Victor Cheung




A situation "worse than the 2008 financial tsunami" has prompted Cathay Pacific Airways (0293) to introduce a raft of cost-cutting measures - including unpaid leave for staff and fewer flights.

Posting a de facto profit warning, Hong Kong's largest carrier said financial results for the first half of 2012 are "expected to be disappointing" - sending out an alarm signal for the economy.

"Passenger demand was strong in 2008, but we don't [even] have that this year ... and cargo yields are certainly also worse than 2008," chief executive John Slosar said after Cathay's annual general meeting yesterday.

"This is not just a Cathay Pacific problem. It is clearly an industry-wide issue, and continued high fuel prices in particular are hitting airlines hard across the globe," Slosar said.

The economic uncertainty has hit passenger and cargo demand from Europe and the United States, eroding profits of carriers worldwide.

Cathay's main rival - Singapore Airlines - posted an unexpected first-quarter loss amid weakened passenger demand, especially in these two sectors.

Cathay recorded losses of HK$8.7 billion in 2008 during the global financial crisis.

The carrier plans to cut long- haul flights to North America and Europe, which use more fuel and are now drawing fewer passengers. It has already made ad hoc cancellations this month, primarily of flights to Taipei, Shanghai and Japan.

Passenger and cargo growth targets for 2012 will be cut to 2percent and 4 percent, respectively, from 7 percent for both.

Brent crude slipped to US$111 (HK$865.80) per barrel from US$126 per barrel last month, but has remained above US$100 a barrel for the past 14 months.

In 2008, oil prices rose from US$90 per barrel in January to a peak of US$147 in late July, before falling back to less than US$50 per barrel in November.

Cathay will also freeze ground-staff hires and encourage cabin crew to take voluntary unpaid leave.

Other cost-savers on the cards include scrapping non-essential business travel for staff and cutting marketing and IT costs.

Cathay Pacific Airways Flight Attendants Union chairwoman Dora Lai Yuk-sim expressed concern, warning that although the management said the unpaid leave scheme is voluntary, it could become mandatory. In 2008, cabin crew were told to take two weeks off without pay every six months.

Slosar denied lay-off plans, saying Cathay does not want to "sacrifice ... excellent staff."

He said Cathay will not consider cutting fares now due to the tight competitive environment, nor reduce long-term investments as it remains on track to take delivery of 15 new aircraft this year.