Cathay Pacific

HK Airlines may cancel A380 order

PUBLISHED : Thursday, 01 March, 2012, 12:00am
UPDATED : Thursday, 01 March, 2012, 12:00am

Hong Kong Airlines is considering cancelling its order for 10 Airbus A380 aircraft, reflecting growing tensions between China and the European Union over the EU's controversial emissions trading scheme.

The airline said it was under pressure to call off the purchase of the largest jet produced by Airbus after the Civil Aviation Administration of China told mainland carriers not to comply with the emissions trading scheme, saying it breached international law.

'We cannot do something which is against our country's interest,' the airline's president, Yang Jianhong, said.

An Airbus spokesman said HK Airlines' purchase had been included in the aircraft maker's end-of-year order book. It did not say if the airline might face a compensation claim if the order was cancelled.

The emissions trading scheme is the EU's boldest initiative on climate protection in aviation to date, and is hailed by proponents of more stringent action to curb global warming.

But many airlines and governments oppose it because of cost and sovereignty concerns. The scheme covers all flights to and from Europe, even if the flight path is mostly over international waters or countries outside the region.

As a result, 23 nations including China at their meeting in Moscow last week jointly said they were ready to enter a trade war that could add to the cost of airfares to Europe. They also agreed to co-ordinate any retaliatory action against European-based airlines that fly internationally, such as Air France and British Airways.

HK Airlines' cancellation of the order for A380s, which are intended to intensify competition with Cathay Pacific Airways in European and North American markets, would slow its planned development of long-haul routes in the short term.

HK Airlines has announced aggressive plans to triple the size of its fleet to 60 by 2015. New routes to be launched this month include London, Taipei, Kaohsiung and Nanjing.

Sources close to the company said the airline might want to review its fleet expansion plan, given that it needed to stay in profit in the lead-up to its planned listing later this year.

They also said its all-business class service to London, to be launched on March 7, already looked as if it might burn money as advance bookings indicated the service was only 30 per cent full in the first month.

The operating cost of each flight is nearly HK$3 million.

The sources said the airline was finding it hard to fully utilise the A330-200 aircraft for the all-business class service by also deploying it on shorter flights. 'It's hard to fill so many business seats on short-haul flights,' one senior airline official said.

The airline had also been talking to some football clubs in London about leasing the VIP aircraft to them in an attempt to increase the utilisation rate, Yang said.

Last year, HK Airlines earned more than HK$300 million net profit from HK$4 billion in sales.