Cathay Pacific

Budget airlines race to grow while Chek Lap Kok allows

PUBLISHED : Monday, 23 May, 2011, 12:00am
UPDATED : Monday, 23 May, 2011, 12:00am

Young and low-cost carriers are racing to expand in what they call the 'next five golden years' - before the two existing runways at the Chek Lap Kok airport run out of capacity.

The need is particularly pressing for Hong Kong Airlines, the city's third local-based carrier, which is not just aiming for a public listing towards the end of this year but also plans to overtake Dragonair in 2013 and Cathay Pacific in a decade.

'We need a lot of room for growth,' airline president Yang Jianhong said. 'And we have to do it while we still can.'

The government said runway capacity would not be filled until 2020, while the International Air Transport Association projected it would be reached in 2017. A third runway is still being planned and could be realised by 2023 at the earliest, stymying the airport's growth for up to six years.

An industry insider said the hold on growth could do most harm to budget airlines that rely on a high frequency and turnover rate model to minimise costs and maximise income. 'If they can no longer maximise their fleet, they are likely to lose money with the cheap fares they offer,' the source said.

Spring Airlines, a Shanghai-based budget carrier that entered the Hong Kong market in September by launching a HK$99 one-way ticket between Hong Kong and Shanghai, said it was aware of the problem. The company is debating if it should switch from Airbus A320s to larger aircraft. 'Big aircraft can carry more passengers, of course, but are also more energy-consuming. Since most of our routes are within a journey of five hours, they may not suit our business,' airline spokesman Zhang Wuan said.

Usually when an airport runs out of capacity, airlines cope by switching to bigger planes and trimming flight schedules to focus on more profitable routes.

Zhang said that while the company wanted to expand in Hong Kong, it could also develop other markets if growth was impossible.

'The mainland alone is a pretty big market for us so it is not like we will suffer much [if we can't expand in HK]. Instead I think it will be a bigger loss for Hong Kong and its people because they will have fewer choices.'

Hong Kong Airlines, meanwhile, is intent on expansion. Backed by parent company Hainan Airlines, the low-cost carrier has its sights on being the market's premium budget airline. It said it would strive to add three long-haul routes a year and surpass Dragonair's existing capacity of 31 aircraft next year.

'The saturation of runway capacity will have more of an impact on us than well-established airlines like Cathay Pacific, because young airlines like ours need ample room to grow, while the growth rate of a mature airline should be much smaller in proportion,' Yang said.