China is furious at the challenge to its authority and has threatened a crackdown if the situation deteriorates further. More demonstrations are planned for this weekend.
None of that was enough to save two of the company’s highest ranking executives, and news of their departures broke first on Chinese state media.
“International businesses have to face a new reality here,” said Ronald Wan, chief executive of Partners Capital International in Hong Kong.
For more than 20 years, the former British colony has operated under a rule known as “One Country, Two Systems,” which affords the city political and legal freedoms that are not available on the Chinese mainland. That has helped protect Hong Kong’s status as a formidable financial hub, and reassured foreign companies that the city is a safe and stable place to operate.
But the Cathay crisis indicates a shift in how China views the city — and how it expects companies to operate there.
“Beijing is increasingly hard-lined about sovereignty and territorial integrity issues,” Wan added. “Hong Kong is no longer a shelter. It’s not ‘Hong Kong, China.’ It’s China.”
A tumultuous two weeks
The political turmoil started months ago when Hong Kong residents began protesting a controversial bill that would have allowed extradition to mainland China. The bill was eventually shelved, but the demonstrations have evolved into a broader call for greater democracy and an inquiry into alleged police brutality.
The airline had little choice but to comply with the order, since Cathay not only flies in and out of mainland China but also through its airspace to reach Europe and the United States.
“The threat by Chinese civil aviation authorities to essentially ban aircrew taking part in Hong Kong protests from operating China flights is impossible to ignore, touching on half of the carrier’s revenue,” said David Bandurski, co-director of the China Media Project. “I think we can expect to see many more examples like this going forward, of China using its economic leverage to push its political agenda.”
But Cathay’s capitulation didn’t end there.
Then on Wednesday, Cathay said that it had terminated two pilots, without giving a reason. A well-placed source within the company told CNN the pilots were fired in association with activities related to the protests.
All the while, Cathay was grappling with threats to its bottom line. Hundreds more flights were canceled earlier this week as protesters overran the airport, and bookings are being affected. Its stock has plummeted more than 12% within the last month.
By Friday, the company would announce that CEO Rupert Hogg and Chief Commercial Officer Paul Loo were out.
The ‘sins’ of Cathay Pacific
China Central Television, the mainland outlet that broke the news that Hogg was out, later published a long post Friday night on Chinese social network Weibo that characterized Cathay’s actions as “sins.”
“No zuo no die!” the state-owned media wrote, using slang that translates to: “If you don’t do stupid things, they won’t come back and bite you in the a–.”
CCTV pointed out that Cathay “said some employees’ behavior doesn’t represent the position of the company” only after the Chinese aviation authority acted. It accused the airline of having “flawed” professional ethics.
Cathay did not give specific reasons for the management changes. But Chairman John Slosar said in a statement that “recent events have called into question Cathay Pacific’s commitment to flight safety and security and put our reputation and brand under pressure.”
Hogg, meanwhile, told employees in a memo to staff that it was a “grave and critical time” for the airline.
“There is no doubt 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,” Hogg wrote in the memo, which the airline shared with CNN Business. “Could we have managed things differently? In hindsight, ‘yes’.”
Greg Waldron, the Asia managing editor for the aviation news source FlightGlobal Group, said he didn’t want to speculate about the reasons for the departure. But he said the episode highlights the challenge for the airline.
“It’s unprecedented,” Waldron said. “Clearly it doesn’t want to upset Beijing. It wants to avoid politics and stay focused on its business.”
Part of a trend
What happened to Cathay this week likely won’t be an anomaly, said William Reinsch, the Scholl chair for international business at the Center for Strategic and International Studies in Washington.
He said that the Chinese government is already increasing its efforts to control companies and pressure them to conform to the party line.
“In [President] Xi Jinping’s administration, priority number one is maintaining party control,” Reinsch added. “That’s self preservation, and that’s more important than anything else.”
Businesses in Hong Kong could feel a chilling effect. The financial sector depends on stability, he added. Without that in the city, some businesses might feel the need to uproot and move to other places in the region, like Singapore.
“It creates enormous uncertainty about the government’s intentions,” Reinsch added. “And what people tend to do when there’s uncertainty is they either do nothing and wait, or if they foresee the situation continuing, they move.”
Wan, the Partners Capital International executive, said there will likely be wide-reaching consequences for other firms.
— CNN Business’ Laura He and Michelle Toh contributed to this report.
Source : Nbcnewyork