The Future of Cathay Pacific Aviation Research Proposal

Running head: FINAL AVIATION PROJECT REPORT

FINAL AVIATION PROJECT REPORT

Executive Summary

The onset of the COVID-19 pandemic brought devastating calamity for the global economy, affecting every scope of the economy. Among the industries primarily affected by the pandemic is the aviation industry. With many countries across the world imposing travel bans to contain the spread of the virus, the Asian-Pacific region was no exception. Among the most affected airlines in the region was Cathay Pacific, which is a significant component of Hong Kong’s aviation hub and the general economic growth of the region. This research paper has five segments: the introduction, literature review, methodology, analysis, and conclusion. The introduction part of this research paper provides the background information to the research study, providing a short history of Cathay Pacific and an overview of the pandemic’s impact on its economy. The next segment is the literature review. Seven pieces of literature related to the topic have been reviewed to provide backup information to enhance the understanding of the research topic.

The method used for the data collection is the qualitative method, and additional information is obtained from several sources such as publications and the airline’s annual reports. The most significant source has been the annual reports issued by the airline’s management. After data is collected, a systematic analysis of information is done by looking at the data obtained and comparing the same, after which inferences are made and logical conclusions drawn. This includes data on the airline’s performance in terms of cargo and passenger capacities and the role played by Hong Kong in the aviation industry of the region. Conclusions are made regarding the future of the airline, based on the analysis of the empirical data. The conclusion is that the airline will bounce back to its glory days once the pandemic and the current global fear are overdue to the survival strategies currently underway coupled with the government’s support. As part of the conclusion, two recommendations have been made to see a bright future for the airline.

Aviation Research Proposal: The Future of Cathay Pacific after the Pandemic and Hong Kong’s Role as a Hub in Aviation after China Takes Control of Hong Kong

Introduction

The wake of the COVID-19 pandemic has brought unprecedented calamity for the global economy, affecting every scope of the economy. Among the industries primarily affected by the pandemic is the aviation industry. Many countries were forced to impose travel bans due to how fast the virus was spreading, and Hong Kong was not exempted from this requirement. This imposition immediately led to a drastic drop in aviation services and passenger volumes. As a result of the pandemic, nearly every air travel stopped between late 2019 and early 2020. The Asian region was not an exception since almost every scheduled international flight was suspended (Park, Villafuerte & Abiad, 2020).

Moreover, many countries within the continent and across the world implemented domestic flights ban to contain the virus and lower or contain its spread. In the 2020 annual report issues by Cathay Pacific, the chairman states that the global passenger traffic is not expected to return to average during pre-Covid-19 times until sometime in 2024. This is according to the estimation by the “International Air Transport Association (IATA) (Tisdall, Zhang & Zhang, 2021).

The economic downturn started with the diminishing impact of the tourism and the travel sectors globally, and the airlines across the world took a bad hit because of this. As stated earlier, the pandemic has had tremendous impacts on the global economy. Ideally, every economic shock or blow to one country quickly spreads to other countries due to linkages brought about by globalization.

According to a report made by the “United Nations Conference on Trade and Development (UNCTAD), the global economy estimated loss was about two trillion US dollars. This included the loss recorded by the aviation industry due to the grounded aircraft and travel bans as countries sought to contain the spread of the virus (Tisdall, Zhang & Zhang, 2021).

Usually, air travel is considered the safest means of travel. However, the pandemic has resulted in some substantial lay-offs and significant cuts. Airlines’ operations were also affected largely, which led to the recording of losses of up to billions of dollars. Cathay Pacific Airline of Hong Kong is not an exception.

Background of the Research Topic

Cathay Pacific Airways of Hong Kong is the flag bearer of the city, with its central hub and head office in Hong Kong (Tsui, Yuen & Fung, 2018). Its subsidiaries and operations have cargo and passenger services scheduled to over 190 destinations in over 60 countries globally.

Some passenger fleets operated by Cathay Pacific include Boeing 777, Airbus A350, Airbus A330, and Airbus A321neo. The airline’s cargo runs two Boeing 747 models. The airline was established in 1946 in Hong Kong and has continuously expanded its growth in the region’s aviation hub to what it currently is.

Among the most significant conquests of the airline is the acquisition of Dragonair, which took place in 2006, September 28th. This meant that the airline would gain more access to the mainland China market and further gave it more opportunities to share resources. The airline’s Dragonair was rebranded in 2016 and became known as Cathay Dragon (Malkani et al., 2005). However, the wake of the Covid-19 pandemic negatively impacted the global economy and led to drastic changes and near downfall of the once-giant airline. The pandemic seemed to have brought the airline’s glorious days to an end.

The COVID-19 pandemic has had a devastating effect on the aviation industry, resulting from the travel ban and the global economic downturn in general. As of October 2020, the majority of the airlines’ international flights in the Asian region remained suspended, with a considerable portion of the region’s aircraft for passengers still grounded.

As of 2020, Cathay Pacific Airways of Hong Kong had already recorded a whooping loss of HK$21.6B, approximately 2.8 billion US dollars. The airline’s chairman in 2020 issued a statement where he made claims of 2020 being the most stressful year in the airline’s history (more than 70 years of operations). In the annual 2020 report of the airline, quarantine requirement coupled with the travel restrictions brought by the pandemic led to an unprecedented disruption globally within the air industry. The group chairman further states that the consequences have been detrimental (Cathay Pacific Airways Limited, 2020).

Aside from the impacts of the pandemic, the airline’s operations were also paralyzed due to series of protests, such as the 2019-2020 Hong Kong protests, in which Cathay Pacific’s employees participated. This brought about the negative publicity that further contributed to the pandemic’s detrimental impacts and affected the company’s operations. This led to a very sharp drop in revenue and profits.

Moreover, Hong Kong city has been affected by what many call the largest protest in the city’s history, a protest in which over two million people demonstrated against the criminal suspects’ proposed extradition to mainland China in 2019. As of 2020, Hong Kong was still gripped by a political crisis that further affected the economy amidst the pandemic. These activities badly affected the city, added to the already frustrating impacts it was facing due to the Covid-19 pandemic turmoil. This led to reduced demands and fewer customers because of the fear of political instability, further paralyzing the airline’s operations and the city in general.

During the Covid-19 pandemic, the airline was forced to reduce its international flights. Generally, this harmed the industry as a whole and the demand for flights. It also caused air travel bans globally. As of March 2020, the group had already slashed about 96% of flights for three consecutive months: March, April, and May.

Moreover, the airline’s Hong Kong Express had suspended its flight operations due to reduced flight demand. The situation was terrible that at some point during the pandemic, the airline only recorded 582 passengers in an entire day. As of December 2020, the airline had issued a report in which a statement was made saying that the group expected the losses incurred in the second half of the year to be even higher than those incurred in the first half of the year.

This was a result of its fleets’ impairment, restructuring charges, and low demand. The report issued by the group in early 2021 shows that the airline recorded an annual loss for 2020 was a total of 2.8 billion US dollars, mainly due to the Covid-19 pandemic restrictions. At this time, the airline further announced that it had plans of cutting about 8500 jobs to minimize its operational costs (Cathay Pacific Airways Limited, 2020).

Aims and Objectives of the Research Project

This study aims to establish a full assessment of the impact of the COVID-19 pandemic on Cathay Pacific Airline Limited of Hong Kong to understand and establish the future for the airline after the pandemic’s rampaging effects. The research project also seeks to establish the future for the airline due to China taking over Hong Kong and the impacts of the pandemic.

Finally, this research project is intended to look into the role of Hong Kong as a hub in aviation and how that is expected to change as a result of the mentioned variables. To achieve the research objectives, this research proposal has been developed as an analysis of the Cathay Pacific within which the aspects of the economic impacts of the Covid-19 pandemic, the effects of the same on Cathay Pacific operations and the airline’s future can be investigated, and the Hong Kong’s role as a hub in the Asia-Pacific region and what that looks like in the future after the airline takes such blows as the pandemic’s devastating impacts.

Research Questions

Three research questions addressing or aligning with the research objectives are as follows;

1. What will the future of Cathay Pacific look like after the Covid-19 pandemic?

2. What impact will China taking control of Hong Kong have on Cathay Pacific Airline’s future?

3. Will Hong Kong strengthen and maintain its role as an aviation hub in the region after the impact of the pandemic and China taking control?

The research questions will be addressed in two empirical studies, in which the first two research questions will be addressed in one section, and the third research question shall also be addressed independently. In addition, the research shall include how Hong Kong airport has grown from the days of Kai Tak to its current position at Chep Lap Kok and how they are developing the airport for the future and how this is likely to impact Cathay Pacific moving forward. This research is necessary for the Hong Kong government to know what the future of Cathay Pacific looks like and the city’s role as an aviation hub in the region and consider the implications of the results of this research proposal.

Literature Review

This section of the research paper is crucial to evaluate some of the existing literature on the research questions already outlined. This segment shall begin by reviewing the impact of the pandemic on the aviation industry, which Cathay Pacific is part of, and establish why the effects have been there by analyzing other literature on how and why the pandemic has impacted the aviation industry.

The paper shall further narrow this down to Cathay pacific. Secondly, this review shall focus on what various pieces of literature say regarding Hong Kong as an international aviation hub, and shall also indicate the implication for the research objective with regards to the city’s role in aviation and any possible gap in the literature that could necessitate more research regarding the same. Also, this paper shall examine the literature on the development of HKIA from the Kai Tak days to Chep Lak Kok. The literature review about the methodology employed in the research paper shall also determine their efficiency.

According to a report done by the International Air Transport Association (IATA), the aviation industry was among the sectors that received the most significant economic blow by the Covid-19 pandemic and resulted in a very sharp drop in revenues, operations, and profitability. Some airlines, such as Cathay Pacific, recorded the worst performance in its 70-year history of operations.

This is according to a report issued by the airline’s chairman. As already stated, the aviation industry received perhaps the most substantial blow. Estimates by IATA indicate an approximate drop of 44 percent in passenger capacity and hence revenues as of March 2020. This resulted from the airline industry collapsing mainly due to the travel bans imposed by countries worldwide as a containment measure to curb the spread of the deadly virus. Updated analyses by the IATA further indicate a drop in revenues by billions, up to 314 billion dollars in 2020 alone. This represents a 55% decline in passenger revenue compared to 2019 (Park, Villafuerte & Abiad, 2020).

The industry continued to be negatively affected by the pandemic even though the other industries started receiving restriction ease up in the second half of 2020. The majority of the government worldwide started easing up the ban and restrictions on people’s social interactions. This saw hotels, restaurants, shops, and other social spaces such as events, libraries, and gyms. The reopening of the economy was, however, scheduled to take place in phases.

The opening of these economies significantly impacted the economy since it stimulated increased demand for services and products. This led to the diminishing of the negative impacts as had been predicted. This, however, did not have a positive effect on the aviation industry, as the impact of the blow remained unchanging. This is because travel restrictions were not eased up immediately as the rest of the economies and were eased up last after the industry had continued wallowing in the negative impacts of the pandemic.

Even after easing up travel bans, the situation did not get any better immediately since people were still scared of taking flights. The fear of flights gripped people due to the spread of the virus, which takes place a lot fast in an enclosed environment (Tisdall, Zhang & Zhang, 2021).

According to Park, Villafuerte & Abiad (2020), the two main elements that acted as the driving force to reduced passenger demand and the poor performance recorded by the aviation industry, in general, are two; travel restrictions and overall economic development. Travel restrictions had the most significant impact on traveling by air, which negatively affected airlines worldwide.

Travel restrictions further deepened the recession impact on the demand for air travel, with the most severe effect seen in the second quarter of 2020, between April and June. As of April 2020, the total number of flights across the world had dropped by 80 percent compared to 2019, with April alone recording a sharp drop of 90 percent. The author also indicates that the global aviation industry recovery depended on whether the governments worldwide would ease severe travel restrictions, which was the main obstacle to increased passenger and cargo demands.

This did happen when severe restrictions were removed and allowed the global airline operations to continue, even though at a relatively slower rate. This is mainly because things have not entirely resumed normalcy. The upturn in demand started in the third quarter of 2020. However, only a small number of airlines resumed operations, with the international markets remaining sluggish since cross-border travel restrictions were still in place.

Ass Malkani et al. (2005) put forth, the second driver for the low passenger demand is the overall economic development. As mentioned earlier, the Covid-19 pandemic had devastating impacts on the global economy since the majority of the international economic activities were paralyzed, with the restrictions and bans that various governments implemented travel bans among other measures worldwide, to contain the spread of the virus.

According to the early analyses done to project the impact of the pandemic on the global GDP, there was a contraction of about 7 percent in the first and second quarters of 2020. This is approximately double the 2009 contraction during the world’s financial crisis. The pandemic’s economic shock was more severe in the second quarter of 2020 when the world’s GDP fell by another 6 percent. Overall, the global GDP shrunk by a total of 2.8 percent in 2020.

Considering the impact of the pandemic on the global economy, it was right to assume that passenger demand would likely fall. Even though governments have opened up most aspects of the economies, passenger demand has not regained normalcy, and as such, demand is still lower. However, when this year’s performance is compared with 2020, things appear to be looking good for 2021.

There have been speculations about the duration and severity of the Covid-19 pandemic mainly because many variables are constantly changing. This makes the period and the rigor remains uncertain. Malkani et al. (2005) write that two scenarios are likely to determine the consequential outcomes or the possible paths of the aviation industry after the pandemic.

The first scenario considers that the industry’s approach to recovery depends on various factors, including consumers’ confidence, general economic conditions, and government support or assistance. However, the most crucial factor is the magnitude, duration, and containment measures for the pandemic. These factors could bring forth a faster recovery rate for the aviation industry in general.

The development of the two scenarios, namely the V-shaped path and the U-shaped path, was necessary to explore the short-term impacts of the pandemic and the potential implication for the aviation industry. The V-shaped scenario refers to the standard recession shape, representing a sharp drop and a short contraction period, after which there is a smooth recovery indicating positive growth. Previously, various pandemics have hit the industry but had a V-shaped impact, with things regaining normalcy within seven months.

The most significant pandemic to have had significant impacts on the industry is the SARS that caused an 8 percent reduction in annual passenger revenue and a 6 billion dollars loss in revenue in the Pacific or Asia Airlines. Covid-19 has already surpassed these figures and continues to rampage the economy. By the last quarter of 2020, the pandemic had already caused a decline of about 48 percent in passenger revenues, translating to about 314 billion dollars losses in revenues.

The Pacific or the Asian region had already lost about 113 billion dollars, approximately 19 times the losses incurred when SARS broke out in the region in 2003 (Yeung et al., 2010). The second scenario is the U-shaped scenario which accounts for a prolonged contraction period only with a muted recovery and a short-term outlook. The V-shaped scenario would have indicated recovery by late June 2020, and the capacity would have gone back to normal by September 2020. However, this did not happen.

That is around the period when the economic blow was more potent on the industry. Unlike the V-shaped scenario, the U-shaped scenario indicates a slow recovery rate with limited demand growth, which appears to be the situation with the Covid-19 pandemic. This is because it took longer to open up the economy, and ever after opening, the operations are still relatively lower, only showing a steady growth rate.

Narrowing down to Cathay Pacific Airline, the impact was more or less the same as that of the general global industry. The airline’s operations and performance reduced drastically, especially in 2020, when the company faced the worst time in its history. Reduced cargo and passenger revenues resulted from the decreased demand due to the pandemic and travel restrictions and bans.

Constant protests by civilians against the government have further made the situation worse, buy creating fear. Mainly affected were the travelers from mainland China. The airline is most likely to succumb to the U-shaped scenario, prolonging the pandemic’s impacts followed by a steady growth rate. While it might be challenging to project the airline’s future, the trend has taken a different turn with the pandemic, mainly because of the projected decrease in the impact of the pandemic on the global economy.

Various attempts are being made to develop a vaccine that could potentially mark the end of the pandemic should there not be another virus variant. If this happens, then there might be the hope of returning to complete normalcy after the pandemic is over. However, the results obtained by this research paper shall provide a better analysis of the situation to better understand the future for Cathay Pacific and Hong Kong as an aviation hub.

Furthermore, Hong Kong as an international aviation hub has become the critical aviation hub for cargo and passenger capacities in the Asia-Pacific region and the whole world. The primary essential drivers of establishing Hong Kong’s role as an aviation hub have been good airport transport qualities because of its infrastructure and the liberalized air transportation policy.

Another key driver has been an excellent strategic location that has ideally served the Asia-Pacific region, the Chinese Mainland, and other regions. Additionally, Hong Kong has been developed as an international aviation hub partly because of its openness policy. The policy allows the city to be open to its foreign competition compared to the other airports. This has given the city the upper hand, forcing the airport authority to improve the airport services and infrastructure. This has improved the benefits that the aviation hub provides to airlines in operation and to air passengers. This has helped build trust between the aviation hub and the air passengers and has increased both cargo and air passengers (Tsui, Yuen & Fung, 2018).

In the preceding few years, the airport operations of Hong Kong and other issues related to these affairs have been subject to research. For example, three studies investigated air passengers’ service quality and standards by the Hong Kong International Airport (HKIA) (Yeung et al., 2010). The studies all had the same conclusion; that Hong Kong offers high-quality services.

Therefore, the city had continuously secured and attracted potential and existing air passengers who use Hong Kong to their destinations worldwide. Hong Kong’s tourist arrival demand has also been under investigation and its possible implication on Hong Kong’s aviation industry and general economic growth. Common to the studies conducted, tourism was established as another essential factor contributing to the city’s development and is primarily facilitated by air travel, where Hong Kong’s aviation hub comes in.

The two, tourism and aviation, play their roles interchangeably and also affect each other interdependently. This means that tourism facilitates the growth of the aviation industry, and the aviation industry also facilitates tourism by providing an easier access route. These activities combined play an essential role in the economic development of Hong Kong and the Asia-Pacific region in general.

There is also existing literature investigating Hong Kong’s aviation industry’s air cargo industry, particularly the international air cargo hub of HKIA. This literature had a uniform conclusion, maintaining Hong Kong as the region’s leading global air cargo hub. This indicates that Hong Kong’s aviation hub can handle air cargo with extensive cargo networks and properly designed facilities.

This is further attributed to China’s massive hinterland and its fast-growing economy, coupled with the excellent strategic positioning that allows it access from mainland China and the Asia-Pacific region and the liberalized Hong Kong air transport policy. Moreover, Hong Kong has, for the longest time, been considered the leading air transport hub in the region.

Chapman & Georgoulias (2010) agree that Hong Kong had played a significant role in air transport, keeping its edge as the most critical air transport hub in Asia for logistic companies such as the renowned DHL and other logistic firms against its strongest competitor in the Greater Bay Area. Companies such as DHL Express have always preferred Hong Kong mainly because of its highest number of scheduled flights globally.

Moreover, the higher flight frequencies and faster customs clearance have further helped Hong Kong city retain its role and position within its aviation hub. Efficiency, reliability, and speed are among the critical considerations for assessing performance, mainly used by logistic companies.

Hong Kong’s exports and imports are transported by air since they are time-sensitive. As a result, a service known as the Express delivery service was developed to provide value-added, personal delivery. It ensures that the delivery of goods, services, merchandise, and other parcels is done right and on time. Hence, reliable and fast delivery is an essential component of a flexible service economy like Hong Kong’s.

This has helped to land Hong Kong partnership deals with logistic companies such as those mentioned above. This has helped to increase the revenue. Due to the economic activities of Hong Kong’s aviation hub, the city plays a significant role in the gross domestic product (GDP) of Hong Kong, China, and the Asia-Pacific region overall (Chapman & Georgoulias, 2010).

However, various factors such as competition from other aviation hubs within the Asia Pacific region have been identified by numerous research as the factors that could potentially undermine Hong Kong’s role as an aviation hub (Kan, 2012). There has been minimal to no research regarding any disease outbreaks that could undermine the city’s aviation hub. This indicates a gap in research that should be taken into consideration.

This gap implies that the town was not readily prepared to deal with and sail through a health pandemic such as what the world is currently battling against. Covid-19 struck in the last quarter of 2019, and the impacts of its economic blow are still visible, particularly in the aviation industry. The financial gusts hit so strong that the global economy is still in shambles, trying to regain what once was.

The lack of research on the potential outbreaks that could have a crippling impact on the aviation industry worsened the situation. Had there been research on the topic, then there could have been measures already put in place and implemented during the onset of the pandemic, mainly because the pandemic’s outbreak and duration were unpredictable. This could have helped avert some of the dire consequences especially concerning the loss of billions of revenues.

Furthermore, the development of HKIA to what it is today has taken place over decades, from the old Kai Tak Airport of Hong Kong to the current Chep Lap Kok. The main goal of this construction was to meet the expected growth in the air traffic capacity. Over the past few decades, HKIA has recorded a steady growth rate in the air traffic capacity to its glorious days before the wake of Covid-19. However, reports indicate that this shall not stop the development of HKIA.

A plan is to develop a third runway to accommodate any projected airport traffic post the pandemic to 2030 and beyond. This has been done with the main aim of securing and maintaining Hong Kong’s status as the most significant aviation hub in the entire Asia-Pacific region. This will also provide a substantial boost to the economic development of Hong Kong and the region in general.

On the research methodology selected for this research project, the quantitative method was chosen because of the existing evidence on its significance. The central importance of quantitative research is that it helps to produce objective data that can be analyzed and communicated through numbers and statistics. It is also done systematically in a way that cannot be easily replicated. Most important is that it helps communicate data, enhances a clear understanding of world events, and helps attain more excellent knowledge. The data obtained can be further represented graphically for accessible communication and interpretation (Kan, 2012).

Research Methodology

The methodology employed for this research project was quantitative research that allowed for data production that could be analyzed and communicated easily. Additional information on the research project was obtained as secondary data. Quantitative methods of analysis were selected due to their characteristics that allow a researcher to concentrate more on a collection of quantifiable data.

Furthermore, statistical methods were applied to generate and represent research data in numerical form for easy communication and analysis. To facilitate an easier understanding of the research data by an individual interested in this research, research data shall be displayed in a graph to provide an excellent visual and clear understanding and interpretation of the data collected.

The data was obtained on the performance of Cathay Pacific in terms of passenger and cargo capacities and revenues before and during the pandemic to generate a comparison that would facilitate the understanding of the economic impact the pandemic has had on the airline. The research data should also help project the airline’s future after the pandemic is over and other variables such as China taking control of Hong Kong. Hence, the data collected helped conduct a proper analysis of the prospects of the airline’s performance (Tisdall, Zhang & Zhang, 2021).

For this research, data were collected in two phases. The first phased involved collecting data on the airline’s performance before the pandemic struck up until the last quarter of 2020. The data collected on the same was compared, and inferences were drawn that led to logical conclusions. The data was collected to include hedging cost, cargo capacity, passenger capacity, and the overall operations of the airline.

Data involving the airline’s plans of cutting off employees to reduce its operational costs were also collected and includes the total number of cutoffs made by the company. The data obtained were then used to compile a comprehensive analysis of the airline’s current status and project its future based on its existing measures, trends, and strategies.

The second phase of the collection of data was secondary data collection. In this phase, information was obtained from different sources, including various articles and other publications on the research topic, coupled with input from the airline’s website and the annual reports issued by the airline.

This was necessary to provide relevant, credible, and reliable information so that anyone interested in this research is not misled in any way. Information was about various issues of interest for the study, such as Hong Kong’s role in the aviation hub and its future considering the current situation and China taking over Hong Kong.

The issue of protests and demonstrations is discussed in detail in the following sections. The information obtained also underwent a systematic analysis similar to the data obtained in the first phase of the research, and inferences were drawn to make logical conclusions. Secondary data was found to be crucial for both phases of data collection. The airline’s annual reports were found to be very vital for providing research data for the two phases. However, a limitation is that there was an inability to obtain very sensitive information due to a lack of access.

Findings

The research findings and data are represented in the following charts.

The above are representations of Cathay Pacific’s performance in terms of shares and profits before the pandemic and during the pandemic. It can be seen clearly that the airline has recorded massive losses since the pandemic struck.

Analysis of Findings

The results of this research are laid out in different portions, with the first portion talking about the pandemic’s impact on Cathay Airlines. The report issued by Cathay Pacific contains a statement made by the group’s chairman, stating that their passenger revenues drastically reduced in 2020, resulting from the low demand. Also, the company’s operating capacity remains below 10 percent for the more significant part of 2020. Despite this struggle, it occasionally had a slightly higher demand percentage, particularly during the summer periods. Students traveled to the United Kingdom and other European areas from China’s Mainland and Hong Kong.

Nonetheless, the summer period, usually when the airline is at the peak of its operations annually, remained an extremely challenging year in 2020. Even more disturbing is that the airline’s passengers recorded a steep decrease of 83 percent in 2020 from 2019, while the revenue passenger kilometer reduced 85.1 percent. The airline’s associates and subsidiaries were not spared, and both recorded massive losses, up to billions of dollars. For instance, HK Express had a 1723 million Hong Kong dollar loss in 2020 alone with the travel contractions.

Overall, Cathay’s subsidiaries recorded a performance worse than that of 2019 due to the reduced passenger capacity coupled with decreased cargo traffic. The cargo business was also affected terribly; it recorded a slightly better performance in 2020 than in 2019. It did better considering the impact of a significant reduction in capacity provided by passengers yearly before the pandemic struck.

This slight increase resulted from the airline’s strategy of contracting services from Air Hong Kong, an all-all-cargo subsidiary of the airline, of carrying selected cargo within the passenger compartments of particular aircraft. Some seats were moved in the economy class compartments to create more cargo in four Boeing 777-300ERs. The airline also put in place various measures that would help it not to completely collapse because of the pandemic, such as reducing capacity and freezing hiring while deferring capital expenditure and suspending any cost that was considered not critical for the airline’s operations (Cathay Pacific Airways Limited, 2020). More of the strategies that might further help the company regain control of its operations and ensure it stays in business in years to come despite the blow by the pandemic are discussed in detail later in this section of the research.

Projecting the airline’s future might still have a future of operational glory due to the airline’s recapitalization and government bail-out. The main goal of the airline’s bail-out by the government was to protect the airline that was once a giant in the aviation hub and further protect the role that Hong Kong plays as an aviation hub. This would, in turn, ensure the survival of Hong Kong’s economic future.

This is a statement that the finance chief issued. The airline’s possible collapse would be detrimental to the City’s aviation sector since the airline controls over half of the total passenger traffic, coupled with the fact that it carries a significant portion of the cargo in the region’s financial hub. The airline’s bail-out came after the City’s officials saw the airline’s possible collapse, which would fundamentally be a considerable threat to Hong Kong’s aviation sector. The government decided to come to Cathay’s rescue after the blows it took from the pandemic coupled with the protests from late 2019 that further exacerbated the impacts of the pandemic on the industry.

In June 2020, Air China, Swire Pacific, and Cathay Pacific stopped their stock trade pending the announcement regarding the recapitalization and bail-out. The announcement was made jointly between Cathay Pacific and the Hong Kong government regarding a recapitalization plan of 39 billion Hong Kong dollars on June 10th, 2020. The rescue package included HK$19.5 dividend shares with the paying preference issued to the Hong Kong government and an additional 1.95 billion Hong Kong dollars of warrants. This gave the government a six percent stake in the airline.

The airline also received an extra 7.8 billion Hong Kong dollars as a bridging loan. However, a statement issued by the HKSAR government finance secretary said that the government did not intend to become a long-term shareholder of the airline. This proves that Hong Kong’s government’s primary interest was in helping the airline come back to its feet by offering it financial support to bridge further the gap created by the airline’s losses due to the paralyzing impacts that the pandemic had brought. This has helped the airline sail through the challenging times it has faced since the pandemic as it continues to recover the losses it incurred and its initial position in the Asian aviation hub (Cathay Pacific Airways Limited, 2020).

However, the pandemic continues to rampage the economy, even though the results are incomparable to those of late 2019 and the first quarter of 2020. This means that the recovery pace for the airline is still indeterminate. Nonetheless, the airline is optimistic about recording some tremendous positive improvements in terms of operations and profit margins by the end of this year.

Domestic markets continue to reopen after discovering the vaccine that slightly relieved the world from the rampages of the pandemic. This has brought about the reopening of many domestic routes; even the passenger traffic still lies behind pre-pandemic levels. Despite this, the airline is most likely to recover losses incurred entirely, but only after the pandemic. To achieve this, the airline has devised several strategic measures to cut its operational costs and achieve losses lower than those of 2020.

To date, the airline that was once a giant in the region is still in survival mode, trying to regain the losses incurred between 2019 and 2020, which were the most critical years for the airline. As stated above, the company has made several attempts to cope with the impacts of the pandemic, such as vaccination for the staff members and cost-saving, some of its top priorities. As of May 2021, the company cut about 5900 jobs and closed its regional dragon brand to cut costs and increase its cargo flights.

This is a move that nearly every airline in the industry implemented to cut their operational costs and maximize profits. This is because even though the impacts of the pandemic are slowly reducing and the global economy is trying to get back to normal operations again, the airlines are still suffering from the economic downturn brought by the pandemic.

To save cost and maximize profits, the airline will change contracts with its cabin crews and the pilots and cut jobs and the dragon brand. Also, the company had made plans to cut about 8500 positions, inclusive of the 5900 jobs and additional 2600 positions that were unoccupied as of 2021. This strategy was expected to save the company approximately 2.2 billion Hong Kong dollars.

To implement this, the airline began its job cuts in April 2021 by closing its Canada Pilot base. The airline started consulting with its pilots on its New Zealand and Australian pilot bases on the same day. This consultation was about the base closure of the mentioned jurisdictions.

The airline pilots who had the right to work and live in Hong Kong were offered continued employment, while those who did not have the said right faced redundancy. The company announced a review of its USA and Europe bases within the same day later in 2021. Another cost-saving strategy taken up by the airline involved the closure of its Frankfurt Pilot base, which took place on May 12th, 2021.

This took place under the same condition as that of Canada, where only the pilots with the right to working and living in Hong Kong continued being on the company’s payroll while the rest faced redundancy (Cathay Pacific Airways Limited, 2020).

Also, due to the crippling impact of the Covid-19 pandemic, Cathay Pacific was forced to shut down the operations of Cathay Dragon, initially known as the Dragonair. This took place in October 2020. The Dragon’s operations were shut down and merged with the parent airline due to severe economic problems and a sharp decrease in customers or passengers, clearly impacting the pandemic.

This would mark the end of the 35 years of operation for the subsidiary. Cathay Dragon had initially been in charge of operating most of the airline’s flights to and from China. However, the pandemic alone did not contribute to the shutting of Dragonair’s operations. This is because it was already facing challenging times even before the pandemic hit. Its operations had already been affected, and it was already facing reduced demands resulting from the protests by the civilians against the Hong Kong government. This significantly reduced the number of mainland travelers due to fear created by the political unrest at the time.

According to the airline’s chief executive officer, restructuring became a fundamental principle that the airline had to implement to ensure its survival as the pandemic continues devastating the economy. These strategies implemented by the airline seemed to have worked in achieving the airline’s objective of cutting costs. In June 2021, the airline issued a report that said that the company’s losses within the first half of 2021 were expected to be lower than that recorded by the first half of 2020.

This resulted from the cost-saving strategies, coupled with an increasing demand for cargo flights in 2021. Should such trends continue increasing, then the airline will most likely regain its operations and profitability as it once did before the Covid-19 pandemic struck the economy (Cathay Pacific Airways Limited, 2020). Consequently, things are looking good for Cathay Pacific, with the strategies it is putting in place to improve its performance and the government providing it with a boost. This only shows that Cathay Pacific is still not done but shows clear indications of rising steadily to its former glorious days. It will undoubtedly take a few years due to the steady growth (as a result of the U-shaped scenario), but there are clear indications that sometime after 2024, the airline should bounce back.

China Taking control of Hong Kong and the Impact on the Future of Cathay Pacific.

China taking control over Hong Kong has had substantial impacts on the City’s aviation hub, mainly affecting Cathay Pacific. With the consequences already suffered by the airline originating from the Covid-19 blow, another challenge that can make it lose billions does not show a good picture for the airline’s future. As of 2020, the airline had received protests against China’s position in taking control of the hub.

This further paralyzed the airline’s operations, exacerbating the losses already seen due to the pandemic. A report that Cathay Pacific issued reveals that the immigration counters had to be closed, and the airline further had to suspend its international flights. The airline was forced to give in to the threats coming from the Chinese Mainland (Cathay Pacific Airways Limited, 2020).

According to a report issued by the airline’s chairman, the company had been mandated to follow the Civil Aviation Authority of China (CAAC). The report further stated that the CAAC has jurisdiction over the airline. The company, therefore, is obligated to following the requirements of this body. This means that the airline’s employees are also under the obligation to follow the guidelines and conditions of the CAAC. Such are the issues that led to strikes in which some airline staff were relieved of their duties and even saw to the resignation of two senior officials of the airline.

As a result of the protests, China’s aviation regulator, the CAAC, ordered Cathay Pacific to suspend any staff member who participated in the demonstration to support democracy in the territory. The demand made by Beijing aligned with a peaceful protest at the airport in Hong Kong in which thousands of people occupied the airport’s terminal.

The situation of China taking control further caused Cathay Pacific pressure. This occurred after the state-run press of China fuelled more protests with hashtags such as “#BoycottCathayPacific,” which trended on every Chines social media platform. As of August 2019, Hong Kong had had several weeks of protests against China taking control of the territory.

Hong Kong might be part of China, but Hong Kong citizens are more autonomous than the other Chinese citizens on the Mainland. More judicial independence and a free press are available, and activists had felts that such freedoms were being increasingly eroded. The pressure on Cathay by China was also fuelled because some of the airline’s employees were part of the protests.

Such public negativities had a bad influence on the airline’s reputation before the impacts of the pandemic started being felt. Such negativities would not be healthy for Cathay’s future, and a solution was therefore necessary. It would be detrimental to the airline’s operations and would cost the airlines millions of losses. It is essential to develop various ways to avoid such occurrences, even if the airline’s future should record a positive performance.

The Role of Hong Kong: The Aviation Hub and its Future

Hong Kong plays a crucial role as a high-end international aviation hub. Hong Kong’s comprehensive global air network facilitates the flow of both cargoes and passengers through Hong Kong. The City is also an important hub since it underpins the development of a large variety and categories of economic activities, particularly logistics and trading, tourism, and financial services, among others. For instance, in 2012 alone, Hong Kong International Airport’s (HKIA) economic contribution, encompassing induced, indirect, and direct contributions, summed up to a total of 94 billion dollars (Tsui, Yuen & Fung, 2018).

This represents about 4.6% of the total gross domestic product (GDP) of Hong Kong. Before the wake of the Covid-19 pandemic, HKIA was a source of employment for about 78000 people, who relied on it as their primary source of livelihood and contributed to the City’s economic growth and China as a whole. The pandemic has caused many economic disruptions, and as stated earlier, the aviation industry was among the worst-hit economies.

Unlike the Chinese Mainland and the United States, Hong Kong is limited by its physical area (Chapman & Georgoulias, 2010). This means that it lacks a sizeable domestic market within the industry to help it carry the burden of losses incurred, unlike the US and the Chinese Mainland. The significant reduction in flights and the large numbers of fleets parked the HKIA resulted in substantial losses that Hong Kong bore alone.

Added to the impact of the pandemic, the social unrest in Hong Kong in the second quarter of 2019 has left the entire aviation industry crippling with the effects of the same. As a result, the HKIA has faced challenges that many significant airports worldwide did not face. A report issued by the Airport Authority indicates that the air traffic movements and the passengers handled in the 2019-2020 fiscal year were 377,420 and 60.9 million, respectively.

This record forced HKIA out of the list called “Top 10 passengers airports in the world”. Another bad economic hit on Hong Kong is the international trade disputes which resulted in freight volumes falling by 7.3% to a final figure of 4.7 million tons. Another factor that has affected Hong Kong’s status is the drastic reduction in the number of tourists due to travel restrictions and a reduced number of air passengers who would use Hong Kong to get to their destinations.

As probably the most important Hong Kong’s airline, and the most significant driver of aviation development in Hong Kong, Cathay Pacific is facing some unprecedented fiscal and operational pressure. The government saw the need to address this challenge since it could harm Hong Kong’s aviation hub and subsequently harm the city’s economic activities. This would be detrimental to Hong Kong’s general interests.

Therefore, governments worldwide have tried to support their significant airlines, and Hong Kong was not left behind. An announcement was made on July 9th regarding investment into Cathay Pacific to uphold Hong Kong’s status and role as an aviation hub while generating income for the government at the same time. This brought a surge of hope and relief for the company. According to the financial secretary, Cathay Pacific plays a significant role in Hong Kong’s aviation hub role. As a result, the decision to invest in the group was prudent to help the group overcome the challenges resulting from the pandemic.

This would ensure a continued contribution to Hong Kong’s role and overall economic development. This is a move made to ensure that the role played by Hong Kong as an international aviation hub does not wither away but to ensure that the City continues thriving even in years to come despite the challenges it currently faces. The finance secretary further added that the aviation industry is critical to the City’s economic development and the region.

The investment would, therefore, signify the government’s determination to uphold Hong Kong’s status. In light of these events, one can deduce that Hong Kong as an aviation hub still has a future, after all, considering that the aviation industry had started bouncing back to the days when operations were significant before the pandemic. The performance recorded for 2021 already indicates profitability from last year. This, coupled with the government’s support, means the revival of Hong Kong’s aviation hub and the economy in general.

Moreover, a plan is to develop a third runway to accommodate any projected airport traffic post the pandemic to 2030 and even beyond. This has been done with the main aim of securing and maintaining Hong Kong’s status as the most significant aviation hub in the entire Asia-Pacific region. This will also provide a substantial boost to the economic development of Hong Kong and the region in general.

How Hong Kong Airport has grown from the Days of Kai Tak to Chep Lap Kok and how this is developing the Airport for the Future

The 1900s had seen many political disagreements, mainly because of the power to control Hong Kong. Following these disagreements, a declaration was made in 1984, which established Hong Kong to be a special administrative region and was ultimately controlled mainly by Beijing from 1997. This brought tension to the British and the Chinese (Chapman & Georgoulias, 2010). The British wanted to maintain complete access to the empire, and China desired to strengthen its control over Hong Kong. Under such circumstances, in 1989, the then British governor already started promoting the construction of a new airport to promote international confidence in the transition of Hong Kong. The Chinese insisted that they are given approval rights on the financing for the HKIA. This resulted from their fear that the British would mainly use the airport to be constructed to draw their economy’s finances. Because of the city’s historical place, Hong Kong was established as perhaps the most significant city in the southern part of China. Various studies in the 1940s anticipated a new site for the existing Kai Tak, and proposals were later commissioned from the British engineers by the government of Hong Kong, ultimately opting for the extension of the single runway. By 1973, the Hong Kong government had already chosen Chep Lap Kok as a desirable replacement site, but the lack of finances did not see this happening in the 1970s.

Towards the 1980s, it was already clear that Hong Kong would relapse to the Chinese; hence, airport relocation became a pivotal transition piece. The air traffic coupled with the demographic trends signaled Hong Kong’s economic impact in the region. For instance, by 1995, Hong Kong took charge of handling three-quarters of the total products conveyed from the Chinese Mainland.