In a bid to fend off mounting regional competition, Hong Kong’s Cathay Pacific Airways is acquiring loss-making budget carrier, HK Express from the HNA Group for HK$4.93 billion (USD 628 million).
The deal would give the Cathay group control of roughly half of all landing slots at Hong Kong International Airport (HKIA), aviation analysts estimate, through its ownership of three of Hong Kong’s four passenger airlines.
These include: Cathay Dragon, Cathay Pacific, Hong Kong Airlines and HKE. Aside from four charter airlines, the territory also has three registered cargo airlines: Air Hong Kong, Cathay Pacific Cargo and Hong Kong Air Cargo Carrier Ltd.
The sale leaves fellow HNA Group carrier, Hong Kong Airlines seemingly out in the cold as the Chinese HNA aviation group continues its struggle to pare down massive debt. Proceeds from the HK Express (HKE) sale may be used to shore up HK Airlines, analysts suggest. The HNA group failed in earlier attempts to sell a majority stake in HK Airlines, which operates a fleet of six passenger aircraft and five A330-200F.
Cathay says the the transaction “is expected to be good for the travelling public, good for the Hong Kong hub and good for the Cathay Group as Cathay Pacific and HKE’s respective businesses and business models are largely complementary.”
The carrier says it intends to continue operating HK Express – which posted a net loss of HK$141 million last year after achieving a net profit of HK$57 million in 2017 – as a stand-alone airline using the low-cost carrier business model.
“HKE captures a unique market segment and together with the extensive network of the Cathay Group could multiply connection opportunities through Hong Kong. This represents an attractive and practical way for the Cathay Group to support the long-term development and growth of our aviation business and to enhance the competitiveness of the Hong Kong hub during a time of intense regional competition,” Cathay says.
Cathay Pacific joins a list of mainline carriers in Asia that have diversified into the low cost realm as competition continues to grow in the at segment, eating away at full service carriers’ profits. These include Singapore Airlines (Tigerair and Scoot), All Nippon Airways (Vanilla Air and Peach) and Qantas (Jetstar), among others.
The transaction is expected to complete on or before 31 December 2019 by when HK Express will become a wholly owned subsidiary of Cathay Pacific. Completion is conditional upon certain conditions being fulfilled, including clearances required from relevant competition authorities.
Meanwhile, Cathay Pacific Group – which includes its flagship, long-haul airline and regional carrier Cathay Dragon – generated an annual profit of HK$2.03 billion in 2018, ending two years of back-to-back losses.