Ask anyone to name an airline and chances are they will choose a biggun from their home country. Americans may say United, Germans Lufthansa and Aussies Qantas. The low-cost inclined may list Southwest, easyJet or Jetstar.
Hong Kongers will most likely say Cathay Pacific, the busy entrepot’s flag carrier. I looked at Cathay and their low-cost subsidiary HK Express last month (see article). With 20% of their flights to and from mainland China and business class flat-beds on most Chinese routes, Cathay is certainly more Chinese than British Airways is British!
Yet interesting things are afoot in Hong Kong aviation. Greater Bay Airlines operates Boeing 737 single-aisles to a mix of exciting Asian destinations and apparently has big plans for growth. Their startup seems to have generated lots of chatter in the media and online.
Meanwhile Hong Kong Airlines (HKA) operates a little more under the radar and is not so often discussed. Owned by HNA, a Chinese conglomerate with wide-ranging interests, the airline trimmed it’s fleet and schedule significantly after COVID.
In 2018 you could fly large HKA A350s over the Pacific. Sadly these impressive aircraft, introduced only in 2017, were retired only three years later in 2020. A cluster of single-aisle A320s and wide-body A330-200s and -300s remains.
Yet HKA managed to survive the COVID crisis and is still serving the great city of Hong Kong. Chairman Jevey Zhang spoke in November last year about load factors returning to 85% in 2023.
It must be tough for them to compete with the giant Cathay Pacific and the retirement of the A350s would have been a major blow to morale. Good on HKA for surviving COVID. But what should their strategic priorities be to not just survive, but thrive? I decided to find out…
HKA & Cathay compared
Every week in summer 2024 Cathay has 2,518 return flights representing 312,000 seats. Their fleet of mainly wide-bodies have large and impressive business class seats (between 5.9% and 20.9% of capacity, depending on aircraft type) and a reputation for excellent service.
In comparison, HKA has 522 return flights and 100,952 seats a week on an all-Airbus fleet, only 2,368 of which (2.3%) are business class.
Put the two carriers side-by-side and Cathay dwarfs HKA. The larger carrier’s annual revenue in 2022 was HKD 51 billion (£5.2 billion). HKA does not appear to publish statistics.
Five questions about HKA’s current network, product & service
Asking these questions helps us understand HKA’s position against Cathay in the Hong Kong marketplace. In the rest of the article, I will present the answers together with my assessment of what they mean for HKA’s strategic priorities.
Q1. Does HKA have any unique destinations?
Q2. When HKA aligns their schedule with Cathay’s, is this for a good reason?
Q3. To what extent does Cathay command a price premium?
Q4. Could alliance membership help HKA?
Q5. How is HKA’s brand positioned?
To answer these questions I looked at published commercial data from the middle of this year, focusing on the week 16-Jun-2024 to 22-Jun-2024.
Q1. Does HKA have any unique destinations?
Here are some maps of the HKA network effective at 16- to 22-Jun-2024, produced by the excellent Great Circle Mapper. Red points are airports served. Blue points are anchor points used to draw the map at a consistent scale.
Not shown or covered in this article: URC & HKT, which have appeared since I did my analysis – sometimes in aviation things move fast, sorry!
Up until last week, Cathay coded CX flights operated to every one of HKA’s destinations except Beijing Daxing (PKX) and Sanya Phoenix (SYX) on the island province of Hainan, home of HKA’s parent. Unfortunately for HKA, Cathay still serve Beijing Capital (PEK) and PKX is also served daily by HK Express, as well as China Eastern Airlines. China Southern flies double-daily.
There are a number of destinations shown on HKA’s website that I did not see a schedule for. They may be seasonal or operated by partner airlines.
With great timing for this article, last week HKA announced flights to Urumqi in north west China. With a population of more than four million, Urumqi is the largest city in central Asia. It also has potential as a future hub for long-range single-aisle aircraft like the Airbus A321XLR operating between China and Europe (see article).
Conveniently for me, flights start on 22-Jun-2024, just at the end of the week I had chosen for data collection when I started researching this article towards the end of January. Thanks Hong Kong Airlines!
Q2. When HKA aligns their schedule with Cathay’s, is this for a good reason?
The table below takes every HKA flight and compares it with the closest Cathay or HK Express alternative.
81 out of 261 (31.0%) outbound flights per week have more than an hour the nearest Cathay alternative. Of these, only three are less than two hours. It is no co-incidence that these include the flights to Bali (DPS), Bangkok (BKK) and Okinawa (OKA) - these are party destination flights scheduled to leave early in the morning.
Meanwhile 46 outbound flights per week (17.6%) leave at the same time as Cathay or HK Express alternatives. It. is no co-incidence either that these are flights at business-friendly times to business-friendly destinations.
There are some unreasonably late flights to business destinations, like the 02:55 departure to Tokyo Narita (NRT) and the 03:20 to Osaka Kansai (KIX), but these will be positioned to come back at business-friendly hours the next morning while keeping the aircraft in use. Late night flights to Shanghai (PVG @ 21:00), Taipei (TPE @ 22:35) and Bangkok (BKK @ 22:45) will be attractive to some travellers like me who have the night-owl chronotype.
It looks to me like Hong Kong Airlines is doing well at keeping it’s schedule competitive and it’s aircraft usage optimised. Their destinations are all key centres and that none of them are unique should not be a problem. Good job!
Q3. To what extent does Cathay command a price premium?
Regular readers may remember by method for estimating how much revenue airlines earn from a flight based on a fare structure (see article). The idea is that each fare class contributes equally to revenue.
I took fares data for the same week as the schedule, based on a Wed-Wed seven day return. Both HKA and Cathay appear to add a YR surcharge – HK$ 414 return for non-Chinese destinations plus Taiwan, and either HK$ 312 (Cathay) or HK$ 330 (HKA) return for mainland China.
The table below shows these estimates as “Model ATV” (ATV = Average Ticket Value). All values are in Hong Kong Dollars. If you are reading this on a phone you might like to make the table bigger by clicking on it and turning your device to landscape model.
The next two tables show the level of HKA’s fares compared with Cathay’s. Where numbers are greater than 100% in the first table, this means that HKA is more expensive. Less than 100% means HKA is cheaper.
In this table we see in how many markets HKA may secure a premium vs Cathay.
At the “Model ATV” level of fares, in economy (EY) HKA would command a premium over Cathay in 12 out of 19 markets, including every mainland China market.
This makes a lot of sense. HKA’s aircraft are smaller than Cathay’s, so their revenue management processes should be holding back seats for higher willingness to pay market segments. Cathay has more capacity to offer and more seats to risk spoiling. An interesting situation where the market’s major carrier has to discount.
On the revenue management side, it looks like HKA is doing well. I have not set up a long automated screen-scraping process running for months to see what exactly both airlines are setting as inventory availability. But I like what I see based on this data. Good job Hong Kong Airlines!
Could alliance membership help HKA?
We have covered alliances before here on Airline Revenue Economics. Last year I asked whether Etihad should join SkyTeam (see article) and concluded that membership would not necessarily be a bad move, but probably a poor use of their resources.
In 2021 I looked at why Oman Air might want to join oneworld (see article). I concluded that they would be better off joining Star Alliance and that their alliance membership was probably more about diplomatic relations between Oman and Qatar, since Qatar Airways is a oneworld member.
Cathay is in oneworld, which makes that alliance out of the question for HKA. Hainan Airlines, also owned by HKA’s parent, is not in an alliance. Joining an alliance is costly and complex, with all sorts of IT platforms needing to be integrated.
I think it is unlikely that HKA will find benefits in joining an alliance at their current scale unless Hainan Airlines does.
The SkyTeam members flying to Hong Kong International Airport (HKIA) are:
Air France
China Airlines*
China Eastern Airlines*
Garuda Indonesia
KLM
Korean Air*
Vietnam Airlines*
XiamenAir*
HKA already competes with five of these (indicated by a *). I doubt they would see much benefit in enjoying connectivity from France, Indonesia or the Netherlands.
The Star Alliance members flying to HKIA are:
Air Canada
Air China*
Air India
Air New Zealand
All Nippon Airways*
Asiana Airlines*
Ethiopian Airlines
EVA Air*
Shenzhen Airlines
Singapore Airlines
Swiss
Turkish Airlines
HKA competes with four of these (*). India, Ethiopia and many countries served by Turkish Airlines are crying out for connections into mainland China and HKA has a codeshare in place with Turkish Airlines on their HKG<>IST flight.
Outside of alliances, HKA has 66 e-ticket interline agreements in place with worthwhile airlines all over the world. HKA can check baggage through to 83 carriers. All very sensible.
There are also some interesting travel options on HKA’s Internet Booking Engine. It looks like the airline has partners who can provide connections to and from a selection of ferry terminals:
Dongguan Humen HK Macau Ferry Terminal
Guangzhou Pazhou Ferry Terminal
Shenzhen Airport Ferry Terminal
Shenzhen Shekou Cruise Homeport
Zhongshan Ferry Terminal
These ferries all serve the Greater Bay Area cities and access Hong Kong through the Pearl River delta. While I have not yet taken such ferry services myself, I imagine that they are in some cases more convenient than a connecting flight in much the same way that taking a train is here in the UK. Perhaps something to do when I finally get the chance to visit the famous Canton Fair…
In future articles I will be exploring the Greater Bay Area’s exciting aviation economy in more detail.
Codeshares and local partnerships are an effective and cost-efficient way of boosting the network product for HKA, without the hassle of joining and alliance. If they did join an alliance, Star would probably be the best fit. But I am not sure I see a case, given how complex it would be for the pint-sized carrier.
If HKA did join an alliance, Star would probably be the best fit. But I am not sure I see a case, given how complex it would be for the pint-sized carrier. Once again, Hong Kong Airlines seems to be doing the best they can when it comes to partnerships and alliances.
Q5. How is HKA’s brand positioned?
HKA is already flying to sensible destinations with a well-designed and optimised fleet and network. Their pricing looks solid. It is not clear that partnerships with other airlines would add any value. With these ingredients they have survived since 2020.
But against a formidable adversary like Cathay, even the best fleet, network and revenue management is not enough. They need to stand out in the marketplace. The key to success will be through investing in branding and loyalty that make the airline the carrier of choice for key segments in Hong Kong.
Fortunately HKA have a distinct advantage in that their home city’s name is a brand in itself.
Hong Kong is one of the most charismatic cities in the world. It stuffed full of snazzy towers like the Bank of China building. The scenery is beautiful, with majestic landmarks like Lion Rock.
And the city’s traditions are iconic. Like the chugg-a-bug “Star” ferries that putt-putt across the harbour come rain, wind or shine. These sturdy vessels are traditionally the last to arrive in the Yau Ma Tei shelter when the typhoon signal is hoisted.
HKA should use all of the attractions and history of it’s home city to their advantage. They are probably better placed than any other airline in the world to do so.
But monetising the airline’s brand, products and services will require investment. The airline will need to build a lifestyle product to compete with Cathay Lifestyle Experience and integrate loyalty into people’s everyday activities (see article) as well as coming up with a continuous supply of jazzy ads, kits and service equipment.
Success will come to HKA when they are able to combine lifestyle, loyalty and onboard experience into a brand that ordinary people in Hong Kong experience every day, not just when they are flying.
Will they succeed? I hope so – let’s see!
oliver AT ransonpricing DOT com