Cathay under scrutiny as CEO takes fall for protests

Bloomberg

Cathay Pacific Airways Ltd is counting on the resignation of its British chief executive officer, Rupert Hogg, to move beyond the tumult that saw its employees’ participation in the Hong Kong protests draw the ire of Beijing. But will it be enough?
Incoming CEO Augustus Tang has the delicate task of continuing to placate China, an increasingly important market for the 72-year-old airline, while also minimising the fallout from staff, customers and investors as the unrest in its home base continues to seethe.
Whether Tang — a long-time lieutenant with Cathay’s biggest investor, Swire Group — succeeds or falters, Cathay’s story is having repercussions beyond the carrier itself. It’s become a cautionary tale of modern-day China, with the country increasingly willing to call out companies that want access to its lucrative consumer market, but don’t toe the party line.
“This is the most appalling kowtow to Peking,” David Webb, a Hong Kong activist investor, wrote on his blog just hours after Chinese state broadcaster, CCTV, broke the news of Hogg’s departure. “Every substantial employer in Hong Kong, in both the public and private sectors, has employees who have participated in marches that have
frequently gone beyond their approved spatial or time limits. Should all the CEOs resign?”

Too Little
After China’s aviation watchdog slapped a string of demands on Cathay, the company appeared to swing into action, with Swire chairman, Merlin Swire, flying into Beijing to meet with the authority three days later. But even with Hogg taking the fall, it’s unclear whether China, which along with Hong Kong accounts for about half of Cathay’s revenue, will be satisfied.
The Global Times, a newspaper published by China’s
Communist Party, said Hogg’s departure may not be enough to atone for Cathay’s “lukewarm attitude” to dealing with its “radical” employees.
Pilots and flight attendants from the airline took part in strikes and demonstrations related to the protest, which has morphed from opposing an extradition bill into a mass repudiation of China’s hold over the territory it took back in 1997.
“Cathay Pacific’s latest gesture was viewed by many as too little to restore its scarred reputation and the loss of customers,” the Global Times said after Hogg’s departure. Chief Customer and Commercial Officer Paul Loo resigned alongside the CEO.
Cathay shares rose 0.9 percent to close at HK$10.70 in Hong Kong. The stock has fallen about 4 percent this year, compared with a 1.7 percent rise in the Hang Seng Index.

First Step
Zhao Dongchen, an analyst at state-run Industrial & Commercial Bank of China who fuelled Cathay’s plunge to a 10-year low by blasting its “poor” handling of the crisis, applauded the top-level changes given the company was “severely lacking in crisis management competency.”
But he also offered some caveats. “I am not sure that replacing two top personnel will be enough to meaningfully enhance Cathay’s management,” Zhao said in an email responding to questions from Bloomberg. “More likely, this marks a first step.”
Zhao also criticised Cathay for what he described as a “hasty” decision to fire two pilots in connection with the protests, saying the move raised questions about procedural justice.
Meanwhile, Cathay’s flight attendants’ union lamented the departure of Hogg and Loo.
Their workplace “is now and shall continue to be greatly influenced by many unforeseeable elements,” according to a Facebook post. Members are being asked not to discuss political topics while flying and be careful on social media and outside of work hours discussing issues which could “cause significant effect on everyone of us now.”

Sets Precedent
The Civil Aviation Administration of China (CAAC) barred staff who took part in or supported Hong Kong’s protests from flying to the mainland and demanded Cathay provide a plan for improving flight safety and security. It said Cathay had complied with its demands.
“This will pacify CAAC for now, but it may not be the end,” said Shukor Yusof, founder of aviation consultant Endau Analytics. “Once you cave in, it sets a precedence. It could embolden CAAC to seek harsher measures.”
Cathay’s entanglement with the anti-Beijing protests stood out because of its stature and connection to Hong Kong, but it wasn’t alone.
Within days of Cathay being castigated by CAAC and boycotted by state-backed firms, luxury brands Versace, Coach, and Givenchy were forced to apologise for selling T-shirts that implied Hong Kong wasn’t part of China.
Cathay suspended ticket sales from counters at the Hong Kong airport due to tightened security measures from the airport authority, the airline said on Monday. In a message to employees obtained by Bloomberg, Hogg said a change in leadership was required so that Cathay could move forward.
“There is no doubts that our reputation and brand are under immense pressure and this pressure has been building for some weeks — particularly in the all-important market of mainland China,” he wrote.