Layoffs Start As Cathay Pacific Completes HK Express Acquisition, Looks For Fast Merger Integration

Cathay Pacific has completed its acquisition of low-cost rival HK Express and is moving quickly to integrate the airline as a wholly-owned subsidiary. Staff layoffs have started, a Cathay executive has been seconded to the budget airline, and Cathay has plans to merge HK Express’ loyalty and holiday units into its own.

“All the past is a prelude!” former HK Express president Louis Li wrote in Chinese on a July 20 LinkedIn post accompanied by a photo of HK Express aircraft. Sources say he departed the airline July 15, before Cathay formally announced the acquisition completion on July 19.

Li is part of HNA management and observers widely expected his departure. But Cathay has also quickly laid off some HK Express managers, including at flight operations and network planning, raising the possibility Cathay will takeover these core functions. The industry is closely watching how Cathay will run this dual-brand full-service/low-cost airline combination and if Cathay can give benefits to HK Express without degrading the LCC’s natural efficiency and cost psyche.

A Cathay spokesperson responded to the redundancies by saying: “Our focus is now on transitioning smoothly and ensure that we continue to offer more choices to our customers who have entrusted their travel plans with us.”

Cathay has appointed Ronald Lam as HK Express CEO. He was previously Cathay’s director of commercial and cargo and he leaves that post. This contrasts to Cathay Dragon, the group’s regional full-service arm. Cathay Dragon’s CEO is Algernon Yau, but Yau is also director service delivery of Cathay Pacific. The dual titles reflect that Cathay Dragon is essentially fully integrated into Cathay Pacific and the CEO title is preserved for business and regulatory formalities. The different nature of HK Express’ business commands a distinct focus.

HK Express is expected to move into the office formerly used by Cathay Dragon, according to sources familiar with integration plans. HK Express’ current office is nearby but its floor is shared with Hong Kong Airlines without any divider between them. Separating the now competitors is logical, but dual-brand strategies often find the LCC needs physical distance from the full-service parent to prevent unnecessary interference from full-service managers that want to shape the low-cost unit.

Cathay’s Asia Miles loyalty programme is expected to takeover HK Express’ Reward-U loyalty programme while HK Express’ holiday arm U-Fly Holidays is expected to be folded into Cathay Pacific Holidays.

Cathay has had ample time to plan due to a warring faction shareholder at HK Express’ previous majority owner, HNA Group, that delayed the purchase from closing. Earlier this month, the shareholder, Zhong Guosong, broke recent silence and told local media that HNA would gain control of Hong Kong Airlines, where Zhong was leading a faction dispute through court cases. Hong Kong Airlines said the cases were dismissed. Zhong is not known to have been in any legal conflicts involving HK Express.

Cathay on March 5 disclosed it was considering acquiring HK Express, and on March 27 entered a purchase agreement. The fast pace reflects HNA’s urgency in off-loading assets to reduce debt, and Cathay wanting to acquire HK Express to prevent another shareholder from buying the LCC, or a new shareholder combining HK Express and Hong Kong Airlines into a larger competitive threat. Other parties exploring a bid for HK Express were said to be unable to move as fast as Cathay in negotiations, and could have faced regulatory scrutiny if they were from outside Hong Kong.

Source: Forbes.com

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