The government of Hong Kong announced Friday it has loosened requirements for Hong Kong-based aircrews to quarantine after returning home from duty, removing a major operational burden for all-cargo airlines such as Cathay Pacific and FedEx Express (NYSE: FDX).
The mandate for crews operating freighters and cargo-only passenger aircraft to segregate will be lifted for pilots and other onboard personnel who are fully vaccinated, the government said. The new policy excludes aircrews that layover in the United Kingdom and South Africa, where mutant strains of the COVID-19 virus are widespread.
The quarantine exemption for freighter crews that make rest stops in Anchorage, Alaska, has also been extended to Australia, New Zealand, Singapore, South Korea, Japan and Thailand. The six countries are considered low-risk for transmission of the virus. Crews must remain segregated from the local community during their layovers.
Under the measures in effect since Feb. 20, commercial pilots and flight attendants were mandated to stay in a hotel for two weeks after returning from overseas duty, followed by seven days of medical surveillance.
The changes provide relief to an air cargo industry straining with operational challenges and defuse a simmering dispute with the United States over whether Hong Kong was favoring hometown favorite Cathay Pacific at FedEx’s expense.
The revised health measures essentially increase the number of pilots available to airlines, which means they can operate more flights again. The additional capacity will also help shippers that are struggling to find available airlift for their shipments because extremely high shipping demand is coinciding with COVID-related reductions in international passenger fleets that are a major mode of cargo transport.
Hong Kong-based Cathay Pacific said the relaxed COVID measures will immediately enable it to increase freighter and cargo-only passenger operations and gradually restore a full freighter schedule. The isolation rules had forced the airline to cut its cargo schedule by 25%. It tried to mitigate the impact by using additional cargo-only passenger flights and redeploying some freighters to other trade lanes that avoided Hong Kong.
Cathay Pacific, which operates 20 Boeing 747 all-cargo aircraft in addition to a large passenger fleet, was the fifth-largest air cargo carrier by volume prior to the pandemic.
“We are reviewing crew resources for May and will announce our May freighter schedule as soon as possible,” the company said in a statement on Monday.
The decision also helps FedEx, which relocated, at significant expense, many of its Hong Kong domiciled pilots to San Francisco so they wouldn’t be isolated from their families. It had complained that the quarantine measures were impacting cargo flights and that it didn’t benefit from the Anchorage carve-out.
Cathay has a large cross-shipment operation in Anchorage where freight moving between Hong Kong and the U.S. mainland is interchanged. FedEx uses Hong Kong as its intra-Asia hub but doesn’t fly there from Anchorage. The U.S. government recently pressured Hong Kong to even the playing field or risk Cathay Pacific flights to the U.S. being restricted.
The new rules don’t alleviate all the concerns of airlines operating to Hong Kong. Carriers and pilots still don’t like aggressive COVID testing requirements that include mandatory nasal swab tests for COVID and having to wait for results at the airport. Crews suspected of symptoms or exposure to someone who has tested positive are sent to communal hospital settings that FedEx and UPS (NYSE: UPS) pilots complain are vectors for disease transmission.
Cathay’s COVID toll
The past 12 months have been extremely difficult for Cathay Pacific Group. The holding company, which includes HK Express and all-cargo airline Air Hong Kong, reported last month a $2.8 billion loss for 2020. Cargo volume fell 34% as severe reductions in passenger flights resulted in a 35.5% drop in cargo capacity. But a 58% spike in cargo yield drove 16% higher cargo revenue as the global imbalance of supply and demand enabled carriers to charge higher rates.
The carrier increased cargo capacity by chartering services from Air Hong Kong, operating more than 13,100 flights with auxiliary passenger freighters, carrying lightweight cargo in the passenger cabin of some cargo-only flights and removing seats from four Boeing 777-300 Extended Range aircraft to provide more cargo space.
Earlier this month, Air Hong Kong welcomed its fifth Airbus A330 converted freighter, which will operate on DHL Express’ intra-Asia network and assist Cathay Pacific when not operating for DHL.
Cathay Pacific Cargo recently announced it has transported 15 million COVID-19 vaccine doses so far for AstraZeneca, Fosun Pharma/BioNTech, CanSino, Covaxin and Sinovac. The vaccines require different handling temperatures ranging from minus 70 degrees Celsius to 2-8 degrees Celsius. The airline has distributed vaccines to Mexico, Malaysia, Indonesia and the Caribbean.
It recently added extra cargo flights through June to Brussels to handle increased demand for pharmaceutical shipments.
Cathay has suffered an outsized impact from COVID because it doesn’t have a large domestic market to help buffer the downturn in international travel and border restrictions around the world. Passenger volume plunged 87% last year.
Since last summer, Cathay has transferred 82 passenger aircraft, or 46% of its fleet, to long-term storage in Australia and Ciudad Real in Spain where the dry climate is more forgiving to aircraft structures and systems. HK Express also transferred 10 aircraft to Alice Springs, Australia, for parking. It also plans to retire or return to lessors 34 aircraft.
The carrier in October began a $5 billion restructuring that included discontinuing its intra-Asia brand Cathay Dragon and eliminating 8,500 positions. It has also asked pilots and cabin crews to accept concessions. The restructuring, which followed a $30 billion recapitalization that saw the government provide loans in exchange for potential shares in the company, is saving the company $64 million per month. The carrier reported it has reduced its monthly cash burn to between $765 million and $1 billion from $1.1 billion to $1.5 billion. That is still a staggering amount of negative cash flow considering U.S. network carriers have reduced their cash burn to about $350 million per month.
Cathay deferred delivery of Airbus A350 widebody and A321neo aircraft by two years and is negotiating with Boeing to defer delivery of more 777-9 aircraft.