Aviation, GBA

Flying into the storm

New Hong Kong airline launch looks contrarian


Yet another challenge for Cathay?

Is it madness or a masterstroke? Aviation insiders hold different views on the plan for Greater Bay Airlines to become Hong Kong’s newest carrier next year.

In one camp: those who see any attempt at starting an airline amid the worst conditions in the sector in living memory as something close to lunacy.

Passenger numbers at Cathay Pacific are down more than 98% because of Covid-19 and it needed a bailout from the Hong Kong government to survive the summer. Its prospects still look perilous, despite cutting its workforce by a quarter last week and closing down its regional carrier Cathay Dragon.

Hong Kong Airlines, the city’s other carrier, has been in crisis mode for longer, with little chance of much help from its troubled parent HNA Group, which is struggling to survive financially (see WiC485).

Yet the slump in the sector has others wondering whether the new airline, led by property magnate Bill Wong (see WiC355 for an earlier mention), might have a better chance of gaining altitude than in more typical times.

Admittedly it will take at least six more months for it to be granted its operating licences and get into the air. But perhaps a vaccine for the virus will be available by then, encouraging a partial recovery in passenger travel.

Cathay Dragon’s demise also puts thousands of staff into the job market, creating an unexpected opportunity to pick up talent. “I feel sad after seeing the Cathay lay-offs. It affects so many families and people, including crew members, ground handling staff and technicians. We will certainly want to hire suitable candidates,” Wong told Wen Wei Po, a Hong Kong newspaper, last Friday, adding that recruitment of experienced pilots would be a key focus.

Wong has also been savvy in his branding for the new carrier in choosing a name that celebrates the creation of the Greater Bay Area (GBA) – one of a handful of top-tier policies being pushed by China’s central government (see WiC459). Businesspeople in China often tag along for the ride when the authorities promote a signature initiative, hoping to profit from the policy tailwinds. Earlier this month we reported how the call for self-sufficiency in semiconductors has encouraged thousands of entrants into the chipmaking sector, many wholly unsuited to the task (see WiC513).

But at least Wong has a background in the airline industry through his shareholding in Donghai Airlines, which flies to short-haul destinations from Shenzhen. The airline has been through a number of name changes and business models in the past as well, so some kind of switch to a new base of operations located in Hong Kong isn’t entirely implausible.

How the Greater Bay Area concept is going to be applied in the aviation sector is pretty unclear, however. Rival airport hubs in Guangzhou, Shenzhen and Hong Kong protect their privileges fiercely (see WiC419) and implementing a coherent policy across three distinct jurisdictions (Guangdong province in mainland China, plus the two special administrative regions of Hong Kong and Macau) is a challenge. It creates complexities in the allocation of traffic rights as well, which is another reason why Greater Bay Airlines is choosing to incorporate as a Hong Kong-based carrier.

Cathay Dragon’s closure means that it will be forgoing the traffic rights to 51 destinations, including 23 cities in mainland China. This may open another unexpected opportunity for Greater Bay Airlines to stake a claim for some of the rights, although Cathay Pacific’s chairman Patrick Healy has said that it will be sharing most of the destinations that were given up with HK Express, Cathay’s low-cost carrier.

That stirred speculation that some kind of deal has been done with the government (now both a shareholder and a major lender to Cathay after its HK$27.3 billion bailout) in guaranteeing it the best of the routes. But Wong shrugged off the rumours, saying that his new carrier will apply for some of the surrendered rights. “Of course, as a Hong Kong-based airline, we will try our best to vie for some routes,” he acknowledged, setting the scene for some heavy-duty haggling over the next few months.

© ChinTell Ltd. All rights reserved.

Sponsored by HSBC.

The Week in China website and the weekly magazine publications are owned and maintained by ChinTell Limited, Hong Kong. Neither HSBC nor any member of the HSBC group of companies ("HSBC") endorses the contents and/or is involved in selecting, creating or editing the contents of the Week in China website or the Week in China magazine. The views expressed in these publications are solely the views of ChinTell Limited and do not necessarily reflect the views or investment ideas of HSBC. No responsibility will therefore be assumed by HSBC for the contents of these publications or for the errors or omissions therein.