Cathay Pacific to cut jobs, undergo major overhaul

Singapore

CATHAY Pacific Airways will cut jobs and conduct its biggest revamp in two decades as Hong Kong's marquee airline attempts to reverse a slump in profit margins and share price under chief executive officer Ivan Chu.

Changes at Asia's biggest international airline "will start at the top" and the carrier will eliminate some positions as part of a review to reorganise the business, Cathay said in a statement on Wednesday. The measures will take effect by mid-year, the airline, which employed about 26,700 people at the end of June, said without elaborating.

Cathay shares have slumped 30 per cent since Mr Chu took over in March 2014 as the airline reported its smallest half-year profit in more than two years. With its Hong Kong hub no longer as critical to transit Chinese passengers as it used to be a decade back, Cathay has a challenge at hand as Emirates and other Middle Eastern airlines expand more into Asia.

"If the statement is any indication, it could well be that he may not be there for long," Shukor Yusof, founder of aviation consulting firm Endau Analytics said, referring to Mr Chu. "They haven't embraced the changes. They've lacked the vision to grow the company and that has been one of the main reasons for the decline in the company's performance and profit."

A spokeswoman said the company doesn't comment on speculation when asked whether Mr Chu will be replaced. Mr Chu has been at the helm of the carrier for about three years now. His predecessors John Slosar and Tony Tyler both held the top job at the marquee airline for about three years. In both instances, the then chief operating officer was promoted to the chief executive's role.

"The competition is here to stay and the uncertainty is the 'new normal' - we must simply respond," Cathay said in a statement after a leadership conference in Hong Kong on Wednesday.

The airline is looking at ways to pare costs as mounting competition from Chinese and Middle Eastern carriers have eaten into Cathay's premium long-haul customer base, causing passenger yields - a key measure of profitability - to drop to a seven-year low.

"This change will create opportunities, but some jobs will no longer be needed," the airline said. "Some new jobs will be created and other jobs may be redefined." The carrier did not provide details on how many positions will be affected. The pillars anchoring its new strategy will include customer focus and productivity, with data analytics and digital capabilities helping to remove inefficiencies and waste, according to Cathay.

Cathay said in October that its second-half result was "no longer expected" to be better than that in the first half. In August, the airline reported an 82 per cent plunge in net income in the first six months of the year. Full-year results are due by March.

Jefferies Group LLC expects the carrier to report losses in the second half of 2016 and also next year, Andrew Lee, an equity analyst at the brokerage, wrote in a report in November. A second-half loss in 2016 would be Cathay Pacific's first six-month loss in four years, data compiled by Bloomberg showed.

Not even one of the 19 analysts tracked by Bloomberg is recommending investors buy Cathay stock. Five of them suggest hold while 14 advise selling the stock. Cathay shares fell 2 per cent to HK$10.82 on Thursday. The stock fell 24 per cent last year, extending a 21 per cent decline in 2015.

Cathay shares' 30 per cent slump since Mr Chu was appointed as CEO compares with a 6.2 per cent advance in the same period for Hong Kong's Hang Seng Index.

The current year "is going to be a year of significant change and opportunity to better align our business with the increasingly competitive aviation landscape," Cathay said. BLOOMBERG