Cathay Pacific's massive redundancy bill

Cathay Pacific is in the process of making hundreds of workers redundant. Photo / Supplied

Cathay Pacific Airways will take a one-off hit of HK$300 million (NZ$53m) in redundancy payments as it sacks hundreds of employees in a major restructuring and cost-cutting exercise to reverse losses.

Hong Kong's flagship airline disclosed the huge bill at a meeting last Friday with analysts from financial institutions and research firms.

Six hundred people have been laid off since last month, part of a three-year transformation of the business after the company lost HK$575m last year.

In late May, 190 managerial and 400 non-managerial and junior ranking jobs were scrapped as part of the cost review. Staff were let go with a redundancy package of 12 months' salary and extended medical and travel benefits.

Airline executives said the cost, part of the biggest shake-up of jobs in 20 years at the airline, would be HK$300m, according to analysts from Bank of Communications and Jefferies.

Jefferies analyst Andrew Lee forecast the airline would save HK$500m by 2018.

It was revealed recently that Cathay Pacific would target HK$4 billion in savings over three years, including HK$2b this year. The carrier has never confirmed such a figure existed.

In an update of the company's financial performance, Cathay Pacific said it was earning less from airfares as "intense" competition kept a lid on prices. The airline has also been hit by higher fuel and operational costs, though its cargo business has gained strength and remained a bright spot.

Cathay Pacific said in a presentation that its early stage cost initiative was "tracking to plan" and that it wanted to stop non-fuel costs rising until 2019.

It said it would also register a one-off cost from a €57.12m fine imposed by the European Commission dating from 2010 for operating a cargo price-fixing cartel.

With its subsidiaries and associates contributing less money to the main company, losses are expected to grow.

Analysts are forecasting a loss of HK$1b on average when the company releases its half-year financial results in August, according to an earnings estimate from Bloomberg.

Corrine Png, chief executive officer of independent transport research firm Crucial Perspective, noted that with the airline focusing on cuts at head office and becoming more efficient, she said the Cathay management had not lost its focus on maintaining the airline's premium offering despite the easy option of cuts to its product and service.

"This will reduce the risk of compromising Cathay's product and services and losing its fans, especially the loyal frequent fliers. The last thing they want is to lose market share further during this period of restructuring," Png said.

- South China Morning Post