Cathay Pacific’s staff cut won’t be the deepest for Hong Kong

The first cut isn’t the deepest; job losses at the airline will provide cover for even bigger employers to make similar moves
While Cathay is a big name, its staffing numbers are dwarfed by other Hong Kong names such as HSBC, Swire and CK Hutchison

Neil Newman

Published: 10:44am, 22 Oct 2020

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One of the many reasons that Hong Kong is attractive to big international businesses – and Tokyo isn’t – is that you can easily fire people during a downturn. As the French banks found after the Global Financial Crisis and the Tohoku earthquake and tsunami, moving their bloated operations from Tokyo to Hong Kong with a view to downsizing was cheaper than trying to do it in Japan.

It was no surprise then that Cathay Pacific was able to start laying off swathes of its staff as the airline industry globally faces its greatest ever challenge to recover from the crisis caused by the coronavirus. Air travel will never be the same again, in terms of both ease of movement and cheap ticket prices. Gone are the days of flying to Tokyo for the weekend at less than the price of a Friday night bar bill in Lan Kwai Fong.

Cathay axes record 6,000 Hong Kong jobs and closes regional airline

Strategically, Cathay Dragon was a cut that was waiting to happen as it was incorporated in China. With Cathay incorporated in Hong Kong, it could not be consolidated without it being viewed internationally as a cross-border takeover.

The Cathay Pacific job losses hit Hong Kong morale very hard on Wednesday even though it was well anticipated and certainly in terms of its share price, it appears to have been discounted.

03:43

Cathay Pacific Airways announces its largest job cuts in history

However, it wasn’t the first employer to fire staff in 2020 and it certainly won’t be the last. The city should be bracing itself for bigger job losses. No high profile employer wants to be first to go to the press announcing deep cuts, but once it has happened mass redundancies become less newsworthy. Expect others to follow suit.

Like many other businesses from little Hong Kong, Cathay Pacific has a hefty international profile. But in terms of the number of employees, it is a minnow. With a staff of 33,000, it is just a seventh the size of HSBC.

When considering, ‘who’s next?’, then it’s quick and easy to point at HSBC but there are other large employers that must surely be waiting for a time when job losses no longer make the front page.

Swire is three times the size of Cathay Pacific with 94,000 employees, CK Hutchison is even bigger than HSBC with 270,000 employees (including subsidiaries), Jardine is bigger still with 464,000 in the group and if we are thinking of the Greater Bay Area, which we are part of, just over the border 800,000 of Foxconn’s employees work in just two factories in Zhengzhou and Shenzhen.

01:20

Cathay Dragon staff strongly dissatisfied over Cathay’s decision to axe regional brand

The current economic situation is severe and with no real signs of a rapid recovery, we may have not seen the worst.

Although job losses in Hong Kong have been acute this year especially in the food and beverage industry, entertainment – there is no live work for musicians – and retail, they have been relatively low profile. Cathay’s much publicized staff reduction is significant for high-profile employers that need to shed staff, as they have now been given a good excuse.

Neil Newman is a thematic portfolio strategist focused on pan-Asian equity markets

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