Cathay Pacific announces cost-cutting steps

Cathay Pacific Airways, the largest airline and flag carrier of Hong Kong, has announced a series of measures aimed at cutting costs, including the deferring aircraft deliveries and offering staff unpaid leave as the airline faces a sharp slowdown in both passenger and cargo traffic.

The carrier said that it was also postponing construction of a new cargo terminal at Hong Kong International Airport in order to keep capacity expansion in line with market demand.
The operations of Pacific Airways, based at Hong Kong International Airport, include scheduled passenger and cargo services to over 120 destinations worldwide.

Tony Tyler, chief executive of Cathay Pacific, explained in a statement: “Cathay Pacific Airways expects the passenger capacity growth in 2009 to be below 1%, down from its earlier target of 6%-7% growth. In line with the slower growth in capacity, the airline will offer voluntary unpaid leave to its cabin crew and pilots effective January 1, 2009. Adjustments to the airline’s operating plan for the next year are necessary, given the expected global drop in demand. Visibility is low, and it is hard to predict developments with any real certainty. Flexibility will be the key word in the months ahead.”

“This is a very difficult time for our airline and for the aviation industry as a whole, and we cannot see light at the end of the tunnel at this point,” Tyler added.

Cathay Pacific posted a net loss of HK $663 million in the first half of 2008, against a net profit of HK $2.58 billion in the same period a year before.

The Cathay Pacific statement added that the anticipated slower growth in capacity follows the company’s previous decision to sell 5 Boeing 777-200 aircraft, and a rescheduling of new aircraft deliveries owing to a recent strike at Boeing Company’s factory in Seattle, the United States. (The 58-day walkout at Boeing Company ended earlier in November 2008.)

“While the extent of the delivery delays is not yet known,” Tony Tyler said in the statement, “the deferrals would probably be only a few months each. Cathay Pacific is trying to plan a revised delivery schedule which Boeing can live with and which suits our desire to defer deliveries given current market conditions. The entire aircraft delivery plan from Boeing would have to be revised if planned 2009 deliveries are moved into 2010.”

The aircraft scheduled for delivery from Boeing Company to Cathay Pacific include extended-range freighters, 773s and 748Fs.

Cathay Pacific has sought to defer the construction of a new cargo terminal at Kong International Airport by up to two years. Construction of the facility, costing HK $4.8 billion, had begun in September 2008, and the new terminal was originally scheduled to begin operation in the second half of 2011. Despite the delay, the Cathay Pacific statement stressed, “the airline remains committed to building the terminal.”

Cathay Pacific said it would park two Boeing freighters in California, the United States, for a year, beginning in January 2009. It expects some frequency reductions in flights to Australia, North America and Europe.

In October 2008, Cathay Pacific and Hong Kong Dragon Airlines Limited, Cathay Pacific’s China-focused unit, reported a 7.4% drop in cargo traffic to 144,466 metric tons.

Cathay Pacific’s passenger load factor, or the proportion of seats filled on its flights, fell by 5.3 percentage points in 2008 from a year earlier to 75.5%.