Cathay Pacific layoffs | Can Cathay Pacific turn over after cutting jobs? Analysis: Operating cash continued for one quarter

Financial News

Author: Zhai Ziqian Hu Xueneng

2020-10-21 11:52

Last update date: 2020-10-21 11:52

Cathay Pacific (0293) today (21st) announced the restructuring plan, including the suspension of the operation of Dragonair Co., Ltd. (Cathay Dragon) and the overall reduction of about 8,500 positions. The number of layoffs accounted for the total number of employees in the group. 24%, the restructuring cost involved about 2.2 billion yuan.

Cathay Pacific, which is still losing 1.5 billion to 2 billion yuan in cash every month, is expected to reduce the group's monthly cash expenditure by about 500 million yuan next year.

Can Cathay Pacific survive the repeated epidemic?

Cathay Pacific launched a restructuring plan, including the overall reduction of about 8,500 positions, and is expected to save 500 million monthly costs next year.

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Passenger capacity is expected to be halved at least next year

Cathay Pacific expects that the reorganization will reduce the group's monthly cash expenditure by approximately HK$500 million in 2021.

Cathay Pacific pointed out that according to the forecast of the International Air Transport Association, air passenger traffic will not be expected to return to the level before the epidemic until 2024. Therefore, in all possible situations, the company can adopt the most optimistic plan with a responsible attitude. , To reduce the company’s passenger capacity next year to much less than 50% of 2019; assuming that the vaccine currently developed is proven effective and can be successfully launched globally in the summer of 2021, the company expects passenger capacity in the first half of 2021 to be much lower than 25 %, but it is expected that passenger capacity will gradually pick up in the second half of 2021.

As the global epidemic is still not under control, its Cathay Pacific and Cathay Dragon brands have only 47,000 passengers in September, a 98.1% year-on-year drop, and a 91% drop in capacity.

In the first half of this year alone, Cathay Pacific lost 9.865 billion yuan, and its revenue fell 48% year-on-year to only 27.67 billion yuan.

As of the end of June this year, Cathay Pacific had a net loan of 93.033 billion yuan, with a net debt ratio of 1.88 times.

However, Cathay Pacific subsequently launched a 39 billion yuan capital restructuring plan, which brought some breathing room to fiscal pressure.

You Luya, a transportation industry analyst at Bank of Communications International, expects that Cathay Pacific would have been able to support cash for 8 to 9 months of operation, or extend it to one year.

BOCOM International: Operating cash expected to be extended to one year

You Luya, a transportation industry analyst at Bank of Communications International, believes that Cathay Pacific’s restructuring plan is certainly helpful to its cash flow, but the actual impact is limited. It is expected that it can support cash for 8 to 9 months of operation, or extend it to one year.

She believes that the most important thing depends on whether aviation demand can recover in the second half of next year. It will only be positively helpful to increase revenue.

Cathay Pacific management believes that the most optimistic plan is to reduce the company's passenger capacity next year to far less than half of 2019.

You Luya believes that the process of vaccine research and development has always been relatively slow, and Cathay Pacific’s main international routes, as the global epidemic is not calming down, I believe Cathay Pacific’s expectations are too optimistic.

She even pointed out that if the shipping demand falls short of expectations next year, the possibility of refinancing will be higher, and the management may introduce more cost control measures, such as the next round of layoffs, and even the sale of some idle wide-body aircraft.

You Luya added that the international aviation industry has always faced the same dilemma. If Cathay Pacific sells aircraft to other companies, I believe it will be done at a lower price.

Zhang Zhiwei stated clearly that if the environment still fails, there is not much room for the stock price to rise.

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Zhang Zhiwei: The solution is better than no

Zhang Zhiwei, co-director of Xincheng Securities, said that the plan is helpful to save costs. The economy has not yet recovered and the capacity level is so low, "(the plan) is called better than no."

For the restructuring plan, only $500 million per month will be saved. Is the margin sufficient?

Zhang believes that the government has earlier assisted Cathay Pacific. If the company layoffs are too large, the society and the government will put pressure on the company. Therefore, the reduction of staff will not be too strong, and Cathay Pacific needs to prepare in case the economy rebounds. Ruthless, may not be able to find enough manpower in a flash.

Cathay Pacific’s stock price took advantage of this early stage of today’s "speculation". It once bounced over 5% and regained the 6 yuan mark. However, Zhang Zhiwei believes that after the bombing, it is necessary to observe the entire basic environment. If the environment still fails, the stock price will rise again. not much.

He continued that Cathay Pacific's stock price is not worth a boast in the short-term.

In the long-term, Cathay Pacific is facing the epidemic problem, the global economic downturn, and the impact of low-cost airlines on its business. The future development direction is "not so good." It is inevitable to reduce air tickets. In fact, the entire aviation industry is "difficult." Do", the stock price has a chance to see the range of 5.5 yuan to 5.7 yuan.

Zhang Zhiwei believes that if the epidemic does not improve, Cathay Pacific can still survive for two to three years in response to the government's rescue efforts earlier.

He also said that such a large airline company has launched a restructuring plan to substantially lay off employees, reflecting that the company’s business "doesn't have access" and that Hong Kong’s business ecology has changed. "No longer, I can only do Hong Kong business and Hong Kong brands. , And you need to look at it a lot, for example, will it introduce some capital injections or other external cooperation, so be careful.”

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