New budget carrier no threat to Hong Kong airlines

Taiwan's new low-cost airline is not expected to put much of a dent in balance sheets of Hong Kong carriers, which chase high-end travellers

PUBLISHED : Tuesday, 17 December, 2013, 3:55am
UPDATED : Tuesday, 17 December, 2013, 3:55am

A new Taiwan-based budget carrier floated by China Airlines and Tiger Airways is unlikely to squeeze Hong Kong airlines much as local companies' target customers remain premium and business travellers.

Shares in Tiger Airways Holdings gained 4 per cent yesterday, beating the Singapore stock exchange that fell 0.4 per cent, after the joint venture was announced.

Taiwan's China Airlines will own a 90 per cent stake in the venture while Singapore's Tigerair, which owns several successful subsidiaries such as Tigerair Australia and Tigerair Philippines, will hold the rest.

Proposed budget airline Jetstar Hong Kong's chief executive Edward Lau said the firm was not fazed by the prospect of a rival in the region, saying there was plenty of room for growth for low-cost carriers (LCC) and that Jetstar would be happy to see healthy low-fare competition in Hong Kong.

"The LCC penetration rate in North Asia is 9.5 per cent and in Hong Kong it is only 6 per cent as compared to other regions such as Southeast Asia, where it is 30 per cent," Lau said. "Hong Kong did not have a home-based LCC until [Hong Kong Express] recently transformed [itself] a few months ago. There is room, much room for growth in Hong Kong and in North Asia."

Patrick Yeung, chief executive of Dragonair, Cathay Pacific's short-haul subsidiary, said: "We successfully compete with LCCs and all other types of carriers in Hong Kong and internationally, including about 20 LCCs that currently serve Hong Kong, each and every day."

Dragonair's focus is on the higher end and business traveller networks such as routes to Beijing and Shanghai. Yesterday, it announced a newly redesigned first and business class.

"It's not much of a squeeze for local carriers," said analyst Daniel Tsang of Aspire Aviation.

"You have to look at Dragonair in terms of the entire Cathay Pacific business. It carries a lot of connecting flights to and from the Cathay international network. Yes, while on the lower end, it will be squeezed especially by these LCCs, when you look at connecting traffic and business traffic, Dragonair is actually targeting the premium band of the market."

Although Hong Kong is within five hours' flying time of half the world's population, the city has few LCCs. The city's traveller segment is far more business-oriented compared with other aviation hubs and hence not as price sensitive or flexible in terms of time.

Jetstar Hong Kong, which is owned in equal thirds by Shun Tak Holdings, China Eastern and Qantas, had hoped to launch late last year but has been stymied by the regulatory requirement that airlines must use Hong Kong as its principal place of business.

Their proposed network intends to fly to 129 destinations.

"Taiwan is overtaking Hong Kong in terms of low-cost development. But one could argue that this is an efficient market outcome as 11.1 per cent of all seats at Hong Kong International Airport are premium seats [business class or above] versus a global average of 4.6 per cent … This outcome is efficient economically, but not necessarily beneficial to consumers," said Tsang.