Hong Kong Restrictions Push Cathay Pacific Back Into The Red

Cathay Pacific Airways is back to burning cash, following the Hong Kong government’s renewed travel restrictions and quarantine rules that aim to keep the Omicron variant at bay.

The Oneworld carrier anticipates monthly cash burn of HK$1-1.5 billion ($128-193 million) from February following capacity cuts in response to the tighter restrictions, Cathay Pacific said Monday. This is a reverse for the airline that was “marginally cash generative” in the second half of 2021. Cathay forecasts operating just 20 percent of its pre-pandemic cargo capacity, and 2 percent of passenger capacity in January.

“Until conditions improve, we are doing everything in our power to maximize capacity,” said Cathay CEO Augustus Tang said.

It is unclear how much Cathay can do. The airline faces the ire of the Hong Kong government, which is led by Beijing loyalist Carrie Lam, following the confirmation that two crew members broke self-isolation on a trip and sparked a Covid-19 outbreak in the city. Although the airline took responsibility, it is subject to a government investigation and new travel restrictions that once again threaten Hong Kong’s once-heralded status as Asia’s world city.

Since the beginning of January, Cathay has been forced to suspend flights to eight countries through at least February 4 due to renewed government restrictions. The list includes flights to Australia, the UK, and U.S., which together amounted to more than 44 percent of its global capacity in 2019, according to Cirium schedules. And, in a major blow to Hong Kong’s status as a global aviation hub — and Cathay’s as a global superconnector — the government barred transit passengers from all but China and Taiwan until at least February 15.

The restrictions have not only hobbled the airline but created a brain drain of key personnel, notably pilots, from the airline and Hong Kong entirely. While it is unclear how many crew members have left, Cathay is offering one-off bonuses of up to HK$29,000 to pilots who stay and fly so-called “closed loop” flights where they work in essentially a quarantined bubble for a period of up to four weeks, Bloomberg reported.

J.P. Morgan analyst Karen Li wrote in a January 17 report that the bank expects a broad reopening of Asian countries to travelers from the second quarter “at the earliest.” However, she noted that China is so far “sticking to its Covid-19 zero stance,” which could mean Hong Kong remains mostly closed despite border reopenings elsewhere in the region.

Cathay is in the unfortunate position of having no domestic market to fall back on in the recovery. Airlines with domestic flying to rely on have largely recovered from the pandemic faster than those without. However, national support for airlines like Emirates and Singapore Airlines, neither of which has a domestic market, has benefitted both carriers’ recovery. Cathay has received little such support from the Hong Kong government.

The past year was a tough one for Cathay, even before its current challenges. The airline anticipates a loss of HK$5.6-6.1 billion that, while steep, is a significant improvement from the HK$21.6 billion loss it posted in 2020. Cathay attributes the improvement to strong cargo demand and better cost and cash management. Cargo traffic, measured in revenue freight ton kilometers (RFTK), was down just 14.7 percent year-over-two-years in December, whereas passenger traffic was down 95.1 percent.

“We remain resolutely committed to keeping the city safely connected with the world,” said Tang. “We are exploring all options to keep the flow of people and goods moving despite the considerable challenges we continue to face.”