Cathay Pacific targets deep management cost cuts in Hong Kong after loss

Jamie Freed and Brenda Goh

* Plans to cut some middle & senior management roles in Hong

Kong

* To announce new management structure for head office in

June

* Staff costs make up 30 pct of 2016 operating expenses

ex-fuel

(Updates with analyst comment, share price, details on costs)

SYDNEY/SHANGHAI, March 17 (Reuters) - Cathay Pacific Airways

Ltd plans to cut the cost of middle and senior

management roles at its Hong Kong head office by 30 percent,

according to an internal memo a day after the airline reported

its first annual loss since 2008.

The memo, sent by chief executive Ivan Chu to staff on

Thursday and seen by Reuters, said the firm needed a

"simplified, more agile and smaller" head office structure, and

that the "re-organisation will inevitably result in some roles

being made redundant".

Shares in Cathay Pacific jumped by as much as 2.5 percent on

Friday following the Reuters report, with analysts saying the

move would help support Cathay's bottomline in the short term.

Its shares have fallen about 18 percent over the past year.

The Hong Kong flag carrier earlier this week reported its

first full-year loss since the 2008 global financial crisis,

dragged down by overcapacity, a strong Hong Kong dollar and

mounting competition from mainland Chinese rivals.

"The outlook remains challenging and we do not expect to see

any fundamental shift due to the structural issues we are faced

with," the memo said. "Our airlines have not seen a review of

the business or restructured our teams for over 20 years. We

cannot afford to stand still."

A Cathay spokeswoman confirmed the memo was accurate, but

said the company would not know the final number of role changes

or staff affected by the cuts until later in the process.

Chu told staff on Thursday there would be no "people cost

reductions" in customer facing roles including pilots, cabin

crew and customer service.

But he said a new head office management structure would be

announced in June for the company, which has 33,700 employees

globally. The company's website said more than 3,000 of its

staff are based in its head office.

The airline said in its annual results that it wants to

reduce overall costs, excluding that related to fuel, by about 2

percent over the next three years, even as it looks to grow its

capacity by 4 to 5 percent this year.

Its staff costs amounted to HK$19.8 billion ($2.55

billion)in 2016, accounting for just over 30 percent of its

operating expenses excluding fuel costs for the year. Analysts

said it would be tough to estimate how much Cathay will save

from the latest move as it does not provide a breakdown of these

costs.

The airline in January said it would cut jobs and consider

shifting some flights to its short-haul arm, Cathay Dragon,

after completing a strategic review. But it did not outline the

extent of the job cuts or other strategic initiatives, such as

increasing ancillary revenue at the time, to the disappointment

of analysts who had expected more detail.

It told analysts this week that it planned to reduce some

unit costs by reconfiguring the number of economy class seats on

its Boeing 777 fleet from 'nine-across' to 'ten-across',

according to a transcript of the analyst call.

"In the short-term, it will have a positive impact on its

bottom line," said Shenzhen-based Morningstar analyst John Hu on

the planned cuts to management costs.

"But I don't think this will solve Cathay's problems. What

Cathay faces is a structural issue. The core issue is that

Cathay relies on Hong Kong as a home base but its status as a

transit hub has been declining."

($1 = 7.7639 Hong Kong dollars)

(Editing by Elaine Hardcastle and Muralikumar Anantharaman)