Bloomberg News

Spring Air Mulls Hong Kong Hub in Cathay Pacific Challenge

November 28, 2012

Spring Airlines Co. Chairman Wang Zhenghua

Spring Airlines Co. Chairman Wang Zhenghua. Photographer: Bernardo De Niz/Bloomberg

Spring Airlines Co., China’s biggest privately-owned carrier, is considering a venture in Hong Kong as it joins operators trying to break Cathay Pacific Airways Ltd. (293)’s grip on the city’s aviation market.

The carrier has drawn up a plan as part of an overseas push that may also include operations in Japan, South Korea and Taiwan, Chairman Wang Zhenghua said in an interview yesterday in Hong Kong. He didn’t give a timeframe for when a Hong Kong carrier may start flying.

“We want to go out and tap international markets,” Wang said in an interview at a conference organized by CAPA - Centre for Aviation. “A road for expanding overseas starting from Hong Kong will be the shortest one for us.”

Spring Air, based in Shanghai, will add four new routes to Hong Kong from mainland China next month, as Hong Kong Airlines expands and budget carrier Jetstar prepares to open a hub in the city next year. Cathay, which accounts for about half of seats in Hong Kong, is adding premium-economy cabins and boosting services to China to safeguard its hold on business travelers.

“The marketplace can accommodate more airlines with different business models,” said Nawal Taneja, professor emeritus at Ohio State University, who has advised airlines and written seven books on the industry. New carriers may also boost travel rather than just luring passengers from Cathay and its Hong Kong Dragon Airlines Ltd. unit, he said.

New Routes

Spring Air’s new Hong Kong routes linking Chongqing, Hangzhou, Nanjing and Xiamen will add to its thrice-daily service from Shanghai. The expansion means the carrier will serve four of the 10 busiest routes between Hong Kong and the mainland, according to CAPA, a research company. All four of the new destinations are popular tourist markets, it said.

The airline, which has moved away from its traditional low- cost operations by adding some business-class seats, was also working on plans for a venture in Japan. This has been delayed amid a territorial dispute between the two countries, Wang said.

Spring Air will have to meet regulatory requirements to set up operations in Hong Kong, including local-ownership rules, as well as contending with a looming shortage of slots at the city’s airport.

“Everybody would like to have a base everywhere he could, but it doesn’t really work that way,” said Cathay Chief Executive Officer John Slosar. “Maybe it will in the future, but it doesn’t yet.

Shanghai IPO

Spring Air, which flies 33 Airbus SAS A320s, is also working on holding a Shanghai initial public offering that may raise more than 1 billion yuan ($160 million) to help fund expansion. The airline has filed its listing application with the securities regulator and may win approval for it early next year, Wang said. The company has been predicting an IPO date since at least 2011.

The carrier’s parent Shanghai Spring International Travel Service Co. is expected to post a 30 percent growth in profit this year to 700 million yuan, Wang said.

“This is pretty satisfactory, given the tough macro- economic situation,” he said. He declined to give a profit figure from Spring Air.

Jetstar Hong Kong is also confident of winning approval from the city’s government to begin operations, Jetstar Group Executive Officer Jayne Hrdlicka said yesterday. The carrier is a venture between Jetstar, Qantas Airways Ltd.’s budget arm, and China Eastern Airlines Corp. (670) The partners said in March that they will invest as much as $198 million in the airline.

Cathay Cuts

The new competition for Cathay comes as it looks to regional travel to help offset waning demand on intercontinental routes. The airline yesterday said it will reduce capacity 1.6 percent next year, predominately through long-haul cuts caused by the introduction of smaller planes. The carrier is adding premium-economy seats in its main unit to help boost fares.

Regional unit Dragonair is boosting China flights, including starting services to Wenzhou and Zhengzhou in January. It has added or resumed a total of eight destinations this year.

“We’ve still got good Asia expansion,” Slosar said. “We have a big long-haul network and are becoming much more fuel efficient,” he said, referring to the introduction of new planes.

Cathay has previously seen off competition from new entrants on long-haul routes. Oasis Hong Kong Airlines, which offered budget flights to London and Vancouver, collapsed in 2008 after less than 18 months in the skies.

The carrier doesn’t provide a guide for what may happen to budget airlines flying short-haul routes from Hong Kong because of its different business model, Taneja said.

To contact the reporter on this story: Jasmine Wang in Hong Kong at Jwang513@bloomberg.net

To contact the editor responsible for this story: Neil Denslow at ndenslow@bloomberg.net


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