Travel restrictions and a pilot exodus had already decimated Cathay Pacific Airways. Then it became Hong Kong’s Omicron scapegoat

Healy’s exasperation was palpable—with good reason.

Since the pandemic began, Hong Kong’s ultra-strict border restrictions, which for months subjected all arriving travelers to hotel quarantine as long as 21 days, have decimated the city’s status as a travel hub and kneecapped Cathay, a once prestigious airline that carried nearly half of all Hong Kong passengers in early 2019. Hong Kong’s quarantine rules also have applied to Cathay’s own staff. Mandatory isolation for crew has sidelined pilots and flight attendants for days or even weeks at a time and battered employee morale. 

In 2020, Cathay lost $2.8 billion. It likely recorded a second consecutive loss last year after losing $970.8 million in the first half. There’s no guarantee 2022 won’t be worse. Other regions are loosening travel restrictions and shortening quarantine times due to effective vaccines and the lower severity of Omicron, but Hong Kong is reluctant to ease its rules. Other major airlines have relied on domestic trips to compensate for the downturn in international travel, but Cathay doesn’t have that option. Its base of Hong Kong has one major airport. All Cathay passenger flights cross a border. 

Chen Yongnuo—China News Service via Getty Images

Worse still, Cathay has become a convenient scapegoat for Hong Kong’s pro-Beijing government. Lam blamed Cathay for Hong Kong’s Omicron outbreak just as members of her own administration were swept up in scandal for attending a 200-person party that flouted COVID rules. One of the guests later tested positive for COVID. The airline’s single biggest shareholder is British trading house Swire Pacific, a relic of Hong Kong’s colonial era, which Lam’s government and Beijing seem keen to erase. 

Hong Kong extended Cathay a lifeline early in the pandemic, but after two years and Beijing’s imposition of a National Security Law, which effectively stripped Hong Kong of its autonomy from the mainland, Lam’s government seems more eager to peg Cathay as a culprit in the city’s COVID crisis than recognize it as a hard-hit victim of Hong Kong’s pandemic-era travel restrictions that have no end in sight.

“Cathay’s position has been severely undermined,” said John Strickland, director of aviation specialist JLS Consulting. “It is difficult to assess to what extent this long-established and trusted airline can recover.” 

A symbol of Hong Kong’s heyday

Cathay Pacific was founded in September 1946 by Sydney H. De Kantzow, an Australian, and Roy C. Farrell, an American, both former World War II pilots who had honed their skills as aviators by criss-crossing “The Hump,” the deadly air route over the Himalayas used by Allied pilots to deliver supplies to Chiang Kai-shek’s Nationalist government in Chongqing, China. Those daring wartime cargo runs—in which 700 Allied planes crashed or were shot down and 1,200 airmen died—bequeathed the two men unique air freight expertise, and convinced them of the enormous opportunities for trade in postwar China. 

Cathay became a symbol of Hong Kong’s freewheeling postwar heyday. After the war, the airline ferried goods into Hong Kong—from woolen items to live chickens—making Hong Kong one of the world’s top two logistics hubs and cementing Cathay as one of the world’s biggest cargo carriers. Its passenger service earned a reputation for impeccable service. Over the years, well-funded national flag-carriers from the Middle East and low-cost upstarts have nibbled away at Cathay’s margins, but even today it’s one of less than a dozen airlines to earn the highest five-star ranking from air transport rating organization Skytrax.

“What do I miss from the good old days? Everything!” Says one cargo pilot with the airline, who asked not to be identified. “It was a great job with a great airline that took care of its employees and our families. Not perfect, but damn good!”

P. Y. Tang—South China Morning Post via Getty Images

The pandemic rocked the aviation field, but when it hit, Cathay was still recovering from an earlier crisis.

When pro-democracy protests engulfed Hong Kong in 2019, Cathay’s then-chairman John Slosar said he respected employees’ right to take part. “We certainly wouldn’t dream of telling them what they have to think about something,” he said. 

Beijing saw it differently. After Slosar’s remark, China’s aviation regulator banned Cathay personnel who had participated in protests from working on flights that entered Chinese airspace. After the directive, CEO Rupert Hogg struck a new tone, promising “disciplinary consequences” for staff who “support or participate in illegal protests.” Still, over the next month, protesters occupied Hong Kong’s airport, shutting it down and scrapping hundreds of flights, and Slosar and Hogg both resigned. Cathay passenger numbers dipped sharply in August and September but rebounded by year’s end.

‘The future remains highly uncertain’

The real gut-punch to Cathay came when COVID-19 halted global air travel in March 2020 and, months later, when Hong Kong started requiring passengers to quarantine in government-designated hotels for weeks at a time. At that point, other countries were taking a similar precautions. But as vaccines gained approval, quarantine restrictions eased elsewhere. Not in Hong Kong. For months, most arrivals to the city have had to isolate themselves in hotel rooms for weeks, even if they’re fully vaccinated and test negative before and after arrival. 

The ultra-strict policy has insulated Hong Kong from COVID to a remarkable degree. With 7.5 million people—1 million less than New York City—Hong Kong has recorded 213 deaths since the pandemic began; its American peer has tallied nearly 39,000. But Hong Kong’s so-called COVID-zero policy has crippled the city’s flagship airline. 
Cathay carried more passengers in January 2020—3,010,012—than it did in the following 23 months combined—2,338,302. Passenger volume bottomed out in April 2020, when the airline carried 13,729 travelers.

In June 2020, the stricken carrier received $5 billion in aid from the city. The infusion recapitalized the company and gave the Hong Kong government a stake in the airline that represented 10% of shares at the time. In October that same year, the airline laid off 8,500 staff—just under a quarter of its workforce—and closed Cathay Dragon, its regional subsidiary.

“The future remains highly uncertain and it is clear that recovery is slow,” management said amid the layoffs. It said it expected to run at around 25% of passenger capacity by summer 2021, then gradually recover if the vaccines under development at the time proved effective and could be rolled out globally. 

But even with effective jabs, the carrier is not recovering like peer airlines that are headquartered in places with less rigid COVID rules and those that can capitalize on domestic travel. 

“American Airlines expects to operate nearly 90% of its pre-pandemic capacity” this quarter, says Umang Gupta, managing director and global airline practice lead at Alton Aviation Consultancy. “Cathay Pacific is only expected to fly 2% of pre-pandemic passenger capacity in January 2022.”

Even the flights still operating are in constant jeopardy. Hong Kong’s circuit-breaker mechanism cancels routes instantly if too many arrivals test positive. For instance, the government suspended Cathay flights from Toronto and Los Angeles for two weeks in late December after planes flying from those cities carried three and four infected passengers, respectively. 

In early January, Hong Kong banned all carriers’ flights from eight countries, including France, the U.K., India, and the United States, for two weeks, citing the risk of Omicron. Last week, it extended the ban until mid-February. 

73,000 nights in quarantine

As passenger volume plummeted, cargo accounted for about 70% of Cathay’s revenue in the first half of 2021, up from 21.4% in 2019. Cathay carried critical supplies and COVID vaccines into the city, making it a point of pride among employees. 

“Initially, there was a sort of esprit de corp about that. You recognized you were an integral part of the operation,” said a former Cathay pilot who retired in 2020 and asked to remain anonymous. “But things slowly got worse.”

Cargo pilots were once exempt from quarantine when they returned to Hong Kong even as their commercial peers were subject to 14 days of hotel isolation. But late last year, the Hong Kong government changed the rules after health officials linked the city’s first locally-spread Omicron cases to crew members who breached the existing guidelines. First, officials ordered cargo pilots to quarantine in hotels for three days. Then they upped the requirement to seven days. The rules forced Cathay to reduce its cargo capacity—a crucial source of revenue—to 20% of pre-pandemic levels, down from 70%. The government has warned that “pandemic-induced logistic disruptions” could accelerate cost-of-living increases.

Constantly shifting quarantine requirements for Cathay’s crews have upended employees’ lives and shredded what little morale was left. 

Cathay is currently asking pilots and flight attendants to spend three to four weeks at a time on duty. During such “closed-loop” shifts, they are forbidden from leaving their hotel rooms between flights, plus they must quarantine when they’re back in Hong Kong.

Early on, staff who flew into other countries could go outside hotel quarantine to exercise and do essential shopping. “Now, with 100% certainty, nobody is leaving their rooms,” the cargo pilot said. “The eye of the government is on us and on Cathay. If there are any more breaches abroad, that’s pretty much it.” 

The biggest sacrifice for crew is not seeing relatives for long stretches of time, said the freight pilot, who’s been away from some close family members for almost a year and a half. Some employees have been separated from their loved ones for even longer.

It’s a far cry from the old days, when weekend trips around the region to nearby beaches—Cebu in the Philippines or Phuket in Thailand—were common, and the airline took care of its employees and their families, the pilot said.

In defending the airline in January, Healy said Cathay staff collectively spent 73,000 nights in quarantine last year. They took 230,000 COVID tests—16 of which were positive. “What you have been through during the past two years is quite simply unparalleled,” he told employees. 

A ‘mass exodus’

In October 2020, after the bailout and as Cathay laid off staff, the airline asked staff to sign contracts accepting salaries that were half what they previously earned . The airline is cutting monthly housing subsidies of up to HK$100,000 ($12,850)—enough to pay for a four- or five-bedroom house in uber-expensive Hong Kong—by two-thirds later this year. 

“Pilots were asked to consent to new conditions of service to better align incentives to productivity, meaning as the market improves, and our pilots return to more normal levels of flying they will earn more,” Cathay Pacific said in a statement. 

The freight pilot is planning on leaving the airline and Hong Kong later this year “unless the borders open up and Cathay changes its contract,” the pilot said. “You’ll see a mass exodus during the summer when the schools are out, then in December when the housing subsidy decreases.”

Peter Parks—Pool/Getty Images

After Cathay cut 8,500 jobs in 2020, another 2,500 employees left in the first half of 2021. That means Cathay had lost a full quarter of its workforce since June 2019, the last “normal” period for the company. 

Cathay hinted in January that it needed more pilots to take three- or four-week “closed loop” shifts. The company started offering bonuses of up to HK$29,000 or $3,700 per assignment. 

The health risks and mental toll of being isolated in hotels and on aircraft for up to 70 days at a time outweigh any incentives, the cargo pilot said. 

“For pilots who sign up to fly in the closed loop, we have added opportunities to have more time away from flying after completing their loops as well as updating their remuneration to account for changes in our schedule and operation,” the airline said. 

The retired pilot says Cathay’s worsening fate mirrors the decline of Hong Kong. To quell the 2019 protests, Beijing imposed a National Security Law in Hong Kong that effectively banned all forms of dissent and undermined principles like freedom of speech and freedom of the press that made the city an appealing place to live.  

“There was a time when Cathay was the employer in the airline business and you couldn’t get better, but it has been on a downward spiral for a long time,” the retired pilot says. The city itself has “gone from being a plum place to live” to a “gulag.”

Cathay’s endgame

Cathay shares have lost almost half of their value since the start of 2020, and its management warned in January that the company is on track for another full-year loss of $720 million to $780 million in 2022, albeit a narrower one than last year.

The endgame for Cathay Pacific looks bleak, especially as the terms of its government bailout start to bite. The 2020 rescue package included preferred shares worth $2.5 billion, which grant no voting rights but will require dividend payments that increase from 3% next year to 9% by 2025. Some analysts say Cathay will need fresh financial support to pay those costs, even if all travel restrictions ease, putting its future as an independent company in doubt. (Cathay declined to comment on the matter.)

The odds of the government providing new funding are 50-50 since it’s worried about the optics of propping up the airline with taxpayer dollars, says Eric Liu, an analyst at investment bank Nomura. 

Air China owns a large stake in the airline, and prevailing wisdom among analysts is that the carrier, or another Chinese state-owned company, will eventually take control. “Eventually, red capital will try to control it, especially as aviation is a critical strategic area for the Chinese government,” Liu said.

Sharing pilots and infrastructure with Air China would produce some savings but would further dilute the prestige that once defined Cathay and exacerbate the exodus of Cathay’s expatriate pilots, according to another analyst. 

The near term, meanwhile, promises no end to the travel restrictions that have throttled the airline. A draft report from the European Chamber of Commerce in Hong Kong says the city’s border may stay sealed until 2024.

Last week, Lam did loosen Hong Kong’s inbound quarantine requirements, but they remain among the harshest in the world: arrivals must isolate for two weeks, rather than three.