For more than a half-century, Cathay Pacific Airways has been Hong Kong’s gateway to the world, its British heritage and Asian high-altitude luxury fusing the territory’s colonial past with its Chinese location.
However, it is that unique cultural blend that has ensnared the carrier in an increasingly out-of-control political uprising sweeping through the streets.
After months of anti-Beijing demonstrations in the territory, Cathay is emerging as the corporate fall guy as it struggles to navigate a path between the demands of the mainland and employees sympathetic to the uprising.
In a dramatic escalation, chief executive officer Rupert Hogg (何杲) resigned on Friday, capping a tumultuous week in which the carrier was rebuked by China’s regulator, boycotted by state-owned companies and excoriated by nation’s biggest bank.
China’s actions give the 72-year-old carrier a taste of a less autonomous future awaiting the airline, and other companies with a Hong Kong presence are also being dragged into the political quagmire.
Fashion houses Versace, Coach and Givenchy were forced to apologize for selling T-shirts that did not properly designate Hong Kong as part of China. HSBC Holdings said it became the subject of “groundless” rumors on the Web that linked recent executive changes to shareholder pressure. PricewaterhouseCoopers stood accused on Chinese social media platforms of not condemning the demonstrations forcefully enough after a company-linked online post, which the firm said was a fraud, appeared to support the uprising.
“Cathay is only the start,” said Shukor Yusof, founder of aviation consultancy Endau Analytics in Malaysia. “China is sending a message to other corporations in Hong Kong that the same thing can happen to them.”
The orders by China’s aviation regulator on Aug. 9 laid bare the airline’s vulnerabilities, and its conundrum: Staff who support illegal protests are banned from Cathay services to China. And all Cathay crew need special approval to enter Chinese airspace, a crackdown that also affects many flights heading to the US and Europe.
Although Cathay does not disclose a breakdown of its China business, flights originating from there and Hong Kong account for about half of the firm’s revenue.
Add the 272 scrubbed flights and 55,000 stranded passengers after protesters occupied Hong Kong’s airport and last week has turned into one of the worst in the carrier’s history. Even before Hogg’s abrupt departure, Cathay spent the past week trying to make amends.
Merlin Swire, chairman of the airline’s biggest shareholder, on Monday last week went to Beijing to meet with aviation officials, and Cathay fired two pilots who had been suspended in relation to the protests.
A Cathay representative declined to comment on the company’s relationship with China, referring to a Monday last week message to employees in which the carrier said it is obliged to comply with regulations from the nation’s aviation authorities.
Cathay also said it will not tolerate illegal activities.
Hogg took over in May 2017, having served previously as Cathay’s chief operating officer. He joined Hong Kong property and trading conglomerate Swire Group, Cathay’s biggest shareholder, in 1986 and was appointed Cathay’s director of cargo in 2008.
On Tuesday last week, Cathay stock tumbled to its lowest close in more than 10 years. It has rebounded somewhat since as Cathay worked to undo the damage of its link to the protests, but the stock’s 6.8 percent drop this year still puts it among the 10 worst-performing carriers on the Bloomberg World Airlines Index.
The unrest in Hong Kong initially targeted a controversial proposed extradition bill. As the dominant local airline, Cathay was affected mostly because the protests put off tourists, but its troubles deepened after Cathay pilot and flight crew unions took part in a general strike on Aug. 5.
Days later, the Civil Aviation Administration of China (CAAC) stepped in.
Cathay’s actions, or lack thereof, “have led to a severe threat to aviation safety, created negative social impact and increased the risk of flying from Hong Kong to the mainland,” the regulator said.
On top of subjecting employees flying to China to checks, the CAAC ordered Cathay to submit a plan to increase safety and tighten security by Thursday last week.
All the information handed over by Cathay so far has met requirements, the regulator said.
Almost simultaneously, Chinese state-run companies began blacklisting Cathay. China Huarong International Holdings, a unit of the country’s largest bad-debt manager, told workers to choose another airline for business and even personal trips, people familiar with the matter said.
Finance-to-brewing conglomerate China Resources National was said to give similar directions to its staff.
China Citic Bank International, a Hong Kong-based unit of the nation’s largest state-run conglomerate, sent a message to its workers saying it was to ensure travel safety.
Then, on Tuesday, a brutally bearish research report landed on Cathay from state-run Industrial & Commercial Bank of China analyst Zhao Dongchen (趙東晨), who predicted that Cathay stock would slump by about one-third to HK$6 in 12 months, a level it last reached in 2001.
Zhao criticized Cathay’s leaders for “poor crisis management” that would cause “irreversible damage” to the airline’s brand.
No other analyst comes close to Zhao’s depth of pessimism on Cathay, data compiled by Bloomberg show.
The political upheaval came at an already difficult time for Cathay. The airline’s leading position in Hong Kong, Asia’s busiest hub for international traffic, has long been under threat from regional rivals. A new airport in Beijing is due to open next month, potentially siphoning off more business. Throw in sluggish global economic growth, the US-China trade dispute and a fragile business emerging from a turnaround, and the prospects are increasingly gloomy.
However, Cathay’s problems are not necessarily China’s concern.
The company seems an obvious target for Chinese authorities as the protest movement shows no sign of stopping, said Paul Yong, an analyst at DBS Bank in Singapore.
“It’s really an issue of symbolism,” Yong said. “It’s long been an icon of Hong Kong. It meant it attracted more attention from the Chinese authorities.”
China and the UK have waged a war of words over the unrest in Hong Kong. The British government in June threatened “serious consequences” if China failed to honor an agreement that guarantees freedoms in Hong Kong. China, in turn, accused the UK of meddling.
For many, Cathay is an emblem of the years Hong Kong was governed by the UK, until 1997. The airline is almost half-owned by the two-century-old conglomerate headed by the British Swire family, where Hogg and chairman John Slosar are long-time Swire lieutenants. The carrier’s second-largest shareholder is State-run Air China.
In some respects, Cathay appears to have given in.
Although Slosar said this month that the company “wouldn’t dream of telling” staff what to think about issues such as Hong Kong’s protest movement, the company changed its tune after drawing scrutiny from China’s aviation regulator.
“We must and will comply,” Hogg said.
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