Why Cathay Pacific changed its tune on Hong Kong protests

Last week, airline Cathay Pacific told its staff it would not stop them joining the pro-democracy demonstrations currently sweeping Hong Kong.

But this week, faced with pressure from the Chinese government and a huge backlash on Chinese social media, it quickly changed its position, warning that any staff involved would be fired.

So, why did the carrier perform a U-turn so quickly?

Cathay, an icon of Hong Kong, is heavily dependent on the Chinese market, which leaves it in a weak spot when it comes to standing up to Beijing.

Fuelled by China's state-run press, a boycott campaign on social media - using the hashtag #BoycottCathayPacific - has attracted more than 17 million views.

Perhaps unsurprisingly then, the airline admitted it had no option but to comply with new Chinese rules designed to stop its staff supporting or taking part in the anti-government protests in Hong Kong.

Indeed, Cathay Pacific Group chief executive Rupert Hogg spelled out to staff in an email that its operations in mainland China were the "key to our business".

As one analyst points out, while the situation in Hong Kong is affecting a number of airlines and their relationship with China, the one with most to lose is Cathay.

Indeed, as the protests brought Hong Kong airport to a standstill for a second day on Tuesday, Cathay was forced to cancel dozens of flights - far more than any other carrier.

"Cathay Pacific, as the market leader by a wide margin, is obviously the most affected of the airlines," says Brendan Sobie, chief analyst at industry newsletter the Centre for Aviation.

"The group, when you include Cathay Dragon and Hong Kong Express, has more than 50% of the Hong Kong market, and travel to and from Hong Kong is being impacted.

"They carry not only local traffic between mainland China and Hong Kong, which has obviously been impacted by the situation, but they also carry a lot of passengers via Hong Kong from mainland China, so a lot of their transit traffic originates in China."

Mr Sobie points out that close to one-fifth of Cathay's seat capacity, including that of Cathay Dragon, is to mainland China and that the group also has 23 destinations in mainland China.

"Cathay's exposure to mainland China is even higher when factoring in the passengers that come into Hong Kong International Airport from southern China via ferry and land transport. Mainland China therefore is an extremely important market for Cathay."

The history of Cathay Pacific parallels the rise of Hong Kong itself as a commercial and financial centre. Founded in 1946, the airline was well placed to benefit from the territory's rags-to-riches economic boom under British rule in the second half of the 20th Century.

While Hong Kong thrived as a capitalist outpost on Communist China's doorstep, Cathay was there to provide the global air connections that plugged it into the developed world.

In the 1960s and 1970s, as China suffered under the Cultural Revolution and other self-inflicted blows, Hong Kong forged ahead, with Cathay Pacific one of its key global ambassadors.

Even after Hong Kong reverted to Chinese control in 1997, the airline continued to be the territory's flag carrier, maintaining a prestige that enhanced its home region's status.

The airline is currently majority owned by an investment company called Swire, while Air China and Qatar Airways have minority stakes in the airline.

But despite its reputation, the carrier now faces political turbulence that it is finding hard to navigate, and is trying to avoid being caught in the crossfire as China moves to assert its dominance.

And, while China is an economic powerhouse in its own right, Hong Kong's old role as an economic bridgehead to the West is becoming less cherished.

Fenella Barber is a consultant on UK-China commerce, and formerly a member of the China-Britain Business Council. She agrees that the political ground is definitely shifting, with Hong Kong no longer the smooth and easy route into Chinese markets it once was.

"The safe environment that has been perceived in Hong Kong has made it a very comfortable spot for exporters," particularly for those firms looking to access China for the first time, she told the BBC's Today programme.

"But everything to do with business in China is political and it is no different for Hong Kong... I think these disruptions currently in Hong Kong make that landscape very uncertain for business."

For now, Cathay Pacific has said it will follow new regulations announced by Beijing's aviation regulator, the Civil Aviation Administration of China (CAAC), which came into effect on Sunday.

These require it to submit lists of staff working on flights going to the mainland or through its airspace. And any staff member accused of involvement in "illegal protests" is banned from working on those flights.

The regulator has also demanded a report from Cathay by 15 August on planned measures to "strengthen internal control and improve flight safety and security".

In the meantime, the airline will be looking to mitigate against the commercial damage caused to its business by the protests.

The demonstrations have already caused a 20.2% fall in flight bookings to Hong Kong across all carriers, according to data firm ForwardKeys.

Shares in Cathay Pacific, meanwhile, have slumped to a decade low over the last few days while traders are lining up bets that airports across the border in China will be able to cash in on the turmoil.