Never say never: Cathay Pacific enters budget market

Courtesy AFP

In 2015, Cathay Pacific together with Hong Kong Airlines opposed Qantas’ application to set up Jetstar Hong Kong Airways – co-owned with China Eastern Airlines and billionaire Stanley Ho’s Shun Tak Holdings Ltd. Cathay was particularly vehement about there being no room or need for budget travel in Hong Kong. The authorities were convinced and Jetstar HKG never took off.

Today, Cathay announced its decision to buy Hong Kong’s only budget carrier, Hong Kong Express Airways, for HK$4.93 billion (US$628 million). This expands Cathay’s stable of airlines to three, which includes regional carrier Cathay Dragon. It will boost Cathay’s market share to 50 per cent in Hong Kong.

A Cathay spokesperson said: “We intend to continue to operate Hong Kong Express as a stand-alone airline using the low-cost carrier business model.”

Now what caused Cathay to change its mind?

Cathay is not alone in facing stiff competition in the long-haul and premium market, from not only neighbouring rivals such as Singapore Airlines (SIA) but also Middle east carriers such as Dubai Airlines. Besides, Chinese carriers from mainland China are also fast expanding, flying direct and more services to Europe and North America.

At the same time, Cathay can no longer ignore the encroachment by the flourish of budget carriers in the region, particularly those operating out of mainland China. The Hong Kong authorities too may begin to realise how all this may be reducing Hong Kong International Airport’s hub status, particularly when limited options are resulting in Hong Kong being bypassed.

It could be a matter of timing. In 2017 Cathay reported its first annual net loss in eight years and introduced a three-year transformation program. It was later in that same year that Cathay CEO Rupert Hogg affirmed that Cathay had no plans to start a low-cost carrier. But the debt-ridden HNA Group which owns Hong Kong Express offers a timely opportunity not to be missed even as Cathay posted its first full year profit in 2018 of US$299 million.

The business climate can change fairly quickly, but unfortunately airlines may be slow in catching up with the changes because of the huge investment and lead time to implement many of the changes, apart from a host of other reasons, some of which could be largely circumstantial.

Many legacy airlines pooh-poohed the threat of budget airlines to their traditional market when it was first mooted, and as many of the carriers fell by the wayside before they could assert any impact.

SIA for one came on the scene later than most others, setting up Tigerair jointly with Ryanair, and then Scoot. Its strategy has changed yet again with the merger of Tigerair and Scoot, and now SIA is in the process of assimilating SilkAir into the parent airline.

One wonders if this is the path that Cathay may take should Hong Kong Express and Cathay Dragon find their services overlap as they expand.

Whatever the reading, it would be discreet to never say never. The question is always if so, when?

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About Dingzi
Writer by passion, with professional expertise in aviation, customer service and creative writing. Aviation veteran with more than 30 years' experience, columnist, pubished author of fiction, poetry, plays and travel stories, editor and management consultant. Nature lover who abhors cruelty of any form to animals, and a tireless traveler.

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