Passenger capacity for Cathay Pacific forecast to remain at just 2% of pre-pandemic levels

Passenger capacity for Cathay Pacific forecast to remain at just 2% of pre-pandemic levels

A sign of Cathay Pacific is seen at its headquarters Cathay City in Hong Kong. (Reuters photo)

HONG KONG: Beleaguered Hong Kong carrier Cathay Pacific’s passenger capacity is forecast to remain at just 2% of pre-pandemic levels, hampered by the city’s strict Covid-19 travel curbs, while rivals such as Singapore Airlines recover to almost 50%.

The city’s flagship airline on Monday revealed that recently tightened quarantine requirements for aircrew were expected to burn as much as HK$1.5 billion (US$192 million) in cash a month from February, though it also hoped to boost cargo capacity by 5 %.

Cathay’s annual losses are expected to narrow to between HK$5.6 billion and HK$6.1 billion for 2021, down from HK$21.6 billion the previous year. The full-year forecast was lower than the HK$7.6 billion loss for the first half.

CEO Augustus Tang Kin-wing on Monday said that while passenger travel was acutely affected last year, strong demand for cargo and its increased cost, together with cost cutting, had driven the improvement.

Cargo now forms the lion’s share of Cathay’s business, with it carrying 1.3 million tonnes last year, unchanged from 2020.

However, the carrier this month cut its cargo capacity to around 20% of pre-pandemic levels and passenger flights to 2% because of the tighter quarantine restrictions, and it forecast the measures would continue to have a significant impact.

“Until conditions improve, we are doing everything in our power to maximise capacity, and estimate that mitigation measures to increase crew resources will enable us to operate around an additional 5% more cargo flight capacity than we are currently operating,” Tang said in a newly released business report for December.

But the airline forecast a bleak business outlook for the year, as the city had reimposed tight travel restrictions to contain the spread of the Omicron coronavirus variant.

The airline said its monthly cash burn would be between HK$1 billion and HK$1.5 billion from February, compared with an average of HK$900 million in the first six months of 2021. In the first half of 2020, the airline was burning an average of HK$2.9 billion a month.

Independent aviation analyst Brendan Sobie said the current situation was “very challenging” and the outlook for the first quarter particularly dismal due to the restrictions and related capacity cuts for both cargo and passenger flights.

“Cargo was a silver lining in 2021, but current restrictions take this away,” Sobie said.

He pointed to Cathay passenger traffic – the number of people carried – in December, which was at 3% of pre-pandemic levels compared with rival Singapore Airlines Group’s 17%.

“If the crew restrictions ease they can add back more capacity, but demand won’t improve if border and transit restrictions remain,” he added.

Singapore Airlines forecast it would reach 47% and 45% of pre-pandemic passenger capacity in January and February respectively, boosted by the city state government’s decision to allow entry to fully vaccinated people from two dozen countries.

Shukor Yusof, of aviation advisory firm Endau Analytics, said losses would be as much as 15 % higher for the first half this year than Cathay expected, as the epidemic and air traffic situation worsening over the next quarter would have a “deep impact” on it.

“Conservatively, I’d say between US$1 billion and US$1.2 billion for the first half of 2022.”

Andrew Yuen Chi-lok, from the Aviation Policy and Research Centre at Chinese University, said Cathay was almost able to break even for July to October last year, but with the new quarantine restrictions, the monthly operating cash burn was likely to be around the figure for the first half of 2021 of about HK$1 billion a month.

Yuen and Yusof, however, both said they remained positive about the airline’s long-term future.

Yuen said due to cost-saving measures and government financial support, the airline’s liquidity had “significantly improved”. Yusof said Cathay was well-managed and cargo would help it stay relevant for the near future.

Cathay began offering bonuses of up to HK$96,000 to encourage more pilots to fly under the city’s strict quarantine measures amid a shortage of staff willing to take on so-called closed-loop flights.

The airline operates cargo services to mainland China and regional destinations, as well as to North America. Goods shipments to and from Europe, Australia, New Zealand and the Pacific islands were through passenger aircraft carrying only cargo, the report said.

Local coronavirus-related restrictions continued to hold back its core business, passenger travel.

The airline said it carried 717,059 passengers last year, compared with 4.6 million in 2020 and 35.2 million two years earlier in pre-pandemic times.

Hong Kong tightened quarantine restrictions after a Cathay flight attendant was found to have flouted home isolation rules, triggering a coronavirus outbreak. Two former flight attendants have been charged for allegedly violating the rules.

The government is also investigating whether the airline abused a quarantine exemption policy by allowing aircrew to return on cargo flights, and isolate at home rather than a hotel, while Cathay has insisted the practice was entirely in line with regulations at the time.

Hong Kong is sticking to its zero-Covid strategy, in line with mainland China, in the hope of resuming quarantine-free cross-border travel. The city has banned flights from eight countries and suspected transit flights from most of the world.

The airline has implemented a range of permanent and temporary staffing cuts to cut costs. The group’s workforce has fallen by a further 2,500, to 23,100 on top of the record 5,900 jobs it shed in October 2020 when it closed its subsidiary Cathay Dragon.

Cathay’s recovery has been hampered by operating from a city with some of the strictest pandemic-related travel and quarantine rules anywhere in the world, even as other global airlines are experiencing a revival as some countries begin to reopen.