Cathay Pacific's CEO wants to turn the airline back into profitability, but there are manpower constraints that must be overcome

Cathay Pacific is hoping to return to profitability in 2023, the company's CEO warned that returning to its pre-pandemic capacity would remain one of its "biggest risks," in a recent interview with Trade Algo.

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Several factors play a part in the ability of a company to operate at a profit level, including "how full the flights may be, how much yield can we generate on our flights," Ronald Lam, the Chief Executive Officer, said Tuesday.

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“The business has been on the verge of turning around, but I am confident that we will be back in the black by this time next year.”

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The flagship carrier of Hong Kong reported last week that it had suffered an annual loss of HK$6.55 billion ($834.9 million) for the year ending December 2022. This represents an increase of 18.5% compared to 2021.

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There was, however, a significant improvement in the airline's bottom line last year, as the airline turned an annual operating profit of HK$3.5 billion - its first since 2019, according to Refinitiv.

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“At the moment, we are facing a supply constraint that is caused mainly by manpower constraints, not only within our company but also within the entire ecosystem within the aviation industry as a whole,” Lam said as he took over the role of CEO in January.

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“It is imperative that we have manpower both in the air and on the ground. The airport workers must also be prepared to take on flights both within Hong Kong and abroad."

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International Civil Aviation Organization (ICAO) expects that global air passenger demand by the end of March this year will have returned to the pre-pandemic levels, predicting that the numbers for global air travel could end up being 3% higher than the figures from last year.

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As the Hong Kong carrier said in its earnings report last week, it will only be able to fully meet pre-pandemic passenger flight capacity by the end of 2024 as a result of manpower limitations.

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In December, the group was operating nearly one-third of the passenger flight capacity that existed prior to the pandemic, according to the report.

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“By the end of this year, we expect 70 percent passenger capacity,” Lam told Trade Algo.

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“The main factor here is whether or not we have the necessary resources across the whole system to be able to coordinate all the needed resourcing. Our progress so far has been positive and we have already reached 50% of our goal. We are working very hard to reach 70% by the end of this year.”

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‘Biggest risks’

There was, however, a difference between Cathay's situation and most of the other airlines, according to Lam.

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As an example, he pointed out that the crew of Hong Kong's airliners had to deal with the "most stringent quarantine conditions in the whole world."

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Compared to other countries, Hong Kong only finally began to loosen its strict Covid regulations late last year, much later than the rest of the world.

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“Because of the pandemic, our capacity was very low for a long time, so for a long time we were working at very low capacity. In fact, many of our pilots have had their licenses expire as a result of the problems,” he said, adding that the airline had to allocate time and resources in order to retrain its pilots.

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“For us, the biggest risk is building our capacity, whether we're going to get enough resources in the entire aviation ecosystem,” he said. “To get back to our pre-pandemic capacity as soon as possible, we'll be working very hard to address that.”

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Upon being asked if the company will be paying dividends to ordinary shareholders this year, he responded that it is “not necessarily the case.”

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“I think it really depends on how well the business does,” he said, pointing out that it is too early in the year to tell since it has only been three months since the new year began.

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After receiving a lifeline from the government in 2020, Cathay Pacific is currently looking at a repayment program for preference share dividends due to the government which totals HK$1.5 billion for 2023.

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“The company's plan actually is to pay up all of the cumulative dividends on preference shares within this year in full. Once that has been done, then we can consider paying dividends to our ordinary shareholders."