Cathay Pacific Post-COVID Recovery and Hong Kong Aviation Hub

Introduction and Background

The onset of the COVID-19 pandemic brought unprecedented calamity for the global economy, affecting every sector without exception. Among the industries primarily affected was the aviation industry. Many countries were forced to impose travel bans due to the speed at which the virus spread, and Hong Kong was no exception. This imposition immediately led to a drastic drop in aviation services and passenger volumes. As a result of the pandemic, nearly all air travel stopped between late 2019 and early 2020. The Asian region was not spared, as almost every scheduled international flight was suspended (Park, Villafuerte & Abiad, 2020).

Moreover, many countries implemented domestic flight bans to contain and lower the spread of the virus. In the 2020 annual report issued by Cathay Pacific, the chairman stated that global passenger traffic was not expected to return to pre-COVID-19 levels until sometime in 2024, according to estimates by the International Air Transport Association (IATA) (Tisdall, Zhang & Zhang, 2021).

The economic downturn began with the diminishing impact on the tourism and travel sectors globally, and airlines worldwide took a severe hit. Ideally, every economic shock to one country quickly spreads to others due to linkages brought about by globalization. According to a report by the United Nations Conference on Trade and Development (UNCTAD), the estimated global economic loss was approximately two trillion US dollars, including losses recorded by the aviation industry due to grounded aircraft and travel bans (Tisdall, Zhang & Zhang, 2021).

Although air travel is generally considered a safe mode of transport, the pandemic resulted in substantial layoffs and significant operational cuts. Airlines recorded losses of up to billions of dollars, and Cathay Pacific Airline of Hong Kong was no exception.

Background of the Research Topic

Cathay Pacific Airways of Hong Kong is the city's flag carrier, with its central hub and head office in Hong Kong (Tsui, Yuen & Fung, 2018). Its subsidiaries and operations offer cargo and passenger services scheduled to over 190 destinations in more than 60 countries globally. Passenger fleets operated by Cathay Pacific include the Boeing 777, Airbus A350, Airbus A330, and Airbus A321neo, while its cargo division operates two Boeing 747 models. The airline was established in 1946 in Hong Kong and has continuously expanded its presence in the region's aviation hub.

Among the most significant milestones of the airline was its acquisition of Dragonair on September 28, 2006, which granted it greater access to the mainland China market and additional opportunities to share resources. Dragonair was rebranded in 2016 and became known as Cathay Dragon (Malkani et al., 2005). However, the onset of the COVID-19 pandemic negatively impacted the global economy and led to drastic changes that brought the once-giant airline to the brink of collapse.

As of 2020, Cathay Pacific had already recorded a loss of HK$21.6 billion, approximately 2.8 billion US dollars. The airline's chairman described 2020 as the most stressful year in the airline's more than 70-year history. The 2020 annual report noted that quarantine requirements coupled with travel restrictions created unprecedented disruption in the global air industry, with consequences described as detrimental (Cathay Pacific Airways Limited, 2020).

Aside from the pandemic's impacts, the airline's operations were also paralyzed by a series of protests, including the 2019–2020 Hong Kong protests, in which Cathay Pacific's employees participated. This created negative publicity that compounded the pandemic's effects and contributed to a sharp drop in revenue and profits. Over two million people demonstrated against the proposed extradition of criminal suspects to mainland China in 2019, and as of 2020, Hong Kong was still gripped by a political crisis that further affected the economy. These activities reduced traveler demand and created widespread fear of political instability, further paralyzing the airline's operations.

During the pandemic, the airline was forced to reduce its international flights drastically. By March 2020, the group had slashed approximately 96% of flights for three consecutive months: March, April, and May. Hong Kong Express also suspended its flight operations due to reduced demand. At one point during the pandemic, the airline recorded only 582 passengers in an entire day. A report issued in December 2020 stated that the group expected losses in the second half of the year to be higher than those of the first half, due to fleet impairment, restructuring charges, and low demand. An early 2021 report confirmed a total annual loss of 2.8 billion US dollars for 2020, and the airline announced plans to cut approximately 8,500 jobs to minimize operational costs (Cathay Pacific Airways Limited, 2020).

Aims, Objectives, and Research Questions

This study aims to establish a full assessment of the impact of the COVID-19 pandemic on Cathay Pacific Airline Limited of Hong Kong, in order to understand and project the airline's future after the pandemic's effects. The research also seeks to determine how China's taking control of Hong Kong may affect the airline, and to examine Hong Kong's role as an aviation hub and how that role is expected to change as a result of these variables.

Three research questions guide this study:

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

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

3. Will Hong Kong strengthen and maintain its role as an aviation hub in the region following the impact of the pandemic and China's increased control?

The first two research questions are addressed together in one section, while the third is addressed independently. Additionally, the research examines how Hong Kong airport has grown from the Kai Tak era to its current location at Chep Lap Kok, and how ongoing airport development is likely to impact Cathay Pacific going forward. This research is important for the Hong Kong government to understand the airline's future and the city's continued viability as a regional aviation hub.