Once the pride of Hong Kong, Cathay Pacific becomes government’s punchbag

Hong Kong, China – For decades, Hong Kong’s Cathay Pacific Airways (CPA) stood as a proud symbol of the city’s international status and an exemplar of Asian aviation.

These days, the flagship carrier is treated more like the Chinese-ruled financial hub’s bete noire, regularly receiving severe scrutiny and criticism from its own government as it struggles to recover from the fallout of the COVID-19 pandemic.

After Cathay cancelled more than 700 flights scheduled between December and February, Hong Kong Chief Executive John Lee Ka-chiu told local reporters he was “very concerned” and wanted local aviation to “rebuild its capacity fast”.

Criticism from the Transport and Logistics Bureau was followed in March by Cathay CEO Ronald Lam Siu-por being subject to a public grilling by the Legislative Council, where lawmakers slammed the airline’s “chaotic management”.

In an article the following month, the pro-Beijing South China Morning Post newspaper published an article with the headline: “Can Cathay Pacific get its act together, or is it time for Hong Kong authorities to take a stake in the airline?”

The Hong Kong government has so far rejected calls to take a stake in Cathay to ensure the semi-autonomous territory’s status as an aviation hub, a scenario envisioned in Beijing’s 14th five-year national plan – a practically sacred text in Hong Kong business circles these days amid the growing influence of the Chinese mainland.

“It is not the government’s intention to become a long-term shareholder of CPA,” a spokesperson for the Transport and Logistics Bureau told Al Jazeera.

Most observers agree with the Hong Kong Aviation Officers Association’s (HKAOA) assessment that a pilot shortage is at the core of Cathay’s woes – the result of Hong Kong imposing some of the world’s longest-lasting and most draconian travel restrictions during the pandemic.

In January 2020, more than 5.7 million passenger movements were reported at Hong Kong International Airport (HKIA).

By April, the figure had dropped to just 31,739 – about 0.55 percent of pre-pandemic levels.

Despite its heavy reliance on international travel and trade, Hong Kong was one of the last jurisdictions on the planet to reopen to the world, only fully lifting restrictions in early 2023.

Cathay’s management fired 1,000 pilots in 2020 and saw a further 1,000 resign over the next couple of years, according to the HKAOA.

Many pilots who quit cited the stress of complying with Hong Kong’s ultra-strict quarantine rules, which forced the airline to operate “closed loop” flights, where crew were required to isolate for five weeks in a hotel followed by two weeks at home.

Cathay has said it has more than 2,900 pilots, including at its subsidiary budget carrier Hong Kong Express, but needs 3,400 to restore pre-pandemic capacity.

It has announced “robust plans” to hire another 500 pilots.

Some observers have said the government’s criticism is especially unfair given that its rigid restrictions caused many of Cathay’s difficulties in the first place.

“Cathay is still one of the best-performing airlines in the world with good financial performance compared to the three top Chinese carriers – reporting about 10 billion Hong Kong dollars of profit,” Zheng Lei, chair of the Department of Aviation at Swinburne University, told Al Jazeera.

In March, Cathay reported its first annual profit in four years of 9.78 billion Hong Kong dollars ($1.25bn).

“We achieved our end-2023 Group target of 70 percent pre-pandemic passenger flights as planned, only 12 months after Hong Kong opened up. We will reach 80 percent within this quarter, and we are working towards reaching 100 percent within the first quarter of 2025,” a Cathay Pacific spokesperson told Al Jazeera.

“The city has been our home for more than 77 years, and we represent Hong Kong on the global stage as its home carrier,” the spokesperson added.

While these encouraging results prompted CEO Ronald Lam to proclaim that “Cathay is back”, few in government circles seem to be celebrating their flag carrier’s return.

“Some of the government criticism might be justified in relation to flight cancellations, service and chaotic management – these issues need to be addressed. But Cathay has done a lot to rectify the situation, and they are actively recruiting pilots from China,” Lei said, adding that improving customer service is much easier than turning around a loss-making airline.

Cathay received significant government financial support during the pandemic, which critics argue imposed a moral obligation on the airline to maintain its standards and human resources.

“For me, the key point is that the Hong Kong government stepped in to support Cathay Pacific so the Hong Kong aviation sector would be preserved – and it wasn’t,” Paul Weatherilt, chairman of the HKAOA, told Al Jazeera.

Lei agreed, pointing out that mainland China’s top airlines did a much better job at staff retention.

The government in June 2020 provided Cathay with a 7.8 billion Hong Kong-dollar ($998m) bridge loan and purchased shares with detachable warrants of 19.5 billion Hong Kong dollars ($2.49bn).

Cathay redeemed half of the preference shares held by the government in December 2023 and the loan option was never exercised.

Weatherilt said Cathay had taken advantage of the pandemic to force permanent redundancies, pay cuts and worsened conditions on staff.

“Of course, China was slow to emerge from the pandemic, but nearly every other airline made temporary cuts and tried to keep core skills and assets in place,” Weatherilt said.

“Cathay has left Hong Kong aviation in a sorry place.”

The Hong Kong government has said that when it offered financial support, it specifically requested Cathay to “fully consider the potential impact on Hong Kong’s status as an international aviation hub and Hong Kong’s aviation network”.

Weatherilt said the government’s stance leaves the airline in a vulnerable position.

“Swire should be extremely worried because it stands out like a sore thumb – the company that controls Hong Kong aviation is ultimately run by a company in London,” said Weatherilt, referring to John Swire & Sons Limited.

As China tightens its control of Hong Kong, politics and colonial baggage stemming from Britain’s former administration of the territory increasingly lurk beneath the surface in business.

Cathay has been in Beijing’s cross-hairs since mass pro-democracy protests swept the territory in 2019.

Rupert Hogg, Cathay’s British chief executive, and Paul Loo, the chief customer and commercial officer, resigned in August of that year following pressure from the Chinese authorities to crack down on employees who supported the protests.

At the same time, pilots were subject to rigorous new ground checks imposed on any Cathay aircraft landing at airports in mainland China.

Chongxian Ma, deputy secretary of the Communist Party Committee of Air China, was made a non-executive director of the company in June 2021. Two more Communist Party non-executive directors were added to the board in May 2022 and July 2023.

In May last year, Cathay issued a public apology after a recording of flight attendants making fun of a non-English-speaking passenger was shared on social media.

When Bloomberg reported earlier this year that Beijing-based Air China was considering increasing its 29.99 percent stake in Cathay, some observers assumed it to be part of China’s patriotic drive to obtain a firmer grip over Hong Kong’s flag carrier.

However, one industry insider, speaking on condition of anonymity, told Al Jazeera that the move was more likely based on financial logic, as Air China depends on its Cathay stake to offset its own financial losses.

While ousting Cathay as Hong Kong’s flag carrier in favour of a Chinese-owned operator might please some nationalist elements, there is little dispute that there are no credible alternatives to Cathay, at least not in the short or medium term.

“It would not be easy for the government to develop an airline as an alternative flag carrier – it’s not feasible and not a good idea,” Lei said.

Some observers believe that British-owned Cathay Pacific presents a convenient target for politicians eager to boost their patriotic credentials, especially since criticism of the government has become highly sensitive and potentially illegal under the Beijing-drafted National Security Law passed in 2020.

On Wednesday, Hong Kong lawmaker Jeffrey Lam Kin-fung told local media that Cathay should roll out direct passenger services to the eight small Chinese mainland cities recently chosen by Beijing for relaxed travel restrictions to Hong Kong.

This would “fully capitalise on Beijing’s goodwill measures”, Lam said.

Inevitably, political interference is a growing concern.

Using Cathay as a public punching bag could be counterproductive for Hong Kong as it struggles to re-establish itself as a vibrant city, financial epicentre, tourism hotspot and business gateway to China.

Unlike Hong Kong’s stance towards Cathay, Dubai’s government did not attack Emirates Airways after tens of thousands of its passengers were left stranded in April following extreme flooding in the United Arab Emirates.

“Cathay will never complain in public, but they have good reason to feel aggrieved,” one industry insider who works closely with Cathay management told Al Jazeera on condition of anonymity.

While local rival Singapore reported a return to pre-pandemic passenger activity in February this year, Hong Kong still lags behind.

Passenger traffic at Hong Kong International Airport for March 2024 was 4.35 million – about two-thirds the figure during the same month in 2019.

“There must be collective responsibility for the loss of interest in Hong Kong, which arose partly from the protests of 2019 – which greatly damaged the SAR’s reputation as an aviation, financial and tourist destination – as well as the draconian measures imposed during COVID,” Shukor Yusof of Endau Analytics told Al Jazeera, referring to Hong Kong’s official designation as a Special Administrative Region.

Hong Kong’s image has also been battered by negative media coverage of its crackdown on dissent, including the high-profile prosecution of former media mogul, Jimmy Lai.

As both Hong Kong and Cathay seek to rebuild, what is certain is that their fates remain inextricably linked.

“If the government wants to develop Hong Kong as a finance hub and if Hong Kong is to return as a hub for global aviation, more support should be given to Cathay Pacific Airways, rather than criticism,” Lei said.