if it is time for the government to relook its approach to Cathay.

Some suggested the Hong Kong government should take a stake in the airline to ensure the city regains its aviation hub status, a vision laid down by Beijing’s 14th five-year national plan.

They also questioned Cathay’s capability in light of Hong Kong International Airport’s third runway opening by the end of this year, boosting the hub’s capacity by 50 per cent to 120 million passengers and 10 million tonnes of cargo annually.

Cathay CEO Ronald Lam has faced a grilling from lawmakers over the airline’s recent performance. Photo: Jonathan Wong

For the city to stay ahead in the international aviation game, some recommended injecting stiffer competition, with Hong Kong granting more routes or traffic rights to other airlines.

This has not been a season of only bad news for Cathay, which is owned by Swire Pacific, with a 45 per cent stake, followed by mainland Chinese carrier Air China with 30 per cent.

The company wowed the industry last month reporting its first annual profit in four years at HK$9.78 billion (US$1.3 billion) last year, following losses of about HK$34 billion (US$4.3 billion) during the three years when Covid-19 crippled the travel industry.

The profit was Cathay’s highest since it reaped HK$14 billion in 2010, marking a strong post-pandemic recovery and an end to a string of large deficits.

The company was aided through the pandemic crisis by the government’s multibillion-dollar bailout plan, with preference shares worth HK$19.5 billion issued to the government as part of a recapitalisation deal.

Cathay bought back half the shares for HK$9.75 billion last December and said it planned to acquire the remainder by the end of July.

Flying to about 80 destinations worldwide, it accounted for over half the airport’s passenger throughput last year, carrying more than 20 million passengers. It also delivered 19.6 per cent more cargo at 1.38 million tonnes last year compared with 2022.

It has also been consistently rated as one of the world’s top airlines.

Cathay Pacific budget carrier HK Express eyes mainland China for expansion

Flag carrier struggling to regain former glory

But if there is one issue about Cathay that bothers business magnate Allan Zeman, it is the airline’s ongoing staffing crunch, especially the shortage of pilots.

“The pilots are like the lifeline of an airline. Without the staff, it can’t fly. But it takes time to train new pilots,” he said.

It shed a record 5,900 jobs – including pilots – in October 2020, when it axed regional airline Cathay Dragon and imposed a range of permanent and temporary staffing cuts in the first half of 2021, further reducing its workforce by 2,500.

At the end of last year, Cathay said it needed another 500 pilots this year to meet its target of restoring full pre-pandemic capacity.

It hired 461 trainee pilots last year, recruited from the city and the mainland. About 270 former pilots also rejoined the airline, including 151 from the now-defunct Cathay Dragon.

Business magnate Allan Zeman has expressed doubts over whether Cathay can meet its recovery target. Photo: Edmond So

The new hires bring the number of pilots up to 3,400, still below the pre-pandemic level of 3,800. The group has more than 23,800 employees worldwide, of whom 19,600 work in Hong Kong.

But Zeman still doubted that Cathay would meet its recovery target.

“I have my fingers crossed that they can do it by the first quarter of 2025, but I am still questioning if it’s possible,” he said. “If it doesn’t happen by then, we really need to look at a backup plan.”

A former Airport Authority member, he said the government should explore grooming a second flag carrier.

“Hong Kong is too important to be overreliant on one airline now,” he said.

Competition would create a lot of advantages for Hong Kong, he said, as it would bring down airfares, attract visitors and possibly better service too.

“Competition keeps businesses on their toes,” Zeman said. “When you have competition, you do whatever you can to increase your service and watch your fares. When we don’t have competition, we become complacent.”

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Can Hong Kong afford a second flag carrier?

But Law Cheung-kwok, a senior adviser at the Chinese University of Hong Kong’s aviation policy and research centre, disagreed, saying: “The city’s aviation market is too small to allow the existence of two [flag carriers].”

He said it took years of effort and market development for Cathay to achieve its status as the city’s dominant airline, and that had nothing to do with favouritism from the government.

“It’s the same everywhere in the world, where one country only has one [flag carrier] or national airline,” he said. “We have had other local airlines before, but they couldn’t survive.”

The city has three other local airlines now – Greater Bay Airlines and Hong Kong Airlines, and HK Express, which is fully owned by Cathay.

Hong Kong Airlines has been hit hard by financial turmoil after its parent HNA Group went into bankruptcy restructuring following Beijing’s clampdown on its aggressive asset acquisitions overseas.

In December 2022, it was approved by the city’s court for a HK$49 billion debt restructuring plan in a bid to keep its business afloat.

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Law pointed out that Hong Kong Airlines used to operate long-haul flights before the pandemic but had not resumed them yet, while the other two carriers only operated short-haul flights.

“In the future, whether those airlines launch long-haul flights is ultimately a decision for them to make themselves,” he said. “They are not subject to specific restrictions and are allowed to operate them within the scope of their capabilities. It all depends on the demand.”

Other airlines have failed to take off in the past. Oasis Hong Kong Airlines, founded in 2005 to run long-haul, low-cost services to London and Vancouver, was voted “World’s Leading New Airline”, but went bust three years later after accumulating losses of HK$1 billion.

Law said Cathay had a lot of clout in the authorities’ decisions to sign air traffic rights deals through bilateral air services agreements.

“As Cathay is Hong Kong’s largest carrier, the government will consult it before applying for an air traffic right with another place. It must ensure local airlines will provide the relevant service otherwise it will be pointless to make the deal,” he said.

Lawmaker Frankie Yick Chi-ming, who represents the transport sector, said the aviation industry’s recovery could not rest solely on Cathay, but also on Hong Kong’s other three other airlines.

“As an aviation hub, having a strong home carrier is crucial because it allows for seamless connections. However, it doesn’t mean granting it a monopoly,” he said.

“There should also be opportunities for other airlines to grow. As consumers, we certainly desire competition and more affordable options.”

Concerns have been raised over whether Cathay has sufficient pilots to meet service demand. Photo: Eugene Lee

An aviation insider said local airlines had to negotiate hard with the government to acquire new routes.

Newcomer Greater Bay Airlines, founded in 2020, once appealed openly to the government to strike a balance on the allocation of air traffic rights so that it could compete in a market dominated by Cathay.

Liza Ng, its newly appointed CEO, told the Post: “The authorities may seriously consider opening up the traffic rights, bringing more opportunities to other airlines.

“We believe competition leads to higher quality and efficiency, benefiting the overall development of the aviation industry and reinforcing Hong Kong’s status as an international aviation hub.”

Greater Bay Airlines currently flies to seven destinations in Asia with a fleet of eight aircraft.

Ng said its network would be expanded with a daily service to Singapore later this month and new services to mainland cities such as Shanghai and Beijing.

But she admitted that the manpower shortage remained a major issue hindering the development of the airport and airlines.

Hong Kong’s Greater Bay Airlines aims to land pilots, cabin crew from mainland

It is recruiting pilots locally and from overseas, and has hired cabin crew from Shenzhen.

A source close to the aviation industry told the Post it made sense to allow the other local airlines to fly to more destinations, as this could help cement Hong Kong’s aviation hub status, bring down airfares and attract more visitors.

He said Turkish Airlines had applied to increase the number of weekly direct flights between Istanbul and Hong Kong from the current six to 14 because of rising demand.

The insider said Turkey was also keen for more direct flights between the city and Istanbul operated by local airlines, preferably Cathay.

“The Hong Kong government should allow local airlines to run more direct flights between the two places because Istanbul is a superconnector to many different destinations in Europe and other places in the world,” he said.

‘Government stake will keep Cathay in check’

Lawmaker Michael Tien Puk-sun, former chairman of the Kowloon-Canton Railway Corporation, is one of those who believes it would be beneficial for the government to take a stake in Cathay.

“With the government as a shareholder, it will help Cathay secure many new international air routes and those in mainland China. It can also serve as a bridge providing through-train service between the West and the mainland,” he said.

Tien said a government stake would also hold Cathay to greater accountability and scrutiny to ensure it improved its performance.

“It’s so strange that the government has no say in Cathay even though it is being granted [flag carrier] status with so many privileges,” he said.

“The government as a shareholder can also force the carrier to set up a penalty system for flight cancellations due to poor planning.”

Some lawmakers and academic have backed the idea of authorities taking a stake in Cathay. Photo: Xiaomei Chen

Economist Simon Lee Siu-po, an honorary fellow at the Chinese University of Hong Kong’s Asia-Pacific Institute of Business, agreed that a government stake was a way to exert influence over the airline but questioned if that would be best for Cathay.

“I have doubts about the government’s capabilities to scrutinise the company, and it may have a side effect of inappropriately meddling with the airline’s commercial operations,” he said.

He added that there was nothing to stop the government from imposing a penalty for unsatisfactory performance by Cathay.

Lawmaker Jeffrey Lam Kin-fung, a member of the key decision-making Executive Council, said there were many ways for the government to put pressure on the company, including investigations or tighter requirements when the airline applied for new air routes.

He said it was necessary to maintain Cathay’s premier status for its strategic importance with extensive global connectivity.

“As a [flag carrier], Cathay is charged with greater responsibility of providing air service to even unprofitable destinations if they are conducive for the city’s development,” he said.

Lam cited the example of Cathay’s plans to reinstate a strategic passenger route between Hong Kong and Riyadh later this year as the government pursued stronger trade and investment links with Saudi Arabia.

Hong Kong’s Cathay ‘learns lesson’, pushes back capacity target by 3 months

Responding to queries from the Post, Cathay said it would continue to add more flights and more destinations progressively in the mainland and countries in the Belt and Road Initiative, China’s massive multinational infrastructure initiative.

“This year, we relaunched our services to Colombo and Chennai, and we are excited to be resuming our services to Barcelona in June,” it said. “Rebuilding the network is a complex process that takes time, and our rebuilding trajectory has been absolutely in line with our global peers.”

The Transport and Logistics Bureau said it would continue to encourage local airlines to strengthen services in response to demand and make the most of opportunities from the airport’s third runway.

Its spokesman said the government would focus on the airport’s current major routes and those with potential in the belt and road plan, including destinations in Europe, Africa, South America and Asia.

Too few pilots, roster chaos: behind Cathay Pacific’s flight cancellations

That would strengthen aviation services between Hong Kong and those regions, consolidating and expanding the city’s aviation network, he added.

“The Airport Authority has also been discussing with non-local airlines to launch and increase flights to and from Hong Kong,” he said.

Mayur Patel, head of Asia for aviation analytics firm OAG, expressed confidence in Cathay’s ability to strengthen the city’s aviation hub status, pointing to its investment in more than 70 new aircraft.

“A strong aviation hub requires a strong home carrier and with Cathay Pacific Group’s robust financial and investment programme, this reinforces Hong Kong’s leading aviation hub status,” he said.

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