The Hong Kong-based airline, Cathay Pacific may make a stronger rebound from coronavirus than SARS, despite 30% capacity cut and unpaid leave
Cathay Pacific will cut capacity by 30% for approximately two months in response to the sharp downturn in travel sparked by the coronavirus outbreak. Staff of the Hong Kong-based airline are being asked to take three weeks of unpaid leave. Although steep, the cuts are mild compared to Cathay’s experience during the SARS outbreak in 2003 when it cut capacity for six months, including approximately 40% over two consecutive months.
Cathay has not indicated its plans beyond March 28, when the airline scheduling season changes. Cathay last year planned to trim capacity in 2020 from 3.1% growth to a 1.4% contraction. That alone would lead to excess manpower before considering further but less steep cuts after March 28.There is interest in CEO Augustus Tang saying “the situation now is just as grave” for Cathay as the Global Financial Crisis.
Besides the unpaid leave scheme, there will be additional savings from operational staff whose pay is based on hours worked. With US$8 billion in equity last June , Cathay has ample reserves.No large 2019-nCoV outbreak in Hong Kong, unlike SARS. SARS began to show a traffic decline in March 2003 and recovery in late summer. The 2019-nCoV downturn started in late January 2020, giving hope for a traffic recovery earlier in the peak summer period, assuming the outbreak is brought under control.
The end of SARS coincided with the escalating War in Iraq and increasing fuel prices. Although fuel prices today are double that from 2003, aviation in the early 2000s was unprepared for structural cost change and fuel price volatility. Airlines have now adapted to higher fuel prices. Cathay last year sought airlines to temporarily lease some of its slots at London Heathrow but the short nature of the lease, and with little advance notice, was not attractive, according to observers. Other airports rejected Cathay’s request for a waiver on slot usage, where rules typically require an airline operate the slot 80% of the time.
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