Is there room for budget carriers in Hong Kong?

Cathay Pacific Airways has said there is no room for budget carriers in Hong Kong, following the announcement of a joint-venture between Qantas’ Jeststar and China Eastern Airlines, to be named Jetstar Hong Kong. Cathay has also made it clear that its subsidiary Dragonair is not a low-cost carrier but a regional airline. Now that Hong Kong Express is also diving into the budget market, will Cathay be proven wrong?

Courtesy Wikipedia Commons

Courtesy Wikipedia Commons

Inevitably the demise of Oasis Airlines in 2008 is often quoted to support Cathay’s argument, but there is a critical difference here: Oasis was a daring long-haul venture that could not be sustained by the traditional budget model, and at a time when fuel prices were spiralling. But there is no reason why both Jetstar and Hong Kong Express cannot succeed if they stick to regional routes within the 4 to 5 hours radius, although it is to be recognized that the competition can only get more intense – perhaps the real reason behind Cathay’s apparent skepticism.

Hong Kong Express, controlled by the HNA Group, already operates to regional destinations in mainland China, Taiwan and Southeast Asia. Its transformation into a low-cost operator means it already has an existing market and network to its advantage, while it plans to add destinations such as Kunming and Chongqing in China and Kota Kinabalu in Malaysia. Deputy CEO Designate Andrew Cowen said: “Some of our lowers fares will be 30% below the existing lowest fares in the market.” Now, Cathay and Dragonair should be concerned.

With the large and growing hinterland population of mainland China, the demand for seats is almost a given. While the budget market may have developed its own niche of travellers more concerned about stretching the dollar than with the frills and comfort of travel, increasingly as the aviation landscape changes with the vicissitudes of the global and regional economies, the choice of air travellers is fast becoming one of between airlines as to which offers the best value for money rather than strictly between budget and full service airlines.

Budget carriers no longer need to operate solely from exclusive budget airports to compete. In fact, being away from the main stream may limit its reach especially when the mode of some travellers may involve a mix of operators. Hong Kong, very much like Singapore for its land size, may not find it feasible to designate a separate airport for budget carriers. The solution may be a separate terminal within the same airport just so that budget operators, as they are so designated, may similarly avail themselves of “budget” facilities for lower ground costs. Even then, some budget carriers in Singapore were reluctant to be so isolated, and today Changi Airport has relocated budget carriers previously handled at the Budget Terminal to the main terminals as the facility makes way for the construction of an additional terminal to the airport’s existing three main terminals.

It may then be said that the Hong Kong authorities are not themselves sufficiently convinced of Hong Kong’s propensity to fan the budget airline growth, or that they somehow have not been encouraging enough the way that Singapore goes about spearheading that drive that has seen in recent years the budget business growing at a higher rate than legacy airlines. Hong Kong International Airport is an expensive airport, so it is said, and that in itself is not an inducement for potential budget operators. In spite of that, Jetstar and Hong Kong Express may yet have the clout to slowly shift the market, to the dismay, of course, of Cathay and Dragonair which realistically should not fear the competition.

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About David Leo
David Leo has more than 30 years of aviation experience, having served in senior management in one of the world's best airlines and airports. He continues to maintain a keen interest in the business, writes freelance and provides consultancy services in the field.

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