Why is it so hard to find cheap air tickets in Hong Kong?

“For sure, one of the best things about living in Singapore is how easy it is to get a cheap flight,” says Alessandra Chu, a Hongkonger who moved to Singapore three years ago for work as a graphic designer.

In February, Chu found a deal to go to Australia’s Gold Coast flying Scoot airline for HK$3,300. She says her new home’s strength as a budget travel hub lets her take holidays she could not afford had she stayed in Hong Kong.

“They say Hong Kong is Asia’s world city but in terms of inexpensive flights, then Singapore or even Kuala Lumpur or Bangkok trumps it by a long shot,” she says.

If you followed the recent headlines, you might believe that Hong Kong is a kind of budget-travel mecca. Last week, Hong Kong Express Airways announced plans to turn into a low-cost carrier, promising a 30 per cent discount on the cheapest fares in the market. This follows Jetstar’s decision to start operating out of the city later this year.

The Jetstar service will open up more discount Hong Kong flights to mainland China, Japan and Southeast Asia. Hong Kong Express will offer cheap flights to mainland China and Malaysia.

Elsewhere, AirAsia, the dominant budget airline serving Hong Kong, earlier in the month listed its long-haul subsidiary AirAsia X, raising funds for expansion.
But don’t be fooled. Budget airlines have a tough time in Hong Kong, which is why many local travellers find this service patchy. The discount airlines only serve a handful of destinations out of Hong Kong.

Hong Kong’s problem can be summed up thus: no secondary airport. If you fly into this city, you have to use Hong Kong International Airport, which involves expensive landing fees.

Moreover, the airport does not give any discount on landing fees to budget airlines, unlike, for example, Singapore. As a result, Hong Kong has lagged far behind cities such as Singapore and Kuala Lumpur.

With no secondary airport, airlines are faced with expensive landing fees at Chek Lap Kok and competition for slots is tight.

Boyong Liu, a Jefferies aviation analyst, says the penetration of low-cost carriers in Hong Kong is 5 per cent, compared to 40 per cent in Singapore.

“Low-cost carriers have a very high cost base [in Hong Kong] than if they use other airports as hubs. Kuala Lumpur and Singapore are a lot more supportive and provide lower fees for low-cost carriers,” says Liu.

While landing and parking fees usually comprise no more than 10 per cent of an airline’s costs, Vinay Bhaskara of consultancy Aspire Aviation says: “We are talking about a business that has tiny profit margins so even a few per cent can affect the bottom line.”

Bhaskara also says Hong Kong has a travel mix that skews heavily towards business travellers.  Moreover, Cathay Pacific Airways is a formidable contender. “They’ve done a very good job of using Dragonair to offer reasonable pricing on regional, leisure-heavy routes that you’d typically see low-cost carriers picking up,” he says. “[If you are a budget carrier] when you come into Hong Kong, you know you’re going to come up against this 800-pound gorilla. They are very willing to price aggressively.”

Cathay Pacific caused a stir in October last year when it started offering “fanfares” – cheap promotional flights that go on sale every Tuesday. Destinations as far away as Paris, Chicago and Vancouver are a fraction of what they usually cost and the most popular fares sell out within minutes. A trip to Milan is advertised at HK$2,790, Taipei at HK$890 and Yangon is HK$1,290.

Liu says: “Hong Kong Express and Jetstar Hong Kong both have Chinese backgrounds so it is reasonable for them to test low-cost carriers in Hong Kong. But overall, I still think it is a difficult market for the foreseeable future.”

Already, plans for Jetstar seem to have stalled. The launch date has been pushed back several times and it looks like it may not meet its deadline for this year. It also reduced the number of Airbus A320 planes it will fly to two instead of the three it declared at the outset.

It brings back not too distant memories of the difficulties experienced by Oasis Hong Kong Airlines, a budget carrier that operated out of Hong Kong before going bankrupt in 2008.

“I think they were not a low-cost airline,” says Kathleen Tan, Expedia Asia chief executive. “A true low-cost airline focuses on really low cost using the internet model. Oasis used distribution channels like travel agents [instead of the internet] and hired a lot of airline staff from full-service carriers so the pay was high.”

Moreover, Oasis offered a long-haul service (to Vancouver and London), which does not suit the budget model. Fuel costs are a big component of the expense of flying long distances. All airlines pay about the same for fuel, which means the more fuel consumed, the less room the budget airlines have to discount the prices of their competitors.

Oasis had another big disadvantage. It was based in Hong Kong.