First-half profit slump for Hong Kong Airlines

Carrier to delay aircraft purchases and end business route to London after service and high fuel costs send first-half earnings into a tailspin

PUBLISHED : Thursday, 16 August, 2012, 12:00am
UPDATED : Thursday, 16 August, 2012, 3:54am

High fuel prices and a loss-making London-Hong Kong route helped halve first-half net profit at Hong Kong Airlines, the carrier backed by the mainland's HNA Group.

Hong Kong Airlines president Yang Jianhong said yesterday that the airline would terminate its all-business route to London from September 10 and planned to defer the delivery of six Boeing 777 freighters by "one to two years past 2015" in light of the sluggish cargo demand.

The company's listing is also on hold.

"Our first priority is not going public but to restructure our routes," HNA Group director Chen Wenli said.

The company planned to raise HK$5 billion on the Hong Kong stock exchange by the end of the year. But Chen said other options were open, including folding Hong Kong Airlines into A-share listed Hainan Airlines.

Chen said the delay in the listing plans of Hong Kong Airlines and Grand China Airlines, which has a 28 per cent stake in Hainan Airlines, would not affect the HNA Group's liquidity.

Hainan Airlines raised 8 billion yuan (HK$9.78 billion) through a share placement this month while Hong Kong Airlines issued 600 million yuan worth of bonds last year.

But the carrier's plan to raise funds through private equity was thwarted following the IPO delay. Hong Kong Airlines' restructure means more flights will be added to the regional market, especially on the mainland.

Yang said 90 per cent of the carrier's short-haul routes performed well during the downturn in air traffic demand.

Up to five new routes will be added to the mainland this year, including Inner Mongolia; and there will be more flights to Beijing and Taipei. New services to Xian, Lanzhou and Guiyang were added over the last few months.

The decision to terminate the service between Hong Kong and London's Gatwick Airport came after the Hong Kong Civil Aviation Department announced an unprecedented freeze on the airline's growth until it met the safety and operational requirements of a bigger fleet.

But the management has yet to decide how to re-deploy the three Airbus 330s, which were designated for the all-business route. The aircraft, featuring lie-flat beds, are designed for long-haul flights, rather than regional routes. Its order of 10 A380s is said to be under review but management declined yesterday to say whether talks were being held with the manufacturer.

Hong Kong Airlines' fleet has expanded rapidly to 26 from two over the past several years, stretching the carrier's operations to its limit and leading to frequent flight delays and service disruptions.

When Typhoon Vincent swept through Hong Kong last month, Hong Kong Airlines struggled to cope with a huge passenger backlog, failing to clear it even a week later.

To simplify its fleet and lower maintenance costs, the airline will phase out the Boeing 737-800s while taking delivery of six Airbus 320s and A330s this year.