Dragonair

High-speed rail in southern China could challenge Dragonair, but only under combination of factors

The convergence of China’s domestic high-speed rail as well as high-speed rail linking mainland China with Hong Kong could potentially undermine Dragonair’s southern China network, a possibility the carrier is increasingly beginning to consider.

With HSR not due to link Hong Kong until 2015, there is time for this scenario to evolve.

Any impact to Dragonair and other carriers would have to occur with an alignment of factors. Currently at least this seems more unlikely than likely: low HSR ticket prices, convenient station locations, maximum train speeds and integrated border control.

There is also the possibility Dragonair and other carriers could swap routes for others as Hong Kong Airport slots become more scarce.

Cathay Pacific promotes cheap 'Fanfares' as quasi answer to LCCs, but structural change is needed

As Jetstar Hong Kong prepares to launch, Hong Kong Airlines weighs transforming Hong Kong Express into an LCC, Spring Airlines moots a Hong Kong base and other LCCs evaluate Hong Kong as a hub, the market has been left wondering about Cathay Pacific's response. Cathay and its Dragonair subsidiary account for about half of Hong Kong's capacity.

Cathay effectively has no public response. While deep down it is watching the market and undoubtedly weighing possible reactions, from a business perspective it says LCCs will not impact its business while to the general public its push has been to offer a limited number of discounted web-only tickets, "Fanfares", as a reminder that it can offer fares on par with LCCs.

Any airline can cut fares, but few can do so profitably. Fanfares account for less than 1% of seats, relatively isolating Cathay from any pricing detriments, but reminding the carrier this is no response to LCCs either taking existing traffic or creating new demand Cathay will be unable to tap. Structural change is needed.

Air Seychelles looks to ride Chinese boom & grow in tandem with part-owner Etihad – Australia next?

The Seychelles attracted 4,500 Chinese tourists in 2012, so it and flag carrier Air Seychelles look with envy to the Maldives, which in 2012 had 230,000 Chinese tourists. Air Seychelles hopes to attract a greater number of Chinese visitors not only from its flights departing Hong Kong, the first of which left on 25-Mar-2013, but via traffic feed across mainland China from a pending partnership with Cathay Pacific that it hopes to announce in coming weeks. In exchange for feed, Air Seychelles' link will enable Cathay to sell the Seychelles, finally giving it a presence in China's booming demand for luxury tropical getaways. And the Cathay partnership may be extended to Air Seychelles' part-owner Etihad Airways.

Air Seychelles links Mahe to Hong Kong via Abu Dhabi, effectively giving Etihad Airways – which owns 40% of Air Seychelles – an Abu Dhabi-Hong Kong flight via codeshare in absence of its own service to Hong Kong due to aircraft shortages. This use of open air service agreements, at Air Seychelles/Etihad and globally, is only in its early days. A MoU between the Seychelles and Australia could also in the long-term allow Air Seychelles to expand Etihad's footprint in Australia at a time when competitor Emirates is dominating the continent and the UAE-Australia bilateral capacity is capped.

Cathay Pacific, posting 84% drop in profits, seeks consistency but offers no brave new strategies

Cathay Pacific has lost its ability to move faster than the changing North Asian market, and this is reflected in an 84% drop in 2012 profits to HKD916 million (USD118 million). Although this is a profit, unlike global peers, it was achieved with a paltry 1.8% operating margin.

Cathay’s solution is to offer consistency in what it has done, rather than focus on what it can do differently. When the market rebounds, it will do so with a new competitive landscape that gives no guarantee past traffic can be regained. Even Cathay management seems unconvinced by its own explanation for why it does not have a low-cost carrier subsidiary. But LCCs are just part of the changing environment: Cathay needs strategic partners and a wider long-haul network, neither of which show signs of eventuating in the short-term.

Cathay is a cautious and conservative airline; it has relied on delivering benchmark quality to distinguish it. While this has advantages, the quickening pace of North Asian aviation will demand that Cathay break out of its shell. At the least, this will let Cathay counter competition while a more enduring effort will let it overtake the competition.

Hong Kong Airlines continues expansion; Jetstar HK appoints CEO & Dragonair to grow closer to Cathay

The previous one-size-fits-all regional market from Hong Kong continues to go through rapid segmentation as competition diversifies. Fast-growing Hong Kong Airlines will significantly expand its frequency over early 2013, especially into mainland China, allowing it to match or surpass full-service peer Dragonair on overlapping cities.

The additional frequency will also elevate its expansion ahead of LCC Spring Airlines, although this is in terms of schedule and not price, where Spring retains the edge.

Further competition at the low end of the market is set to come from Jetstar Hong Kong, which has appointed its first CFO and CEO and formally received Beijing’s blessing, indicating the rejection from Hong Kong authorities that Cathay Pacific hoped for is increasingly unlikely.

Cathay meanwhile is seeking to present a unified premium experience between itself and subsidiary Dragonair, which may grow even closer to Cathay with a re-branding exercise; a proposed “Cathay Dragon” name could be a possibility to have a stronger positioning in a changing market.

Quiet achiever Dragonair aligns with owner Cathay Pacific in recognition of its growing stature

Dragonair has taken a backseat in the public limelight since Cathay Pacific acquired the carrier in 2006, despite Dragonair accounting for about a quarter of the group's passengers and its network into mainland China – the largest of any foreign carrier – being a key asset driver.

Dragonair had been allowed to be the less sophisticated brand in a bid to preserve the status of Cathay, but Dragonair will now grow the closest it has ever been to Cathay as it embarks on what will likely be another record year of passenger growth and destinations served.

A new aircraft interiors programme, its first in a decade, will see Dragonair adopt Cathay's interior and service elements while a new staff uniform will be more similar to Cathay's than previous iterations. Driving the change and multi-million dollar investment is a series of messages that Dragonair needs to piggyback off Cathay's high-end premium reputation.