LONDON – With the number of problems Cathay Pacific is facing, is the Chinese government using the COVID-19 pandemic to downsize the flagship carrier and give China Southern more of a foothold in Hong Kong?
This opinion analysis piece was inspired by @JTTSteve on Twitter who raised a good point, especially with the idea that China is being a global disruptor, even during the pandemic.
Whilst this viewpoint may be controversial and on the verge of COVID-conspiracy, Steve does raise a significant point.
The geopolitical tensions ongoing in Hong Kong are caused by the Chinese Government and can be related to the aviation sector in this respect.
But to dissect this, we must look at a couple of areas. The first is the actual Politics of Hong Kong, the second is Cathay Pacific’s problems during the pandemic as well as how China Southern could be given a significantly large chunk of the Asian market.
Let’s Move Away from Aviation One Minute
Whilst COVID was something that has been in constant news cycles in 2021, Hong Kong tensions surrounding the control that China has is something that has caused a lot of problems.
“In just a year and a half, China has effectively brought Hong Kong’s pro-democracy movement to a dead end” (Wong & Lo, 2021).
Almost “all of the major groups advocating for meaningful elections and freedom of expression have disbanded”, meaning China’s political foothold in Hong Kong is growing by the day (ibid).
There have also been close-downs of print and digital media in the country, with the latest being from “Stand News, after the pro-democracy media outlet was forced to close and seven people were arrested” (Ho-him, 2021).
The U.S government “has called on Chinese and Hong authorities to immediately release staff members” in the wake of this, but such an example of control can definitely be replicated into the aviation sector in the region (Al Jazeera, 2021).
Is There A Cathay Pacific Downfall On The Way?
There has been a lot of negative press thrown at Cathay Pacific over the last couple of weeks, particularly surrounding the suspension of operations.
This has been down to the Hong Kong government implementing “new travel rules to curb the spread of Omicron in” the country (Kotoky, 2021).
That being said, “Cathay was battered by the political fallout from 2019’s anti-government protests”, with “China’s strict Covid-Zero policy” ensuring “most international travel remains suspended” (ibid).
Because of such international suspensions, Cathay only handled 70,047 passengers in November 2021, which is 97% down compared to the same period in 2019.
More recently, because of the emergence of Omicron cases in Hong Kong, authorities have lambasted the airline “over breaches of COVID-19 restrictions”, with “two locally spread cases… believed to be linked to a Cathay crew member who visited the same restaurant as the infected individuals while under home quarantine” (Ho-Him & Creery, 2021).
Because of the Zero-Covid policy being instigated, staff morale at the airline has nosedived, with dozens of pilots quitting “in the weeks since November following [the] high-profile quarantine fiasco” (Ho-him, 2021a).
This is related to “three pilots who had tested positive for coronavirus in Hong Kong” getting sacked “after they left their hotel rooms and breached quarantine rules during a layover in Frankfurt” (ibid).
Whilst this is of course the pilot’s fault, in that case, it is representative of the “draconian quarantine” being a “breaking point” (ibid).
Because of such measures, the airline has had to announce “immediate major cuts to its flight schedule, including canceling passenger and cargo services to and from Hong Kong” (BBC, 2021).
Such cancellations are not necessarily short-term either. The airline is expected to include “cancellations of passenger flights to and from Hong Kong from now to tentatively the first quarter of 2022” (Caswell, 2021).
The term “tentatively” would suggest that such cancellations could continue well beyond 1Q22, but of course, this is overly dependent on whether the government in Hong Kong will relax such Zero-Covid policy rules.
Such tight and draconian measures are being noticed outside of the Hong Kong aviation industry, with the Qatar Airways GCEO Akbar Al Baker speaking out against this.
His airline is the third-largest shareholder of the carrier and expressed to the media that “You can’t just shut the aviation industry [down] because somebody got infected coming in [on] someone’s aeroplane” (Lee, 2021).
Other international carriers are following the suit in response to the government’s approach to this. “In November, FedEx said it would shut down its crew base in Hong Kong entirely and relocate pilots away from the city” (Toh, 2021).
Is The Chinese Government Paving the Way for China Southern Dominance in HKG?
China Southern’s growth rate was “turbo-charged” in the early 2000s and has positioned themselves to the point where they own a fleet of 635 aircraft, and has marketed themselves “as the sixth busiest airline in the world” (Curran, 2021).
The carrier has been on the Hong Kong Stock Exchange since 1997 and has used the region to raise hundreds of millions of dollars to reinvest into the business, “including paying for fleet expansion” (Curran, 2021a).
As is known in the industry, the hub of the carrier is Guangzhou, which is a sprawling port city northwest of Hong Kong.
The large fleet number makes it the biggest carrier in China, and of course, sways a lot of influence in both domestic and international destinations.
With the Chinese Government holding “majority ownership of the group”, this allows them not just to dominate that airline, but also the following other domestic carriers in the region (CAPA, 2021):
- Xiamen Airlines (55%)
- Chongqing Airlines Company Limited (60%, since Jul-2007)
- Hebei Airlines (acquired through Xiamen Airlines; 99.23%, since Oct-2014)
- Jiangxi Air (acquired through Xiamen Airlines; 60%)
- Zhuhai Airlines Company Limited (60%)
- Shantou Airlines Company Limited (60%)
- China Southern Henan Airlines Company Limited (52.65%)
- Guizhou Airlines Company Limited (60%)
- China Postal Airlines (49%, since Feb-1997)
- Sichuan Airlines (39%, since Aug-2002)
- Haikou Meilan International Airport Co. Ltd (4.92%)
- Xiongan Airlines (100%)
It also appears as well that China Southern Airlines seemed to reap the benefits of Cathay Pacific’s geopolitical downfall in 2019.
Cathay Pacific’s profits dropped from HK$2,345 million in 2018 to HK$1,691 million for 2019, and of course, numbers further dropped due to COVID-19 limiting the number of passengers handled (Cathay Pacific, 2020).
As for China Southern Airlines, the airline recorded an increase from 8,819 million RMB in 2018 to 10,838 million RMB in 2019 (China Southern, 2020).
Whilst it can’t necessarily be proved that the airline reaped the benefits of such downfall, the financial aspect does suggest how much better out of the two carriers, who performed better.
The Chinese Government would see the owners of Cathay Pacific, Swire, as major competitors because they are a Hong Kong-London-based conglomerate.
So if that means trying to use COVID as a catalyst for the carrier’s downfall so China Southern can succeed, then that does appear to be an option that China Southern and the Chinese Government will use.
However, such points can be conveyed as quite vague as it could very well be the fact that Cathay Pacific is in a rut at the moment due to the Zero-Covid policy.
Moreover, the only reason there are pieces like this is because of the high level of PRC-scepticism that is taking place not just in the UK, which has a vested interest with Hong Kong, but the rest of the world as well.
So overall, it is pretty clear Cathay Pacific is going through some incredibly turbulent times at present.
But whether it is down to geopolitical tensions, the government restrictions on COVID, or something more, remains quite difficult to prove.
For now, the answer does appear to be that the Chinese Government is not using COVID to destroy Cathay Pacific and to make way for China Southern in Hong Kong.
But, there is a lot of media reports surrounding what is going on in Hong Kong that could in fact change the answer to this question.
We will only know it when it happens, and when and if Cathay Pacific collapses at the hands of attempted Hong Kong dominance from the Chinese Government.
- Wong, J. & Lo, C. (2021), Hong Kong’s Pro-Democracy Activists Are Running out of Options, Bloomberg, https://www.bloomberg.com/news/features/2021-12-16/china-s-communist-party-crackdowns-leave-hong-kong-protesters-with-few-tactics [Last Accessed 1/1/22]
- Ho-Him, C. (2021), Hong Kong and China defend police raid on Stand News after US condemnation, FT, https://www.ft.com/content/aa6000cc-9f75-456b-bc24-ae8be8eb659e [Last Accessed 1/1/22]
- Al Jazeera (2021), US urges hong kong to release detained Stand News employees, https://www.aljazeera.com/news/2021/12/30/u-s-calls-on-china-and-hong-kong-to-release-stand-news-employees [Last Accessed 1/1/22]
- Kotoky, A. (2021), Flight Bans Leave Hong Kong Stranded as New Rules Freeze Routes, Bloomberg, https://www.bloomberg.com/news/articles/2021-12-24/flight-bans-leave-hong-kong-stranded-as-new-rules-freeze-routes [Last Accessed 3/1/22]
- Ho-Him, C. & Creery, J. (2021), Hong Kong Leader Lambasts Cathay Pacific Over Omicron Cases, FT, https://www.ft.com/content/8f989127-ac55-41e9-81b7-89d463f58329 [Last Accessed 3/1/22]
- Ho-Him, C. (2021a), Cathay Pacific Suffers Pilot Exodus amid Hong Kong’s ‘Permanent Quarantine’, FT, https://www.ft.com/content/62a0ebe8-ca4b-4f66-8c88-ba9c4ec1073b [Last Accessed 3/1/22]
- BBC (2021), Covid: Cathay Pacific Flights Cut after Hong Kong clampdown, https://www.bbc.co.uk/news/business-59824408 [Last Accessed 3/1/22]
- Caswell, M. (2022), Cathay Pacific to operate skelton passenger flight schedule in January, Business Traveller, https://www.businesstraveller.com/business-travel/2022/01/01/cathay-pacific-to-operate-skeleton-passenger-flight-schedule-in-january/ [Last Accessed 3/1/22]
- Lee, D. (2021), Exclusive | Hong Kong’s zero-Covid strategy ‘killing’ Cathay Pacific, CEO of major shareholder warns, South China Morning Post, https://www.scmp.com/news/hong-kong/transport/article/3160217/hong-kongs-zero-covid-strategy-killing-cathay-pacific-ceo [Last Accessed 3/1/22]
- Toh, M. (2021), Hong Kong has kept out COVID, but exhausted and depressed pilots are paying the price, CNN Business, https://edition.cnn.com/2021/12/10/business/hong-kong-covid-quarantine-pilots-intl-hnk/index.html [Last Accessed 3/1/22]
- Curran, A. (2021), 600+ Fleet Size in 33 Years: The Story of China Southern Airlines, Simple Flying, https://simpleflying.com/china-southern-airlines-history/ [Last Accessed 3/1/22]
- Curran, A. (2021a), The History of China’s Largest Air Carrier: China Southern, Simple Flying, https://simpleflying.com/china-southern-history/ [Last Accessed 3/1/22]
- CAPA (2021), China Southern Air Holding Company, https://centreforaviation.com/data/profiles/airline-groups/china-southern-air-holding-company [Last Accessed 3/1/22]
- Cathay Pacific (2020), Cathay Pacific Airways Limited Annual Report 2019, https://www.cathaypacific.com/content/dam/cx/about-us/investor-relations/interim-annual-reports/en/annual_report_2019_eng.pdf [Last Accessed 3/1/22]
- China Southern (2020), 2019 Annual Results, https://www.csair.com/en/about/investor/yejibaogao/2020/resource/20133f2415ac9b18d2cfbd3b4c9cdb9d.pdf [Last Accessed 3/1/22]