Reading Between the Lines: China Forces Out Cathay Pacific’s CEO

Cathay Pacific’s CEO Rupert Hogg, and the airline’s Chief Commercial Officer, have resigned. Hogg has been well-regarded in the role, driving a turnaround in the airline’s finances.

Hogg attributes his resignation to “challenging weeks for the airline” while mainland China has pressed the airline to fire employees sympathetic to protesters and has placed restrictions on the airline’s flights to, from and through the mainland — as well as encouraged boycotts by mainland companies.

Meanwhile the airline’s Chairman says “recent events have called into question Cathay Pacific’s commitment to flight safety and security and put our reputation and brand under pressure.” It is only China that has called into question the airline’s commitment to safety (by employing people the Chinese government considers ‘terrorists’). No airline Chairman, on his own, suggests there is any question of their commitment to safety.

Now, the new CEO of the airline is currently CEO of HAECO, the maintenance and engineering division of the company which does excellent work. The new Chief Commercial Officer also comes from inside the company, moving over from being CEO of newly-acquired HK Express.

Cathay Pacific stock has hit a low amidst the boycotts and airport closures, but that’s not even mentioned as a reason. This isn’t to appease markets. After all, the company is substantially owned by very few shareholders. Swire Group owns 45% of the airline, while state-controlled Air China owns 30%. China’s aviation authority announced that they met with Merlin Swire.

Ultimately the move is harmful to China’s ability to maintain Hong Kong as a business center, showing how the state will meddle in corporate affairs rather than adhering to “one country two systems.” And intervention in this manner won’t help to quell the protesters who are pushing back against mainland intervention.

About Gary Leff

Gary Leff is one of the foremost experts in the field of miles, points, and frequent business travel - a topic he has covered since 2002. Co-founder of frequent flyer community, emcee of the Freddie Awards, and named one of the "World's Top Travel Experts" by Conde' Nast Traveler (2010-Present) Gary has been a guest on most major news media, profiled in several top print publications, and published broadly on the topic of consumer loyalty. More About Gary »

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  1. Another good post on yet another aspect of the Hong Kong drama, Gary. Even if the current confrontations dissipate – a big “if” – sooner or later the overall situation in Hong Kong will not end well.

    As for Cathay itself…Even though it sounds like the new leadership is fine, I can’t help but wonder whether increased political pressure from China will indirectly result in an irreversible deterioration in this fine airline sooner or later. As it is, morale has to be lousy. And fact that there’s increased competition from politically connected Chinese carriers can’t help.

  2. Yeah, it’s always been the expectation that Chinese companies follow the orders of the Chinese government regardless of shareholder concerns. However, there has previously been an understanding that HK companies are allowed to operate like normal, private concerns. The fact that the CPC has forced out CX’s management is a big red flag to every other HK business. The gut reaction of the mainland authorities is always to clamp down hard. While this will almost certainly work in the short term, the long-term ramifications will be an exodus of foreign business from HK and the mainland. The economic damage will spill over into social discontent on both sides of the HKSAR border.

  3. Yeah, like Trump orders all kinds of specific actions from US companies for “national security”. “No CPU for Huawei!” “No contract for Amazon!” “Investigate Tech companies!”

    Its what dictators do, and we may well get ourselves use to it.

  4. The other day, Gary wrote how the song from Les Miserables was inspiring, but for those familiar with the history of French revolution, they should also know Madame Roland’s death cry: “O Liberty! What crimes are committed in thy name!” .

    What an irony.

  5. The other day, Gary wrote how the song from Les Miserables was inspiring, but for those familiar with the history of the French revolution, they should also know Madame Roland’s death cry: “O Liberty! What crimes are committed in thy name!”.

    What an irony.

  6. Gary, my post initially was not displayed, so I reposted it. Please delete the duplicate.

    Also, I think most people are being too simplistic in thinking that to resist the Chinese government must mean to support the protesters.
    Well, many of the same people do not support Trump, but would (or should) you support violence against him/his administration?

  7. 30% own by China themselves? That tells you a lot about why the CEO was Forced to resign. The Hong Kong as everyone know will probably be gone. China won’t let HK self regulate until 2047, it wants HK to be China as soon as possible.

  8. This is the end of HK as we know it, as the Chinese gov slowly but steadily turns HK into China itself. One country, two system….yea sure China.

  9. @Chris
    Huawei isn’t a US company, what a lame attempt. Your calling Trump a dictator is simply unhinged leftist whining at it’s worst. We have a system of checks and balances, which leftists have thoroughly abused, suing every time the executive branch tries to do their job. Leftists publicly shame and financially destroy anyone who dares disagree with them. You are the real fascists and dictators.

    As for HK, what did you expect? This is how China operates. Past admins have enabled and emboldened them through weakness. Now they are much stronger, so containing and countering them will be much harder, but there is no other option unless you want to see China as the lone superpower, which will not make the world a better place.

  10. None of this is surprising. The CEO screwed up and managed to anger all sides at the airline. Back when the CX FA union was calling to join the sitin at the airport this should have been immediately shutdown by CX. You had pilots making comments about protests to passengers over the PA syste, other staff getting arrested at protests, information being leaked by staff and then when the airport was shutdown many passengers were left stranded without much or any information from the airline staff who took off. Now CX is turning over information about its own employees to the chinese government, they are firing people without waiting for the outcome of trials and they are threatening employees with termination if they become involved in illegal protests (keeping in mind most protests are illegal because the police won’t give permission for marches). These things alienate the pro-hong kong supporters. What CX should have done from the start was tell employees the airline is neutral and they are not to become involved in any way that would reflect on the airline.

  11. It truly cannot be understated that in China’s efforts to pull in Hong Kong, they’ll undo the very reason why Hong Kong is so well regarded.

    That means either China is miscalculating (unlikely), or they’re looking at current events elsewhere and have decided that businesses are unlikely to have many alternative laissez faire options where they can flee to. Market and Political instability in the United States and Great Britain certainly help China here.

  12. Good post, Gary.

    Looking at the flaming mobs of mainland Chinese who caused havoc in several Australian cities yesterday with their “protests” and shouts of disgusting epithets about everything under the sun including female anatomy (note: how this relates to Hong Kong is of course unclear) it’s obvious the Market-Leninist nominally-communist billionaires in charge in Beijing love to manipulate not only the unwashed mainland masses into doing their bidding but also love getting their jollies through corporate beheadings.

  13. In support of Hong Kong, we should boycott state airlines of China.

    The only possible upside to the tragedy at Cathay Pacific is perhaps American’s Board will have an epiphany and hire the former CEO and CMO of CX to replace the management fiasco introduced by the USAir team in place.

  14. Gary,

    One country 2 systems can mean a lot of things. There was NOTHING in the original agreement that required China to maintain every aspect of HK life and prohibit them from inserting themselves when they feel it was required. People are so biased on this. The original intent of one country two systems was economic, not humanitarian. Hong Kong still doesn’t require Visa’s for people from many countries, including the US, to visit (try getting a Chinese Visa it is an extremely tedious process), and it is a free port. The tax structure and business climate are also radically different than in China.

    That is the main think that the Chinese and British planned to preserve. People that want to export US values or political systems to the rest of the world just don’t understand.

  15. @AC “people that want to export US values or political systems to the rest of the world just don’t understand.”

    This has nothing to do with ‘exporting US values’ it has to do with respecting the people of Hong Kong, and what they want for themselves.

  16. Hey @Gary,
    You said well “This has nothing to do with ‘exporting US values’ it has to do with respecting the people of Hong Kong, and what they want for themselves.”

    What about you respecting your readers, and not calling them “Chinese sock puppet accounts” when they express a different opinion from yours?

  17. The Chinese will kill the golden goose that Hong Kong is. The English always considered Hong Kong as their crown jewel and for good reason. But sadly Margaret Thatcher used Chinese translators who substituted her words during the whole negotiations. And the evil communist government is dishonestly going back on their own agreement:

    “The Basic Law ensured Hong Kong will retain its capitalist economic system and own currency (the Hong Kong Dollar), legal system, legislative system, and people’s rights and freedom for fifty years.”

    Sadly, not until the PRC sends in the People’s Liberation Army, will the rest of the world do anything. But this does not bode well for Taiwan. If the PRC tries to do a take over of Taiwan, the rest of the world will not sit still and let it happen.

  18. @JohnB you have too much faith in the rest of the world. Right now, the world knows that America will not stand up to dictators, totalitarians, or really anything. So unless Germany and the UK are suddenly going to grow their militaries by 5000%, I’m not sure the Chinese and Russians will be even so much as inconvenienced by any response to their undemocratic ambitions.

  19. How long will it be before any company (including bloggers) doing or seeking to do business in “China” must have the Communist Party seal of approval? We sometimes forget that China is a communist country – with no real rule of law – even though it excels at profit. Communist dictatorships (any dictatorship for that matter) cannot tolerate dissent or dissemination of any information that conflicts with Party positions or what the party deems is advisable for the people to know. (Sorry WR2, but anyone with eyes open will recognize some disturbing parallels with you know who in that regard.)

    As I recall, Delta and Marriott, among others, caved to the Party’s demands about Taiwan. Next on the agenda may be China ensuring that its bogus claims to the South China Sea go uncontradicted in any company statements or publications. Many corporations and individuals will dance to whatever tune the Party plays to preserve the opportunity to make a buck.

  20. I agree 100% with WR2. The situation in China has absolutely nothing to do with President Trump. Cannot we have any kind of rational conversation without having to deal with TDS.

  21. Totally agree with @Andy that CX is the canary in the coalmine. The gutless actions of Merlin Swire to not call Bejing’s bluff is what is dispicable. With 30% owned by Air China, he should have threatened to shut it down and leave China with a majority of the debt. This was nothing less than cowardess on his part and I hope Swire pays the price. I have directed my company to cease all Swire business immediately in response – a $25MM a year impact.

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