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What was the role of Cathay Dragon within the group?

What was the role of Cathay Dragon within the group?

As Cathay Pacific looked to slash its costs, Cathay Dragon was axed. The subsidiary airline was fully integrated into the Cathay Pacific group in 2006 and finally rebranded as Cathay Dragon in November 2016, seemingly finalizing its assimilation into the group and firmly showcasing its importance. But what went wrong?

The Hong Kong-based Cathay has long suffered a crisis of its own. In 2019, the company was in the final year of its transformation program which was due to return it to stable profitability. The first half of the year went smoothly – Cathay Pacific managed to net a profit and increase revenues. The airline managed to achieve something that was usually not attributed to it – a healthy first half of the year. But in March 2019, the Hong Kong protests began, including the eruption of activity in the summer of 2019.

“The protests in Hong Kong reduced inbound passenger traffic in July and are adversely impacting forward bookings,” the now-ousted chairman of Cathay Pacific John Slosar stated in August 2020, as the airline announced its H1 2019 results.

Second half of the year for the 74-year-old airline went as smoothly as it could, considering the backdrop of the civil rights movement. Despite the circumstances, it ended the year with an annual profit of HK$1.6 billion ($206.3 million), split into an H1 profit of HK$1.3 billion ($167 million) and an H2 profit of HK$344 million ($44.3 million). But the profit was largely the result of the group’s subsidiaries. The two airlines of the company, namely Cathay Pacific and Cathay Dragon, ended the year with a net profit of HK$241 million ($31 million).

Shrinking Dragon
The two airlines had to cut flights due to the dwindling demand across almost all their networks and Asia in particular. Cathay Dragon was forced to reduce capacity to Shanghai Pudong International Airport (PVG) by 21 weekly flights and cut down on frequencies to Beijing, Taipei Seoul, and Osaka, including the suspension of flights to Tokyo Haneda Airport (HND), Denpasar in Bali for the winter season, and Medan, Indonesia indefinitely.

In November 2019, the Cathay group indicated that half of the 32 Airbus A321neo order would go to HK Express, a low-cost carrier subsidiary acquired in July 2019. The only impending new aircraft that remained attributed to the Dragon was the 16 A321neos, despite its 48 aircraft fleet clocking in at an average of 15.3 years of age. 28 of those were outright owned by the airline, including 11 Airbus A330-300s owned by Cathay Pacific and leased to the subsidiary. The other 20 were leased under an operating lease, indicating that Cathay Dragon was only renting the aircraft from lessors outside the group, per se.

Those developments did not indicate a happy future for Cathay Dragon – with an aging fleet and barely any new orders on the horizon, including the group’s clear interest to invest in HK Express, the sun was seemingly setting in front of the mythical creature’s eyes.

Yet it was not always this way. The airline played a very crucial role in Cathay Pacific’s goal to remain a dominant force in Asia-Pacific in the mid-2000s, and especially to rebuff the pressure coming from mainland China.

Changes up North
China’s aviation market was under a very tight grip on the Civil Aviation Administration of China (CAAC). The pricing, frequencies, routes, even who was eligible to fly on aircraft. Starting in the 1980s, changes had become apparent and the country’s aviation market began to slowly shift away from its centrally planned model, much like the country itself. Opportunities were there, and Cathay wanted to expand.

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