Cathay Pacific Runs Into Issues Merging Its Dragon Brand

Political payback could be behind delays Cathay Pacific is experiencing as it moves to merge its regional offshoot, Cathay Dragon, into the Cathay Pacific brand. Numerous Cathay Pacific employees participated in pro-democracy rallies in Hong Kong last year, raising the ire of the Chinese Government. Now it is being suggested the same government is hampering Cathay’s merger plans as a punishment.

Cathay Pacific is being delayed in its attempts to merge Cathay Dragon with the mainline parent airline. Photo: Cathay Pacific

Straitened times force restructure within Cathay Group

Cathay Pacific has been devastated by the travel downturn and ban on travelers through Hong Kong. Between them, Cathay Pacific and Cathay Dragon flew just 13,729 passengers in April, a year on year decline of 99.6%.

Several months of severely curtailed passenger numbers have forced Cathay Pacific to slash expenses and look for savings. Earlier this month, rumors emerged that Cathay Pacific was looking at doing “something” with both Cathay Dragon and HK Express. It appears that “something” is the disappearance of the Cathay Dragon brand.

According to Reuters, Cathy Dragon’s fleet of 25 A330s widebodies would be rebadged into mainline Cathay Pacific aircraft. The remaining 16 A320neos would go to Cathay’s low-cost offshoot HK Express.

Cathay Pacific wants to fly Cathay Dragon’s 25 A330s under its own livery. Photo: Cathay Pacific Newsroom.

Usually, Cathay Pacific flies only to Shanghai and Beijing in mainland China whereas Cathay Dragon flies to 20 mainland Chinese cities. The Civil Aviation Authority of China (CAAC) is saying that if Cathay Pacific takes over Cathay Dragon’s routes, it will constitute expansion and should be blocked.

Is the Chinese Government letting Cathay Pacific know who’s boss?

Last year, Cathay Pacific was criticized by the Chinese Government after many of its employees were identified participating in pro-democracy rallies.  Cathay Pacific went on to warn its employees that those participating in general strikes could be sacked. It came after the airline handed over details of employees participating in pro-democracy protests to the Chinese Government.

Even in the best of times, Cathay Pacific is highly dependant on China and the favor of the mainland government. Over the wider Cathay airline group, mainland China accounted for a fifth of all flights and around half of the group’s overall revenue in 2018.

Now the Chinese Government is reportedly letting Cathay Pacific know who’s boss by using their regulatory agency, CAAC, to thwart and delay Cathay’s merger plans.

Normally, mainland China accounts for over half of the Cathay Group’s overall revenues. Photo: Cathay Pacific News Room.

Last year, CAAC increased its scrutiny of Cathay Pacific. The airline was issued six demerit points for what was termed “minor infractions.” But because of those demerits, Cathay’s merger plans and expansion in mainland China can be delayed by up to one year from the date of the last infraction.

“Given the very dynamic situation we are currently in, we are not taking anything off the table, and we can’t rule out anything to ensure our airline business will come out from the crisis stronger and more competitive,”  the airline told Reuters.

Ongoing uncertainty could undermine Cathay Pacific

The uncertainty means that Cathay Pacific’s ongoing negotiations with its pilots’ union also remains up in the air.

It comes at a critical time for Cathay Pacific. Hong Kong’s Government is moving to allow some transit traffic through Hong Kong Airport from June 1. This will help breathe some life into both the embattled airport and cash-strapped Cathay Pacific.

But Hong Kong’s role as a hub for transiting traffic into mainland China could be eroded if this dispute continues. It impedes Cathay Pacific’s immediate future and its resurrection as one of North Asia’s great legacy airlines.