Hong Kong needs its own home-based budget airline

Edward Lau says Hong Kong should follow its regional competitors and welcome a home-based low-costcarrier, not least because it would provide travellers with more choice while promoting overall growth

PUBLISHED : Monday, 12 May, 2014, 6:36pm
UPDATED : Tuesday, 13 May, 2014, 1:27am

Hong Kong is rightly proud of its aviation industry. We have one of the best airports in the world, and some of the most talented aviation professionals anywhere. This city is truly Asia's hub for aviation. However, I'm confident we can do even better.

Many focus on the need for a new runway. But, as I write, Hong Kong's aviation industry is on the cusp of another huge opportunity that the wider world has already embraced. That opportunity is low-cost air travel. And best of all, in the short term, we don't need to lay any new tarmac to take advantage of it.

According to Amadeus, a ticketing database, 38 per cent of European air travel is now via low-cost carriers. In the United States, the figure is 30 per cent. Capa Centre for Aviation says that the market share of low-cost carriers has reached 57 per cent across South Asia. But in Hong Kong, it places it at just over 5 per cent. We have to ask ourselves what is driving the low-cost revolution elsewhere, and why Hong Kong is being left behind.

The answer to the first question is simple. All over Asia, more people want to fly. According to Airports Council International, Asia will be home to half of the 10 busiest airports in the world by 2016. Today's travellers often want to spend money on what they do when they arrive at a destination, rather than on how they get there.

Hongkongers are no different. Last year, a poll conducted by the University of Hong Kong's public opinion programme found that nearly 70 per cent of us planned to travel on a low-cost airline in the next 12 months. Some 81 per cent said we would rather spend more on what we do when we get to where we are going than on our air ticket. The problem is that, as Capa puts it, Hong Kong is limited in part by "a lack of low-cost carrier capacity".

To put it bluntly, Hongkongers lack choice. Demand outstrips supply. We miss out on what many markets across Asia already have - a truly integrated aviation sector, where low-cost carriers operate in partnership with traditional full-service airlines. This kind of airline mix would allow Hong Kong to pull in a balanced mix of high-value tourists from Southeast Asia, Japan and Korea.

But it isn't the only choice that Hong Kong is missing out on. Other markets provide stark comparisons. For example, Japan had no low-cost carriers based in the country until 2012. It also had some of the most expensive airfares in the world. Domestic passenger growth was flat.

Three new home-based low-cost carriers have galvanised both aviation and tourism in Japan. According to Japan's Ministry of Land, Infrastructure, Transport and Tourism, domestic air travel rose by 8.7 per cent between April 2012 and March 2013. That has brought real benefits. Hotel bookings have skyrocketed, with Noguchi Tour, a tour operator, saying recently that reservation rates at its 12 Hokkaido hotels had risen by up to 30 per cent. Capa now forecasts that this year, low-cost carriers will account for 24 per cent of all domestic air travel in Japan.

Japan's experience tells us that home-based low-cost carriers boost growth. Low-cost carriers reach new markets and, based on what we've seen in Japan, more high-value tourists will come to this city. To allow this, true airline choice must be allowed to take root.

However, we also have to be clear about what "choice" means. No one, least of all me, is suggesting that the traditional airlines on which Hong Kong's success has been built should lose out.

At the outset, we must understand that when true airline choice exists, all airlines benefit. Low-cost carriers don't compete with their "traditional" cousins. They complement them and promote growth of the overall market. Just look at Singapore. According to Changi Airport, soon after real airline choice came on stream in 2004, air traffic grew by 50 per cent. Singapore Airlines, a traditional carrier, saw both passenger and fleet growth as a result.

Second, in providing true choice, it's just as important to have an innovative home-based low-cost carrier as it is a home-based traditional full-service one. A number of foreign low-cost carriers are serving Hong Kong right now. But they only fly between the city and their own home base. They don't operate a network from here, they don't base aircraft here and they also employ relatively few people here. As a result, Hongkongers suffer from inconvenient timetables and layovers, and can't fly to the places they would like to.

Like Singapore and Japan, Hong Kong needs a truly domestic low-cost carrier based at its airport, both to cater for the demand that's here and to allow the city to develop in the way its regional competitors already have. To do that, travel costs in and out of the city must fall. Today, they are significantly higher than elsewhere. Hong Kong's tourism sector must have a level playing field.

Aviation hubs across Asia, and all around the world, already offer passengers a healthy balance of different airlines providing different service levels and fares. If Hong Kong is to meet the demands of its citizens, the needs of its economy and fulfil its potential, it, too, must offer real choice.

Edward Lau is CEO of Jetstar Hong Kong