February 5, 2020 / 7:35 AM / 15 days ago

Cathay Pacific asks employees to take unpaid leave as virus hits demand

SYDNEY (Reuters) - Hong Kong’s Cathay Pacific Airways (0293.HK) asked its 27,000 employees to take three weeks of unpaid leave, saying preserving cash was key for the carrier and that conditions were as grave as during the 2009 financial crisis due to the virus outbreak.

Cathay is also asking suppliers for price reductions, putting in place hiring freezes, postponing major projects and stopping all non-critical spending, Chief Executive Augustus Tang said in a video message to staff seen by Reuters.

On Tuesday, the carrier said it planned to cut about 30% of capacity over the next two months, including about 90% of flights to mainland China.

Cathay had already experienced a sharp fall in demand since the middle of last year due to widespread, sometimes violent anti-government protests in Hong Kong.

The virus, which has led to a death toll of nearly 500, has led to a further drop in visitors and passengers transiting through Hong Kong’s airport.

“This has been one of the most difficult Chinese New Year holidays we have ever had,” Tang said in the video. “We don’t know how long this will last. With such an uncertain outlook preserving our cash is now the key to protecting our business.”

A few hours after the video was released, Hong Kong leader Carrie Lam announced any visitors from mainland China would need to undergo a compulsory quarantine for 14 days.

Cathay said in a statement it was appealing to all employees to participate in the unpaid leave scheme that will run from March 1 until June 30.

Tang said it was the first time the company had offered an unpaid leave scheme since 2009, when demand plummeted due to a global financial crisis.

“We had the overwhelming support of our employees,” he said, about the 2009 scheme. “It made an enormous difference. The situation now is just as grave and I ask for the same commitment to the future from you.”

FILE PHOTO: Hong Kong's Cathay Pacific Airways Airbus A330-300 passenger plane takes off near a Taiwanese national flag at Taoyuan International Airport, Taiwan August 6, 2018. REUTERS/Tyrone Siu/File Photo

The leave scheme, first reported by the South China Morning Post, is not mandatory but employees are encouraged to take it, a spokeswoman said.

Cathay shares closed 2.7% higher on Wednesday following the announcement of capacity cuts which came after the market closed on Tuesday.

In a note to clients, Jefferies analysts estimated the airline would report a loss in the first half of 2020 before returning to a profit in the second half, assuming traffic rebounds as it did with the 2003 SARS epidemic.

Reporting by Jamie Freed; Editing by Christopher Cushing and Muralikumar Anantharaman

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