Budget airline Oasis has collapsed after operating for less than 18 months, affecting an estimated 50,000 passengers who have unused tickets. About 700 staff are likely to lose their jobs. The founder, Reverend Raymond Lee Cho-min, is a visionary and energetic entrepreneur, but his account of the airline's failure was not very credible. He put the blame on the burden arising from having to buy its own aircraft, instead of leasing them, as the original plan had envisaged. This smacks of shifting responsibility to others.
When Oasis started, Mr Lee claimed that the airline only required HK$200 million in operating capital to become profitable. But this amount would not have kept the company afloat, irrespective of whether he bought or leased planes. In fact, Mr Lee had, all along, planned to buy aircraft. His idea was to speculate on the price of aircraft as assets, somewhat similar to betting on property. Only, things didn't go according to plan.
Mr Lee did not know the aviation market well and his timing, for buying aircraft, was completely wrong. When he entered the second-hand Boeing aircraft market, prices were rocketing because of a shortage of supply, due to a delay in the delivery of the new Airbus A380.
Oasis paid around US$100 million for two used Boeing 747 aircraft and then forked out more to convert them, to satisfy Hong Kong regulations. Oasis later paid another US$100 million to Japan Airlines for two more used Boeings. Assuming that the down payment was 40 per cent, the acquisition of the first four aircraft cost Oasis US$80 million, which almost depleted its entire start-up capital. As a result, the company was forced to raise funds soon after its inception and Mr Lee also had to negotiate new loans.
Had Mr Lee been more in tune with the market, he would have known that Cathay Pacific was planning to renew its fleet at the time when Oasis was buying. Cathay's Airbus A340-600s - flying between Toronto and New York - have better fuel economy and are more suitable for long-haul flights. Singapore Airlines is also planning to change its long-haul fleet of Airbus A340-500s. But Oasis did not consider these better options.
The crux of running a budget airline lies in the word 'budget'. To be able to offer low prices, cost control is paramount. But Oasis was operating on high costs and low ticket prices - the worst of both worlds. Its in-flight service matched competitors' quality and it had no way to cut costs on cabin crew, fuel and maintenance. Its operating cost was arguably even higher than its more established rivals.