Cathay Pacific is in a tough spot. With Hong Kong protests rocking the special administrative region and growing pressure from China over multiple issues, I’m beginning to wonder how the carrier is going to weather this crisis. If the crisis drags on, it is increasingly likely that Cathay Pacific will suffer financially. The question is: will this be enough to put them over the brink?
Caught in the Middle
On one hand, Cathay Pacific is being called upon to stand with the freedom of speech of their employees. This comes from the Hong Kong Confederation of Trade Unions, after Cathay Dragon, a subsidiary of the airline, fired one of its flight attendants who was a union leader. Rebecca Sy, the employee in question, was pulled from a flight bound for mainland China and questioned over political posts she had made on Facebook. Sy still maintains that she hasn’t violated any rules. Hundreds have protested this decision.
Cathay Pacific tried to stay neutral as the protests mounted, but they became quickly embroiled in the political tension, facing mounting pressure from both sides. Citizens of Hong Kong, used to greater freedoms than mainland Chinese, have called on the airline to stand by their employees. Initially, the chairman did just this, stating he would not tell any of his employees what to think. But maintaining this stance could be economic suicide.
The difficulty for Cathay is that China can easily play hardball with the Hong Kong’s flag carrier. Some of their state-run companies are have told their staff not to fly the Hong Kong carrier. China also demanded that Cathay keep crew who participated in the protests from working flights bound for mainland China. Cathay quickly complied. The alternative was the potential closure of Chinese airspace if they did not comply with the rules, which would spell certain death for the carrier. They would easily lose a third of their passenger traffic.
Cathay’s CEO Resigns
Beijing has gone so far as to pressure Cathay’s CEO into resigning. This is the same Rupert Hogg who had stated that employees would be left alone. He quickly had to backpedal, eventually even threatening that employees who participated in the protests could be sacked. But that wasn’t enough. He had to go, and to take responsibility for how the airline’s response to the protests has been managed.
The whole situation is foreboding for the former British colony. Its citizens were promised a “high degree of autonomy”, operating as two separate systems under one China. But the state of these protests shows illustrates the deep divide between Hong Kong and the Beijing government. Cathay Pacific is caught in the middle and cannot win.
Not to Mention Financial Trouble
With airport operations suspended for multiple days and the growing boycott from mainland Chinese companies, Cathay Pacific is sure to face financial trouble in the short-term. But the long-term outlook has already been fairly bleak. The carrier posted back-to-back losses, even though their cargo unit performed better than expected. With cargo potentially down due to trade tensions between the U.S. and China, the carrier could face an even more stressful time.
Cathay Pacific has already been under-performing financially for a number of years. While they used to be an excellent hub for getting two and from Asia, other Chinese carriers are providing a lot more competition. The mainland Chinese carriers compete heavily on price while Cathay has stayed focused on their brand. I do admit that the latter has worked, at least in terms of impression. I hold Cathay in much higher regard than any mainland Chinese carrier (with the possible exception of Hainan). But what do travelers care about most? Price.
Business travelers may still prefer Cathay’s service and premium product, but there are more nonstop options that ever. Travelers headed to Singapore from New York now have the option of flying nonstop, where connecting in Hong Kong previously would have been a standard choice. Unless Cathay can keep the lion’s share of the premium market, they will continue down the path of falling profitability. They’re no Avianca, but they’re not on the right track, either.
Ultimately, these pressures may be enough to seriously threaten the existence of the carrier. I’m not saying it’s going to happen tomorrow. That is not at all the case. But the political tension and trade pressures may push the carrier toward greater losses. It will take a lot to make Cathay Pacific competitive for the long term.