Skift Take

We think the last thing the Hong Kong-North America market needs is more capacity. This seems like a shaky idea. But remember, Hong Kong Airlines is controlled by HNA Group, a giant conglomerate with deep pockets. You can't count it out.

A small airline with big ambitions and Jackie Chan as its celebrity endorser wants to dislodge 70-year-old Cathay Pacific from its perch as Hong Kong’s leading —and until recently, only — airline flying nonstop to North America.

Hong Kong Airlines, which began operations in 2006, started flying to North America in June when it launched a Vancouver route. It has said it will add Los Angeles in December, followed next year by San Francisco, New York and London, a city the airline briefly served in 2012 with an all-business class configuration.

On the routes, Hong Kong Airlines will compete with Cathay, and several U.S., Canadian and European airlines, including Air Canada, British Airways, American and United airlines. It will not, however, compete with low-cost long haul airlines.

Low-cost long-haul remains mainly a transatlantic phenomenon, led by carriers like Norwegian Air and Wow Air.

Even with only legacy airlines as competition, profits may not come easily. While Hong Kong Airlines almost certainly will fill seats — the airline chose the four North American cities because they have massive demand  — other long-haul carriers have complained in recent months that yields, especially to the United States, have declined.

There are already too many seats for sale between the United States and many Asian airports, some airline executives say. And what was once a profitable market segment — mainland Chinese travelers transferring in Hong Kong to fly to North America and Europe — has dried up as Chinese airlines launch their own long-haul flights.

A weaker market been a concern for Cathay, which in August posted its largest first-half loss in at least 20 years. Cathay recently changed CEOs, and it is undertaking a corporate restructuring to boost results. Meanwhile, United Airlines recently has cited Hong Kong as an underperforming market.

But Hong Kong Airlines, with only 35 planes, is not a typical scrappy upstart. It is part-owned by the giant Chinese conglomerate HNA Group, owner of rapidly-expanding Hainan Airlines, and an investor in several larger carriers, including Brazil’s Azul, TAP Air Portugal and Virgin Australia. Its parent company has helped Hong Kong Airlines quickly added widebody planes, in part by sending it aircraft destined for other airlines, including three Airbus A350s ordered by Azul. In all, Hong Kong Airlines has 21 A350s on order.

“The Hainan Group certainly has an appetite for growth and seemingly deep pockets,” said Adrian Schofield, senior air transport editor for Aviation Week, based in New Zealand.

Not a low-cost airline

Hong Kong Airlines is a traditional full-service airline with flat-bed business class seats, a snazzy premium lounge at its main hub, and bundled economy class fares that include food and free alcohol. (Its sister airline, Hong Kong Express, is a low-cost airline, and while it focuses on short haul, it may expand further.)

As the newest carrier on these North American long-haul routes, Hong Kong Airlines may often offer the cheapest prices — that’s the best way to fill seats — but it’s not in business just to undercut its competitors. Over time, it wants to be a bonafide competitor to Cathay Pacific, and even attract some of Cathay’s corporate customers.

“We position ourselves as affordable luxury,” George Liu, the carrier’s chief marketing officer, said during an interview last week in Los Angeles. “We are not as expensive as a really luxury brand, but we’re not the lowest. And sometimes, our competition, in order to squeeze us out, will lower their fares temporarily.”

Rather than price, the airline hopes service will set it apart. Its main competitor, Liu said, is too stodgy, and flight attendants offer what he called, “robotic service.” And while Liu credited Cathay for creating an impressive global brand, he criticized it for lacking local flair. Hong Kong Airlines, he said, will emphasize its home city.

“We are going to bring back the human touch,” Liu said. “Our cabin crew don’t shy away from representing Hong Kong. That’s not so true for some of the airlines.”

On most routes, however, few customers select an airline based on service. Most look at other attributes, such as price, schedule, and the quality of the frequent flyer program.

And on schedule and frequent flyer program, Hong Kong Airlines may not be as strong as the competition. On popular business routes, Cathay will have far more flights, as it flies to Los Angeles and London four times most days — an important attribute for customers who want to depart as soon as their meetings end.

And while Hong Kong Airlines uses HNA Group’s frequent flyer program, it’s probably not as strong as loyalty programs offered by some competitors.

But Hong Kong Airlines is changing.

“A stronger identity, branding and loyalty program will help Hong Kong Airlines gain relevance,” CAPA-Centre for Aviation, an analysis firm, wrote in a recent report.


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Tags: cathay pacific, hong kong, hong kong airlines

Photo credit: Hong Kong Airlines plans a major expansion in North America. The airline, part-owned by HNA Group, is not a low-cost carrier and has a competitive business class on its A350s. Hong Kong Airlines

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