The launch plan for Greater Bay Airlines has often seemed counter-intuitive at a time when Hong Kong’s flag carrier Cathay Pacific has been battling the worst commercial conditions in its history.
Cathay continues to be crushed by quarantine requirements demanded by the Hong Kong government for arriving passengers. Its traffic figures for January showed an average of just 797 passengers a day on a flight schedule of only 2% of its pre-pandemic capacity. Cargo capacity plunged to 20% of the pre-Covid period as well, says Parash Jain, HSBC’s head of Shipping Ports Asia Transport Research.
In the chaos Greater Bay Airlines sees an opportunity to start flying from Hong Kong (see WiC516), especially in filling the vacuum left by the demise of Cathay’s regional carrier Dragon. Algernon Yau, the Greater Bay Airlines CEO, is a Cathay Pacific veteran, who worked as boss of Dragon.
The new airline has been in start-up mode for more than 18 months, securing its air operator certificate from Hong Kong’s Civil Aviation Department only last October. In February this year Yau announced that the airline was given the green light by the Hong Kong government to operate flights to 104 destinations in the Asia-Pacific region, almost half of them to mainland China. Now it can start to apply for operating permits in the places where it intends to fly and it claims to have plans to expand its fleet of Boeing 737-800s significantly over the next five years in line with market demand.
But for the moment it is being cagey about when it expects to carry its first passengers, saying only that it hopes to start operations soon.
When it finally emerges, the new carrier won’t go head-to-head with Cathay on flights to long-haul destinations. It will be a rival on shorter routes in the region, however, positioning itself as a ‘value’ option (another way of describing a strategy of lower fares).
Cathay has coped pretty well with competition like this in the past, although its newest rival is trying to fly on the tailwinds of central government policy by pitching itself as a connecting point into the Greater Bay Area, which is set for surging demand for air travel from its combined population of 86 million people.
Why Greater Bay Airlines should have any real edge on Cathay in tapping this market hasn’t really been articulated, although there is a sense that Cathay’s relationship with the authorities in Hong Kong and Beijing has been on shaky ground.
There was an angry rebuke of its handling of staff involvement in some of the political protests on Hong Kong’s streets in 2019 and it was lambasted again last year after a tiny number of cases in which its cabin crew were found to have disobeyed quarantine procedures after flights into the city.
Both airlines will be desperate to find a flight path into better weather, although that seems unlikely until Hong Kong’s draconian response to the pandemic shows signs of relenting. HSBC’s Jain reckons Cathay is still hopeful of a rapid revival in 2023, however. By then flight restrictions would have been in place for three years, fuelling massive pent-up demand. Cathay should be well positioned for a sharp recovery if that happens, following a rebasing of much of its cost structure over the last few years.
Of course, both carriers will be making the case that they are crucial to restoring Hong Kong’s claims as an international financial centre, after a prolonged period of isolation brought on by the pandemic.
There will be another new runway at the airport to fill from 2024 as well, underlining the need to get Hong Kong humming as an aviation hub again. And this is another “golden opportunity” for Greater Bay Airlines to grow its fleet and its network, the nascent carrier’s bosses have claimed.
© 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.