Two's Company, Three's a Crowd

Anybody that has dealt with airline mergers and acquisitions will tell you that there are so many aspects to consider and generally, there will always be something that will irritate the purchasing airline for a long time to come if they don't grasp the nettle and sort things out from the outset. It's not just about the money, it's all those messy people related things like employment contracts, differing policies and seniority lists, to say nothing of the very different culture that will exist between the two companies. So when Cathay Pacific Airways bought the then named Dragonair buying an instant gateway into China, it seemed like it might be a match made in heaven even taking into account these issues. However, all was not completely rosy and what I recently heard described as being "the ginger headed cousin" was once again found to be out on a limb as the axe came down on its operations for the final time.

Certainly, the two airlines were very different. One, considered to be one of the premier airlines in the world was at the top of its game and people aspired to be employed by Cathay Pacific Airways; I know, I was one of them! The other, Dragonair, was more locally oriented but some might say it was viewed as the poor relation, being simply a tool to be used by the parent company to gain access to the lucrative Chinese mainland airports and all those passengers that thirsted for travel.

Moving forward in time, Cathay Pacific, seeing its competitors form Low Cost carriers (LCC) was desperate to take the leap into the LCC area but it procrastinated about how to achieve it; partly because of the fear of failure and partly because it just never seemed like the right time. Nevertheless, it seems like only yesterday that the gods had once again smiled on Cathay Pacific Airways and their mother ship Swire, as they picked up Hong Kong Express from cash strapped Hong Kong Airlines and its struggling owner corporation, Hainan for what was no doubt considered to be a relatively cheap deal.

Now owning three carriers, the Swire group had effectively cornered the market in Hong Kong. The only other Hong Kong based carrier, Hong Kong Airlines, had been struggling well before the calamity of a global coronavirus pandemic. Having had designs on competing seriously with the Cathay group, they had expanded rapidly; too rapidly and had soon run out of cash liquidity. Seriously overstretched, they had slashed routes, on board services, parked aircraft and had sold off its LCC to its competitor. Salary payments were repeatedly in doubt and a serious boardroom split had caused the Hong Kong government and the regulatory body to take a closer look at how the company had been run. What is surprising to some is that Hong Kong Airlines is still operating but who can say for how long?

The problem with owning two carriers in what is a relatively small market place is that there is bound to be duplication. Cathay had attempted to streamline things several times during their ownership of Dragonair and had managed to remove most but not all of the duplication across multiple departments. There had even been some acrimonious exchanges at some senior management meetings as plans for how to proceed with streamlining were discussed. It was apparent that in an organisational cultural way, Dragonair was still significantly different to Cathay Pacific and the phrase "it's like dealing with a truculent teenager" was used on more than one occasion when describing the dealings with Dragonair's upper management; the feelings of resentment at being the poor relation still held strong. In an attempt to bring Dragonair closer into the Cathay fold, a huge co-branding exercise took place in 2016 which effectively removed the iconic red dragon from everything that had been Dragonair as the carrier became Cathay Dragon. Then in 2017, with a worsening economic situation and realising that the business was still inefficient in some areas, Cathay carried out a major organisational development restructure that saw some 600 job losses; my own included.

However, the removing of duplication seemed to have worked. Things started to look as if once again, Cathay, like some cheap stage magician, would be able to pull the very big white rabbit out of a very small black hat. However, it was not to be and as Hong Kong spiralled into months of protests, passenger numbers started to fall as people became reluctant to visit Hong Kong. The sudden departure of Cathay Chief Executive, Rupert Hogg in August 2019 caused some turbulence; it appeared to be linked to his comments about staff behaviour and the protests. Swire's answer was to appoint Augustus Tang as Chief Executive. Shortly after taking control, the protests appeared to be decreasing and some small level of normality started to return to life in Hong Kong. Cathay Pacific even managed to have pulled off the coup of buying HK Express; a purchase that was completed at the end of 2019. Just as it was beginning to look as if Cathay had turned the corner, out of the blue, like some freakish bolt of lightning, the first warning sounds of a pandemic started to be heard.

As with many airlines, Cathay's passenger numbers fell dramatically as international air travel all but ceased; they are still at around 1% of what they had previously been pre-pandemic. Now owning three carriers, all of which were burning cash at the alarming rate of approximately two billion dollars a month, it didn't take the brains of a rocket scientist to realise that the situation was unsustainable. Having accepted the first round of government wage subsidies, the Cathay group had effectively hobbled itself by not being able to make any reductions in employee numbers. Both Cathay Pacific and Cathay Dragon subsequently announced that they would not apply for the second round of government support; an announcement that didn't bode well for their employees. With three airlines, route overlap and overall cost effectiveness of normal operations, should they return was also something that must have been taken into account in the decision making process of what was to come.

Nobody could have foreseen the disaster that was about to befall the world. The global aviation industry lies in tatters and only mass redundancies and significant government support has managed to keep many airlines in business. Some have already joined the long list of carriers in the aviation graveyard and exist only in distant memories; no doubt, there will be more. Whilst every employee in the Cathay group was expecting redundancies and things to be bad, nobody could have expected the immense shock of what happened. Like some wounded animal with its leg caught in a trap, the decision to axe Cathay Dragon completely was taken, effectively cutting off the trapped limb from the body in an attempt to keep the majority of the body from further harm. The news was a huge blow to so many people. Not just people, not faceless, many are friends, acquaintances and former colleagues and their families that I see on a regular basis.

It was a night of tears, hugs, camaraderie and a chance to relive some memories for those that made the short trek to the pub. Many of those present had worked for DragonAir/Cathay Dragon for many years; the longest I heard was 23 years. Many have made their lives in Hong Kong, they own property and many have businesses. Their children go to schools, both local and high fee paying international ones. They have contributed greatly to the Hong Kong economy but it seems that whilst two's company in the Cathay group of passenger carriers, three was definitely a crowd.

Having been there and done that back in 2017, I really feel for the ex Cathay Dragon people. It came as a shock to me back then and I had little in the way of help. I was unprepared to suddenly find myself 6,000 miles away from my home country with seemingly not many prospects ahead of me. Nevertheless, my shock was as nothing compared to the shock experienced yesterday by so many. Hong Kong is an expensive place to be, especially without an income and it was only down to a friend's extreme generosity that I have been able to remain to this day. Whilst I can never fully repay that friend, I can offer whatever help I can to anybody from Cathay Dragon that would like it. If anybody wants some free cv help, general advice or even just a chat to work things out, I'm offering my time and of course, I will keep my eyes peeled for any vacancies that might suit somebody. So please get in touch.

Note: Cathay Dragon operated three of the same routes as its parent company and ten of the same routes as HK Express and contributed 27% of seat capacity to the Cathay group (data courtesy of a post by Herman Tse and data from Cirium. https://www.dhirubhai.net/feed/update/urn:li:activity:6724597080343613440/