Saddled by government restrictions, can Cathay Pacific survive?

Jan 24, 2022

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Cathay Pacific is a shell of its former self.

As airlines worldwide continue to recover from the COVID-19 pandemic, Hong Kong’s flag carrier continues to be saddled by government travel restrictions, both for its passengers and its crews, an issue that has crescendoed in recent weeks.

Now, in an update out on Monday, Cathay CEO Augustus Tang said that the restrictions are severely impacting both the carrier’s passenger and lucrative cargo businesses.

“In late December and then early January, the Hong Kong SAR Government further tightened aircrew quarantine requirements and travel restrictions,” Tang said in a statement. “These measures will have a significant impact on our passenger and cargo flight capacity.”

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This month, passenger capacity is around 2% of its pre-pandemic capacity, while cargo is about 20%, Tang said.

In the past few weeks, Hong Kong’s government has ended an exemption that had allowed Cathay’s flight crews to skip quarantine and instead isolate at home. They’ve also increased the length of that quarantine. The effect of the change was so great that it caused the airline to pause its cargo flights for a week at the end of December.

Further, Hong Kong’s government earlier this month temporarily banned flights from eight countries amid a growing outbreak of the omicron variant — a move that includes flights from the U.S., the United Kingdom and Canada. A week later, transit passengers from 150 countries and territories were banned at Hong Kong International Airport.

Cathay expects to burn between HKD $1 billion (USD $128.4 million) and $1.5 billion (USD $192.6 million) per month from February, it said.

It all points to the question of whether Cathay can survive. COVID-19 and the related government restrictions are largely beyond the carrier’s control, making Cathay dependent on how Hong Kong’s government — as well as the government of mainland China — proceeds in handling the situation, said Henry Harteveldt, an industry analyst and president of Atmosphere Research.

“Obviously Cathay’s problems are related to factors far outside its control,” Harteveldt said in an interview with TPG. “The Hong Kong government’s decision to heavily restrict travel and also heavily restrict transit passengers through Hong Kong International Airport are choking Cathay.”

There is a chance Cathay might not survive in its current form — but it’s not too late, either, Harteveldt said.

“It’s almost as if there’s a government desire somewhere, whether it’s in Hong Kong or the People’s Republic of China to kill off Cathay or weaken it to a point to where one of the Chinese airlines can take it over,” he said. “If the airline were freed of these extremely tight government restrictions, if the airline could operate where it wanted to and when it wanted to, if local and transit passengers were accommodated at the airport, then Cathay’s future would not be in question.”

More: As the Olympics approach, flights to China and Hong Kong are reduced due to COVID-19 and politics

Cathay Pacific’s cargo division is operating at 20% of pre-pandemic capacity, CEO Augustus Tang said. (Photo by BERTHA WANG/AFP via Getty Images)

Other cities in Asia, particularly Singapore, appear to be trying to attract foreign businesses away from Hong Kong, Harteveldt said.

“The Singaporean government appears to be taking steps to woo people and businesses to Singapore,” he said. “Granted it’s not easy to do that right now. But they’re laying the foundation and planting the seeds for companies to continue moving to Singapore.”

Ultimately, Harteveldt said, Hong Kong’s and Cathay’s futures go hand in hand.

“There’s a bigger question out there: What is Hong Kong’s future?” he said. “Cathay’s future is inexorably linked to Hong Kong’s future.”

Featured photo by Paul Yeung/Bloomberg.

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