Hong Kong Express Airways (HKE) has technically taken the first-mover advantage over Jetstar Hong Kong in the new battle for the city’s budget travel market, but the Qantas- and China Eastern-backed carrier will be able to catch up quickly.
HKE, which is 45% owned by China’s HNA Group and is a sister carrier of Hong Kong Airlines, has been operating since 1997 as a full-service airline. However, on 27 October, it was relaunched as a budget carrier.
The reborn airline has commenced operations with a fleet of three all-economy configured Airbus A320s, initially serving eight routes to destinations including Phuket, Kota Kinabalu, Tokyo Haneda and Kunming.
HKE’s deputy chief executive Andrew Cowen told Flightglobal Pro in a recent interview that despite the previous failures of Oasis Hong Kong and Viva Macau, there is ample room for more local low-cost carriers in the market.
“Our analysis showed that if you consider fares from Hong Kong to sensible points around Asia and compared it to say, Singapore, whichever way you looked at it fares tended to be 70-100% higher,” he says.
That is somewhat surprising, when considering data from Flightglobal’s FlightMaps Analytics, which shows that there are 16 other budget carriers flying to the city. However, they represent only 11% of monthly frequencies and 8.6% of the available seats in the market, a major difference compared with other hubs in the region.
HKE’s initial route network sees it avoiding head-on competition with the seasoned low-cost carriers in the market. Innovata schedules show that only three of its routes – Phuket, Kota Kinabalu and Osaka – have the presence of another low-cost carrier. It has also chosen routes where, at the most, it only competes against three other carriers.
That may be a sign that HKE does not plan to engage in a price war with its more experienced regional rivals such as AirAsia, Tigerair and Cebu Pacific – at least initially. It also strengthens HKE's belief that it can grow its own the local leisure market segment, something that Jetstar HK has also been promoting.
Moreover, it reinforces why the carrier is being relaunched from an existing operator, rather than a greenfield operation.
“Clearly Jetstar Hong Kong have been covetously eyeing our city so we wanted to get into the market quickly,” says Cowen. “Everyone understands that first mover advantage is critical.”
With that advantage secured, HKE has aggressive growth plans ahead. Next year, it plans to take delivery of up to six more A320s, leading it on its way to a planned fleet of 30 aircraft by 2018. Cowen adds that it is looking at close to 100 possible destinations in its long-term network planning.
While HKE has first-mover advantage, Jetstar Hong Kong’s three shareholders – Qantas, China Eastern Airlines and local conglomerate Shun Tak – will likely give it some larger advantages.
For one, the wider presence of the Jetstar brand in Asia will allow Jetstar Hong Kong to hit the ground running as soon as it can secure an air operator's certificate (AOC). The presence of Jetstar Asia and Jetstar Japan in complementing markets will also be a great help.
Similarly, Qantas already has permission from competition authorities to co-ordinate its services with Jetstar Hong Kong, which will provide it with immediate feed. A similar tie-up with China Eastern seems likely too, while Shun Tak’s interest in ferry companies serving the Pearl River Delta could possibly allow it to access a much wider market.
On HKE’s side, it is expected that it will also pursue a feeder relationship with Hong Kong Airlines. However, given the carrier’s focus on mainland China, it would not offer the geographical spread and depth that Qantas, China Eastern and the wider Jetstar Group can offer Jetstar Hong Kong.
Officially, Jetstar Hong Kong is hopeful of starting services before the end of the year. However, with Cathay Pacific fighting hard at every turn against the budget carrier, this timeline looks likely to be pushed into early next year. Even with that delay, it seems that Jetstar Hong Kong will still have enough heft behind it to launch on a strong note.
HKE can claim that it has a captive market for now. However, assuming that Jetstar Hong Kong secures its AOC, it will not take long for the second mover to catch up.
It is certainly going to be game on in Hong Kong.