Flights of infancy

After paring the full-service operation almost to the bare bones, HK Express is rebuilding itself into a low-cost carrier with a local twist

PUBLISHED : Monday, 29 July, 2013, 12:00am
UPDATED : Monday, 29 July, 2013, 6:12am

The failure of AirAsia Japan last month highlights just how hard it can be for a budget airline to escape the influence of a parent that is a full-service carrier - in this case, its joint-venture partner, All Nippon Airways.

Hong Kong Express Airways, which announced plans to transform itself into a low-cost carrier (LCC) last month, needs to overcome the same challenge as it seeks to bid adieu to its full-service history.

"Many LCC start-ups fail because they don't have people who know LCCs well," Hong Kong Express deputy chief executive Andrew Cowen said, likening the problem to "building a house without an architect".

"At the beginning of the journey, we split Hong Kong Express from Hong Kong Airlines by separating the management team and the sales and marketing department."

Hong Kong Express and Hong Kong Airlines had previously been operated by the same management team for several years because they are both owned by Hainan-based HNA, the mainland's fourth-largest airline conglomerate.

Cowen's LCC background dates to 1999 when he helped set up no-frills airline Go for British Airways. He was then involved in a management buyout of Go and was lucky enough to exit with a profit when EasyJet came in a year later and acquired Go at a price nearly four times higher.

He has been involved in more than five budget airline start-ups since then, including GoAir in Mumbai (which is independent of Go in Britain), Peach Aviation in Osaka and Phil Air in the Philippines.

Hong Kong Express has four executives with an extensive LCC background on its management team, with a fifth due to arrive soon. All have been sourced from Mango Aviation Partners, a consultancy firm.

Cowen said the biggest hurdle in transforming an existing airline into an LCC was its size. "The smaller the current airline, the fewer problems there would be during the change," he said.

Hong Kong Express got rid of all its Boeing 737s and was left with just two aircraft at the beginning of the process.

"In a sense, we have pared back Hong Kong Express to almost the bare bones," Cowen said. "Just like buying a house and leaving the infrastructure there and rebuilding it."

That was how AirAsia started when Tony Fernandes bought the then ailing airline from a Malaysian government-owned company, stripped it back and then started all over again in 2001 with just two aircraft. It now operates 124.

Hong Kong is served by a dozen budget airlines offering flights to 22 destinations, lagging Singapore, which offers 62 destinations. Budget carriers account for just 5 per cent of the seat capacity offered in Hong Kong, compared with 33 per cent in Singapore and 25 per cent in Asia overall.

Airfares to the same destination are also higher from Hong Kong than from Singapore, even given the extra distances sometimes involved. For example, the lowest fare from Hong Kong to Bangkok is HK$2,218 while from Singapore it is HK$1,526. The lowest airfare from Hong Kong to Mumbai is HK$6,535, compared with Singapore's HK$3,385.

"There is a huge opportunity in the LCC market in Hong Kong, yet a growing challenge from rivals," Cowen said. "They will increase their services to Hong Kong to tap the market."

He said shortening turnaround times was the key to tapping that market, allowing aircraft to make more flights a day and lowering the cost per seat.

The turnaround time was 30 minutes by Asia's industry standard, compared with the 25 minutes achieved by European budget airline Ryanair. But it took Hong Kong Express 40 to 45 minutes to turn around an aircraft, far behind the industry average.

"We can't achieve the goal overnight but we can take it in stages, five minutes at a time," Cowen said. "We are looking at every aspect of the process and redesigning procedures and on the way to achieving the goal."

He said there was no secret to running a budget carrier correctly, but certain rules had to be followed to get the right outcome.

Rule No1 was that the cabin crew had to do the cleaning themselves instead of bringing in cleaners for every turnaround. Rule No2 was that no food and beverages would be loaded at overseas destinations, with supplies for both legs loaded in Hong Kong.

Cowen said he wanted Hong Kong Express to have a Hong Kong personality because the budget market was very competitive and it was a challenge for newcomers to establish a distinct image.

"It's a major crossroads," Cowen said. "While it has a very strong Hong Kong Chinese culture, it's very modern, a melting pot of many influences - a rich and unique flavour to make it different from Singapore or Tokyo.

"Instead of accepting a Malaysian personality in AirAsia or an Australian personality in Jetstar, we will have a genuine Hong Kong personality LCC."