Hong Kong's flagship airline Cathay Pacific warned that the government's plan to institute a 14-day quarantine for returning plane crews will severely reduce passenger and cargo capacity.

Cathay's stock price dropped by more than 5% to reach HK$6.58 per share on Tuesday - the lowest it's been since massive restructuring in November buoyed investor interest.

The airline carried just under 40,000 passengers last month - a fall of 98.7% year on year - and is now looking at a further 60% reduction in passenger capacity if the crew quarantine takes effect.

"The new measure will have a significant impact on our ability to service our passenger and cargo markets," said Cathay's chief customer and commercial officer Ronald Lam.

In addition to slashing passenger capacity, the company plans to cut its lucrative cargo transportation business by 25% but still expects to see more than $245 million in losses each month.

Until now, local air crews have been subject to more relaxed pandemic-prevention measures compared with their customers and foreign colleagues and only faced pre- and post-flight testing.

In contrast, passengers must spend 21 days in hotel quarantine while foreign pilots and flight attendants are ensconced in their hotel rooms for their entire layover in the city.

But rising coronavirus cases in Hong Kong and a growing fear of deadly variants from abroad spurred local authorities into action.

"Under the premise of watertight measures and stringent prevention, we don't have other alternatives," Health minister Professor Sophia Chan Siu-chee said in an interview with the South China Morning Post last week.

Not all local flight crews on overseas flights will face quarantine when they return. The additional measures will only apply to crews who have layovers in foreign cities, according to memos seen by the South China Morning Post.

"We anticipate needing to operate within a closed loop whereby volunteers agree to complete a compact set of flight duties within a period of three weeks, followed by 14 days of quarantine and 14 days free of duty," Cathay's director of flight operations Chris Kempis wrote.

Cathay previously remedied its flagging finances in the fall when it axed 5,900 people and dissolved subsidiary airline Cathay Dragon.