Global Economics

London-Hong Kong, Cheap, With Meals?


Asia-based startup Oasis Airlines plans to save time and money on the route via optimal use of its 747s. Budget business travelers, take note

The conventional wisdom in aviation is that the low-cost model doesn't work long haul. But Hong Kong-based startup Oasis Airlines is determined to prove it can. In October, Oasis became the first long-haul airline to offer daily flights between Hong Kong and London for as little as $300 each way including taxes, roughly 40% less than major carriers such as Cathay Pacific.

Now Oasis is aiming for another first. On Feb. 13, the carrier revealed plans to offer two new low-cost routes from Hong Kong. Service to Oakland, Calif. begins in June, followed by Vancouver before the end of 2007, by which time it plans to have increased its fleet of secondhand Boeing 747-400s from two to five. The airline has also applied for licenses in Berlin, Cologne, Milan, and Chicago.

"We're challenging the thinking that on long-haul flights you can either save time or money," says Oasis's chairman Rev. Raymond C. Lee, a Hong Kong property mogul who, along with his wife Priscilla Hwang Lee, is one of the company's main shareholders. "The revolution of Oasis is that you can do both."

Still Got Frills

Low-cost pioneers Southwest Airlines LUV and Dublin-based Ryanair were the first in recent history to bring air travel to the masses in the U.S. and Europe. And over the last 18 months the phenomenon has been exported to Asia with the launch of several short-haul discount startups such as Malaysia's AirAsia. Oasis is the first in Asia to apply the low-cost model to long-haul flights, but it isn't likely to be the last. AirAsia plans to launch its own long-haul, low-cost carrier, AirAsiaX, in July, with flights from Kuala Lumpur to China, India, and Europe.

At Oasis, however, low cost doesn't mean no frills. The startup offers both economy and business class fares . There's no charge for baggage and all passengers get two free meals and a choice of in-flight entertainment, although economy class passengers must pay for alcoholic drinks. Fares in business class, which offers reclining seats with a 60-in. pitch, start at $1,140 one way including taxes, roughly half of a premium economy ticket on Virgin Atlantic.

But can a startup that owns its own aircraft and offers frills really be low cost? Yes, says Oasis Chief Executive Officer Steve Miller, a 40-year industry veteran who founded the Hong Kong based Dragon Air, now a subsidiary of Cathay Pacific. The secret, he says, is greater efficiency. "The long-haul model is actually more productive than short haul," he says.

How Low Does it Go?

Oasis keeps costs down by extracting more hours out of each plane. While other airlines typically fly their planes as many as 12 hours a day, Oasis plans to work each of its 747s for 16 hours. Aircraft consume less fuel and suffer less wear and tear while at cruising speeds, he adds, than they do during takeoffs and landings, making them more efficient over long distances than on frequent short trips.

That greater efficiency combined with cost-cutting measures such as outsourcing catering and other operations, Internet booking (some 70% of bookings are made online), and a planned cargo service also help keep fares low.

What's more, Oasis isn't quite the low-fare airline that it seems to be. Advertised fares might look low but only a small percentage of passengers actually get them. In its first year of operation, Oasis promises to make a minimum of 10% of all economy seats on every flight available at $300—although Lee claims that on many occasions the company has made significantly more than 10% of its seats available at the lowest prices.

Looking for Budget Travelers

Competition on the London-Hong Kong route is fierce, with five well-established carriers operating non-stop services between the two cities. But Miller says Oasis is going after a different market from British AirwaysBAB, Virgin Atlantic, Cathay Pacific, Qantas, and Air New Zealand. Instead, Oasis is targeting passengers travelling between Hong Kong and London on the dozen or so carriers such as Emirates, Gulf Air, and Finnair that now offer one-stop connections between the two cities at cheaper fares than the likes of British Airways or Cathay.

Oasis also hopes to lure cost-conscious small and medium-size businesses "who pay their own way," instead of big corporate customers who have established deals in place with the major carriers. But so far, filling business class seats has been tougher than expected, with average passenger loads running at around 40% compared to more than 70% in economy class.

As the first long-haul, low-cost airline out of Hong Kong, Miller believes Oasis will create a new market of budget travelers who have put off visiting friends and relatives abroad because of the cost. It's an innovative model, but one that remains unproven. The fledgling airline has already faced some serious turbulence. Initially the launch was planned for November, 2005, but was delayed for a year due to a steady stream of setbacks such as problems securing route licenses from Hong Kong authorities.

Teething Problems

And just when Oasis was ready to take off on Oct. 25, it suffered the humiliation of having to abort its inaugural flight. Some 300 passengers, including the carrier's chairman and CEO, were stuck on the runway for nearly six hours when Russian authorities at the last minute revoked approval to fly over Russian airspace. "We've overcome the initial teething problems," Miller assures.

Hoping to drive traffic, the company is considering the possibility of coordinating its schedules and operations with those of other budget airlines in Britain and the U.S. Oasis says it has had preliminary discussions with Southwest and JetBlueJBLU in the U.S. and Easyjet in Britain. So far there are no firm plans. "These kind of partnerships are complex to administer and can send costs through the roof," says David Bentley, a consultant with the Center for Asia Pacific Aviation in Manchester.

The privately held airline has some wiggle room, thanks to backing by some deep-pocketed investors. Besides the Lees, the carrier's major shareholders, who between them have invested $100 million, include Allan Wong, chairman of consumer electronics company VTech Holdings, Steven Yung, chairman of Clear Media, and Richard K. Lee, founder of Trinity Textiles. Lee says the company hopes to raise an additional $120 million by June in a pre-IPO funding round. Oasis aims to go public within the next two years.


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