Cathay to buy into the competition?

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  • TominScotland

    Cathay have confirmed an interest in acquiring a stake in Hong Kong Airlines and HK Express from HNA Group.

    Over the years, Cathay have consistently sought to reduce local competition – by opposing LCC access and other tactics. This would seem to be another example.

    Is this good for Hong Kong travelers or, indeed, those wishing to visit?


    Tom raises an interesting question which to which i find difficult to answer ether yes or no.

    The airline industry is an ultra- competitive environment and yes, I believe that Cathay must seek to protect its commercial interests and dominant position in the Hong Kong market as other airlines have done in their markets for years . BA being a prime and ruthless example.

    Given that non state owned airlines must seek the best possible long term returns for there investors then the discussion as too whether or not this activity is in the best interests of the travelling public becomes, perhaps unfortunately largely irrelevant as the travelling public cannot influence the situation. Therefore this type of activity may or may not result in a better deal for Joe public.

    Cathay has for the past 10 years or so looked at the pros and cons of establishing a low cost airline and clearly preferred to position itself (and Dragon) as a full service airline group that can also fight with low cost carriers when it needs to.
    That position may have changed and if they were to take an equity interest in HK Express I believe it would be to acquire them 100% as to fiddle at the edges would seem to make little commercial sense.

    Michael Allen


    On the contrary, I think it is very simple.

    Is it in the interests of Cathay Pacific to reinforce its dominance of Hong Kong and eliminate a sizeable competitor – of course, yes.

    Is it in the interests of the travelling public – almost certainly not. Hong Kong is already one of the most protected markets amongst hubs in the region and Cathay Pacific is able to take full advantage of its resulting pricing power.

    Can the travelling public influence the situation – not directly, but that’s what effective competition regulation is for. Hong Kong’s record in siding with the consumer over Cathay Pacific is not great, but let’s hope they properly scrutinise this – and are prepared to block it if necessary.


    Hong Kong’s record in siding with the consumer over Cathay Pacific is not great, but let’s hope they properly scrutinise this

    On the other hand and maybe our Hong Kong contributors can clarify, I get the district impression that Cathay Pacific and its continuing success is a thorn on the backside of Beijing

    The SCMP appears to have its teeth pulled by its Beijing dentist . Consequently when the opportunity arises it will undermine the airline and more importantly the Swire Group

    Long term I’d rather see a strong, profitable and independent business that can withstand a Beijing inspired takeover by say…China Southern


    Canucklad, I am not so sure about Cathay’s ‘independence’ from Beijing or that it can or would wish to act as a thorn in Beijing’s (back)side. Cathay’s ownership is shared by Swire Pacific, Air China (combined 75%) and Qatar (10%). Cathay is reciprocally one of the major shareholders of Air China.


    Quite right Tom.

    Air China owns 30% of Cathay and Swire’s owns 18% of Air China. This all dates back to the crucial decision that Swire’s made in 1997 with the handover of Hong Kong to the PRC. While the opium trader Jardine’s scuttled off to Bermuda, Swire’s decided to play the long game.

    Deals played out in any area of China”s business world are never lacking state influence. The potential Hong Kong Express deal is part of the divvying up of HNA Group’s assets. Air China has already expressed an interest in picking up Hainan Airlines and Hong Kong Airlines is small fry in comparison. HKAE provides Cathay with some useful routes, slots and hardware.
    Jack Ma and his anti Swire agenda at SCMP might have to take a back seat if Beijing wants to sort out HNA.

    1 user thanked author for this post.


    There is not a lot of meat on the bone as regards the HK Express fleet as all 45 aircraft are leased.
    It is though a relatively young fleet average age 6.6 years
    I have read online that they are not paying the leases on time and some of the 320s appear to be stored.
    Given the dire financial state of the majority owner HNA and Beijing’s push to tidy up the mess that is HNA I cannot see the HK competition regulator attempting to stop any deal with Cathay.
    A glance at any of the reputable traveller revue sites shows what an appalling experience it is to travel with them and perhaps HKE will be a bargain buy for Cathay unless of course that well know Communist party member and Cathay critic Jack Ma puts his money where his opinions are


    Some interesting comment on this from Lex in today’s FT.

    Cathay Pacific/HNA: no-frills thrill

    If you can’t beat ’em, buy ’em. Cathay Pacific might purchase a stake in Hong Kong’s only budget airline. That would give it welcome exposure to a burgeoning low-cost market that it has struggled to service itself.

    To mangle another aphorism: it’s an ill headwind that delays all flights. HNA is considering selling a stake in Hong Kong Express that is unlikely to cost more than a few hundred million dollars. HNA needs the cash. The over-leveraged conglomerate is selling assets valued at $50bn following a little gentle arm-twisting by Beijing. A bond issue by a unit of HNA flopped last week.

    Cathay’s own market failure involved huge losses on fuel hedges. At the same time, an airline once seen as luxurious has drifted into the middle market.

    Now Cathay is in recovery mode and can contemplate a bet on budget travel. Cathay Dragon, its regional carrier, once looked like the vehicle for this. The parent has shifted some destinations to Dragon and increased its fleet. This has meant cost cuts, an increase in revenue and access to a slightly wider customer base.

    Deeper changes are impeded by high labour costs and a powerful union. Setting up a new airline would be hard before 2024, when Hong Kong International Airport plans to open the third runway needed to support more landing slots and passenger gates. Helpfully, Hong Kong Express has the rights to fly some new routes.

    The main risk for Cathay of diversifying into budget travel is cannibalisation. The disapproval of antitrust regulators is another concern. But while there would be some duplication in business functions and routes, there would be little overlap in customer segments.

    Even with its shares up 19 per cent in the year to date, Cathay’s price to book ratio is at levels from the 2008 financial crisis.

    If the mooted deal adds budget air travel to the capabilities of Hong Kong’s best-known airline, the stock should continue its ascent.

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