Hong Kong aviation set for banner year in 2007

(Sydney: 25 March 2007) Centre for Asia Pacific

Aviation predicts the Hong Kong SAR aviation market will have a particularly

good year in 2007, following the radical airline ownership restructure of 2006,

which is unlocking fantastic synergies for Cathay and strengthening the Hong

Kong hub.

According to a new Aviation Outlook report released by the Centre, “Cathay’s new service rights to the Mainland and its expanding fleet, as well as its continuing integration of Dragonair, will all keep the SAR’s aviation sector a busy arena”.

Most significant of all, Cathay has gained in Air China a partner with which it can potentially form the world’s biggest combined carrier within ten years. Cathay-Air China has the pedigree and the hallmarks to battle it out on the world stage over the long term, with a mix of private equity (via the Swire linkage) and government support (via Beijing) that few carriers enjoy.

The Cathay-Air China relationship could become the envy of all Asian airlines. But the immediate challenge for incoming CEO, Tony Tyler, will be to maintain and develop ties with cross-equity partner, Air China, following on Philip Chen’s success. Leveraging this relationship is a vital element in Cathay’s long-term outlook. A key first step is the successful establishment of a cargo JV in Shanghai, foreshadowed in the landmark Operating Agreement signed in June last year”, said Mr Harbison.

Meanwhile, the SAR Government is expected to adopt a more liberal stance in bilateral air services negotiations in 2007 and beyond, now that local champion Cathay has been strengthened by the ownership restructure.

“Building the value of the Hong Kong hub will become a primary focus for the SAR Government, leading to the eventual privatisation of the airport”, said Mr Harbison.

Hong Kong will see a big increase in narrowbody competition in 2007, with Hong Kong Express and Hong Kong Airlines (previously known as CR Airways) rapidly expanding their fleets and exploring new routes to the Mainland and Southeast Asia. The other player in the mix is low cost long haul pioneer Oasis Hong Kong Airlines. After a shaky start, Oasis is operating to London Gatwick and is planning to launch services to a handful of other long-haul routes in 2007, notably including transpacific service to Vancouver from late Jun-07.

“Oasis could prove something of a surprise packet in 2007. Its low fares and quality service should garner support in the market and provide another option for budget travellers seeking to link the established LCC networks of Asia and Europe and North America”, said Mr Harbison.

Meanwhile, Airport Authority Hong Kong (AAHK), operator of Hong Kong International Airport (HKIA), also enters 2007 under new leadership - of former Dragonair CEO, Stanley Hui.

“A key objectives for AAHK over the medium term will be to successfully segment the market, providing appropriate airport facilities for different users (passengers and airlines), as the airline model evolves quickly in Asia. AAHK is also expected to ramp up its investment in the fast-growing Mainland airport sector, following on from its initial agreement in Hangzhou”, said Mr Harbison.

These findings from part of the Centre’s 181-page outlook report, available now at centreforaviation.com. This year’s report covers the Big Issues facing Asia Pacific aviation in 2007, including LCCs, liberalisation, restructuring, aircraft orders/deliveries, skills, funding, security, the environment and the economy.

The overall themes of ‘Outlook 2007: Dawn of a New Era’ include an impending “full frontal attack” on flag carriers commencing in 2007, and the continued unfolding of the influential LCC story in Asia.