Things have not exactly gone smoothly since Stephen Miller began planning the launch of Oasis Hong Kong Airlines two years ago. Miller, who originally hoped to launch Oasis in November 2005, has had to deal with a steady stream of delays over the last year. First there were problems securing route licenses from Hong Kong authorities. Then there were problems securing aircraft. And when Oasis finally had everything in place to launch on 25 October, there was one final snag that arose suddenly from an unexpected source.
Just as Oasis’ inaugural flight was ready to leave the gate at Hong Kong for London Gatwick, its pilots were informed by the ground handling agent that Russian authorities had rescinded its clearance to fly through Russian airspace. While passengers waited, Miller and his team worked frantically to try to re-secure clearance it claims it had received and paid for. But after four hours and no luck with the Russians it had no choice but to delay the flight until the following day.
Russian approval was finally received just after midnight, allowing Oasis to take off the following morning. “If nobody knew who we were three days ago, they do now,” said a tired but optimistic Miller after finally arriving in London, referring to the publicity the delay received.
“We had a set back on our flight but the reaction has been very good.”
Miller says he still “doesn’t have a clue” what caused the delay. But he is ready to put it and all the other earlier delays behind him and move on to the next phase.
“There are a lot of challenges,” he says. “This is almost the beginning of phase two, the start-up phase. The first phase is getting all the approvals, the operating certificate, getting the team in place.”
Miller, despite being an experienced industry veteran, has a tough road ahead. The carrier’s strategy is innovative but unproven in the long-haul market and hence risky. While it offers low fares, Oasis is not exactly no frills because it has a business class and offers complimentary meals and beverages in economy.
“It’s hard to define ourselves. We’ve been labelled as low-cost. The elements of the low-cost model we borrow are dynamic pricing and high aircraft utilisation,” he says.
“We give people the essentials. Anything more they’ll pay for. They seem to be happy about that. We cut waste and save people on the fares.”
He claims the low-cost model can work in the long-haul market, even at major city airports. Airport costs he claims are “fairly reasonable” at Hong Kong and Gatwick and are not a significant portion of Oasis’ overall operating costs.
The London-Hong Kong sector is extremely competitive, with five other carriers operating non-stops: Air New Zealand, British Airways, Cathay Pacific, Qantas and Virgin Atlantic. But Miller does not see this as a threat.
“The competition is evidence of the strong market. It’s one of the strongest long-haul markets in the world,” he says, pointing out the average load factor is 85%.
Target
Oasis is not targeting passengers who do fly BA, Cathay or Virgin but passengers who are now travelling between Hong Kong and London on the dozen or so carriers that now offer one-stop connections between the two cities at cheaper fares such as Emirates, Finnair and Gulf Air. Miller says Oasis’ business model is based on matching these fares, which he says are sufficient to make a profit given its relatively low cost base.
The five carriers operating non-stops between London Heathrow and Hong Kong realise Oasis is not after them and, according to Miller, so far have not responded by matching its fares, which include a promotional £75 ($142) one-way air fare from London and HK$1000 ($129) one-way from Hong Kong. “They haven’t come back at us with ultra-competitive fares,” Miller says. “The other carriers haven’t done much to lower their fares.”
For its business class, Oasis is targeting independent businessmen and small businesses which want a business-class product but are not willing to pay what traditional carriers now charge. “This is an important segment that isn’t being catered to,” he says.
Oasis is now offering promotional business class fares from £470 and HK$6,600 each way but Miller says in general it plans to charge about half what BA and Cathay charge. It offers business-class passengers two full meals with decent wines but does not offer lounge access or a wide selection of liquors. The seat is a full business class seat with a 60-inch pitch and is designed to be far superior than the premium economy product offered on the route by Air New Zealand, BA and Virgin.
“We felt it wasn’t worth the premium-economy level. We wanted to go a step forward and give real sleeper seats,” Miller says.
Oasis, as Gatwick’s only Asian carrier, also hopes to win passengers who prefer Gatwick over Heathrow. “It’s a popular airport as far as we’re concerned,” Miller says.
For now Oasis is only operating four weekly frequencies because it only has one aircraft, an ex-Singapore Airlines Boeing 747-400 with 278 economy and 81 business class seats. Its second 747-400 is now going through a heavy maintenance check in Singapore and will be ready to be placed into service by 25 November, when Oasis plans to upgrade the Hong Kong-London service to daily. It plans to add service to Oakland, located just outside San Francisco, early next year and Miller is now working hard to lease two additional aircraft in attempt to avoid any delay in launching the second route. “We’re negotiating now with two different parties. We’re confident it will come through. But it’s tough,” he says. “The market is good for 747-400s and it got even tighter with the delays to the Airbus A380.”
It hopes to have five 747-400s by the end of 2007 and in addition to Oakland and Gatwick it has secured rights from Hong Kong authorities to serve Berlin, Chicago, Cologne and Milan.
Securing the first two 747-400s was so tough Oasis had to drop its initial plan to lease aircraft and instead acquired them outright. Leasing companies, Miller says, are not interested in taking a chance with a start-up when the market is so tight and aircraft can be easily placed with established carriers. He says Oasis was fortunate its owners, which include wealthy Hong Kong businessmen Raymond Lee and Allan Wong, were willing to back a purchase deal rather than wait for the leasing market to improve.
“It hasn’t been the smoothest ride largely because the market is so strong,” Miller says.
Miller brings to Oasis plenty of relevant experience, having served as the founding chief executive of Dragonair in the mid-1980s. Miller spent most of his recent years as an aviation consultant but says starting Oasis in many ways was like starting Dragonair. “The start-up phase, which is mostly regulatory, is very much the same,” he says.
But a different path, he acknowledges, lies ahead. While Dragonair is a short-haul carrier specialising in new markets in mainland China, Oasis is just the opposite. “The difference is it is a mature market and it is long haul,” Miller says.
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Source: Airline Business
