Aviation

March 7, 2019
 

Cathay Pacific confirms HK Express talks

Cathay Pacific Airways has confirmed negotiations aimed at acquiring low-cost carrier Hong Kong Express (HK Express) from troubled Chinese conglomerate HNA Group.

Cathay’s interest in the low-cost segment, comes amid increasingly fierce competition and growing demand in Asia for cheaper travel options.

Negotiations coincide with the carrier’s posting its first profit in three years for 2018.

Preliminary estimates put earnings at $293 million.

HK Express competes with Cathay in Hong Kong and the acquisition would take out competition and prevent future entrance into this market.

HK Express has grown rapidly in recent years and now competes head-to-head with Cathay’s wholly owned subsidiary Hong Kong Dragon Airlines (Cathay Dragon) which specialises in short-haul travel within the region.

This is not the first time Cathay has sought to snap up homegrown rivals.

Past purchases have included Dragon Air and Air Hong Kong.

Announcement of the talks comes as Cathay seeks new revenue sources.

Cathay faces tougher competition over flights to and from Hong Kong, as other airlines seek to attract wealthy Chinese passengers.

Cathay also lacks a strong position in the domestic Chinese market; the airline is not permitted to serve Chinese provincial cities directly from locations other than Hong Kong.

Cathay, together with Cathay Dragon, currently offers passenger and cargo services to 212 destinations across 53 countries and regions and the carrier plans to expand its fleet of 206 aircraft to 284 by 2024.

HK Express, meanwhile, which began operating in 2013, offers flights to 25 destinations in nine countries and regions within Asia.

Demand for cheap air travel is booming in Asia, with the market share of low-cost carriers by seat capacity climbing to 28% in 2018 from 10% a decade ago.

Singapore Airlines has already expanded into the low-fare business with a takeover of Tigerair in 2014.

Letting go of HK Express is seen as a potential blow to HNA’s long-term development, given the fast growth of the low-cost operator as well as overall market potential.

HNA announced in November 2018 plans to sell some real estate and other assets to boost liquidity and comply with Beijing’s request for companies to deleverage.