Job cuts, fewer flights? Hong Kong airline Cathay set for overhaul

Sun Jan 15, 2017 6:07pm EST
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By Jamie Freed and Brenda Goh

SYDNEY/SHANGHAI (Reuters) - Cathay Pacific Airways (0293.HK: Quote) is expected to announce job cuts, cost reductions and to shift flights to its short-haul arm when it unveils the results of a key review this week, as it grapples with growing competition from Chinese carriers.

The 71-year-old Hong Kong airline is under pressure to combat aggressive state-supported mainland carriers, and to position itself against an "open skies" deal signed last month between China and Australia.

Cathay scrapped its second-half profit forecast in October and announced a review of its business. The December edition of Cathay's staff magazine, seen by Reuters, reported Chief Executive Ivan Chu would unveil the results on Jan. 18.

Cathay declined to comment on the details of its review.

"The new management direction has to look past market share gains," said Will Horton, a Hong Kong-based analyst for aviation consultancy CAPA. "That hasn't been profitable and will become more competitive. It is well past time to get serious on costs."

Cathay's share price has tumbled to its lowest level since the depths of the global financial crisis in 2009, and none of the 18 analysts polled by Thomson Reuters have a "buy" recommendation on the stock.

Some analysts say the carrier will for 2017 report its first full-year loss since 2010.

The rapid growth of Chinese rivals such as China Eastern Airlines (600115.SS: Quote) (0670.HK: Quote) and China Southern Airlines (600029.SS: Quote) (1055.HK: Quote) has put pressure on ticket prices at a time when Cathay's costs have risen because of the strength of the Hong Kong dollar against the Chinese yuan.   Continued...

Passenger planes of Cathay Pacific Airways park at the Hong Kong Airport terminal in Hong Kong, China March  7, 2016. REUTERS/Bobby Yip/File Photo