Cathay to Suspend Pax Flights in May?
Cathay May Halt Passenger Flights in May
Sat April 12, 2003 01:39 PM ET
By Rico Ngai
HONG KONG (Reuters) - Cathay Pacific 0293.HK , Asia's fourth-largest airline, is considering grounding all passenger flights next month as a deadly virus sweeping through Hong Kong scares away travelers and threatens the airline's survival.
The drastic measure being considered by Cathay, facing the worst crises in its history, comes as Asian carriers cancel hundreds of flights because tourists and business people stay at home, terrified of contracting Severe Acute Respiratory Syndrome (SARS).
An internal Cathay memo, sighted by Reuters on Saturday, showed the airline expected passenger numbers to shrink to less than 6,000 per day -- a fall of 80 percent from normal times.
"We forecast that the number of passengers could fall to less than 6,000 per day in May in which case we will have to consider grounding the entire passenger fleet," Nick Rhodes, Cathay Director of Flight Operations said in an internal Internet posting sighted by Reuters.
Hong-Kong's Cathay is currently carrying less than 10,000 passengers per day compared to the usual passenger levels of more than 30,000, Rhodes said in the grave memo.
Cathay issued a public statement later saying it "has no plans as of now to stop operation at any future date." It did not say whether it has plans to cancel all flights if passenger levels continue to deteriorate.
"This is an internal memo and I will not discuss it publicly," a Cathay spokeswoman told Reuters, referring to questions on the content of the memo.
SARS TOLL MOUNTS
The highly contagious pneumonia-like disease has already killed 120 people and infected more than 3,100 people around the world as the virus hitches a ride with air travelers.
The toll has been mounting by the day since a mainland Chinese carrying the virus died in Hong Kong last month before infecting scores of others.
Cathay is being especially hard hit because Hong Kong is at the epicenter of the outbreak which is causing tremors throughout the region's carriers.
Thai Airways International Plc THAI.BK , Malaysian Airline System Bhd (MAS) MASM.KL and Singapore Airlines Ltd SIAL.SI on Friday announced hundreds of cancellations. Australia's Qantas Airways Ltd QAN.AX has said it would fire 1,000 staff, or about three percent of its workforce, as it also feels the bug's bite.
Singapore Airlines, Asia's most profitable airline, plans to reduce capacity by almost 20 percent by cutting flights to mostly SARS-affected destinations.
BLEEDING CASH
"We are literally hemorrhaging cash -- approximately US$3 million per day. The current strategy is simply to stem the bleeding and buy time," Cathay's Rhodes said, citing a briefing given by the airline's chief executive officer David Turnbull on Friday.
Rhodes said the airline currently has canceled about 42 percent of its flights and the remaining flights are operating at a load factor of 30-35 percent. Load factor indicates the number of paying customers as a proportion of seats available.
In the public statement, Cathay said: "Despite the current difficult situation...the airline is maintaining its network and providing scheduled services as much as possible."
Among the hardest-hit by SARS, Hong Kong's tourism industry saw a free fall in air travelers getting on and off the tarmac. Luxury hotels record single-digit occupancy rates as the local Airport Authority said about 33 percent of the total number of scheduled flights for April has been canceled.
Cathay, with a turnover of more than HK$33 billion (US$4.23 billion) in 2002, issued its first-ever profit warning on Friday citing adverse impacts by the Severe Acute Respiratory Syndrome (SARS) virus and the war on Iraq.
The warning hammered Cathay's shares to their 16-month low, closing at HK$8.95 on Friday. They had lost nearly a quarter of their value in the last three weeks when SARS first reared its head in Hong Kong in March.
Cathay has already stopped all "non-essential" expenditure and it is offering voluntary unpaid leave.
"If there is not a miracle cure for SARS soon and a sudden withdrawal of the WHO advisory against travel to Hong Kong, the cuts are going to have to be deeper," the memo said.
The measures include involuntary unpaid leave and job sharing, it said.
"Whatever scheme is agreed, the company is determined that every employee will share the pain equally. We are all in this together," it said.
"Even if all employees worked for nothing at present, we would still be losing nearly US$2 million per day. Any savings will only buy time," it added.