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Hong Kong cuts AirAsia a deal

AirAsia has finally announced a date for its much-anticipated launch of services from Kuala Lumpur to Hong Kong: 15-May-08, with fares from USD15.60 one way.

In the past, CEO, Tony Fernandes had been critical of Hong Kong’s lack of interest in the LCC model. In November 2006, Mr Fernandes stated “those guys are asleep. They are only interested in Cathay Pacific. One day Hong Kong will realise that it needs to be in this market”.

Hong Kong’s lack of interest led the airline to launch services to Macau instead, followed by successful launches to Guangzhou and Shenzhen.

But since former Dragonair CEO, Stanley Hui, took control of Airport Authority Hong Kong (AAHK) last year, the airport has been more receptive to the needs of the LCC sector and has been in negotiations with AirAsia for several months.

Following the breakthough Singapore-Kuala Lumpur route opening to LCCs in Feb-08, the agreement between AirAsia and Hong Kong will embolden the region’s LCCs to target more major higher yielding cities in Asia.

This would be of growing concern to the incumbent full service airlines that are already facing headwinds from soaring fuel prices and a potential economic slowdown in the region that could lower premium demand.

Fast-growing Philippine LCC, Cebu Pacific, yesterday stepped up its lobbying effort for enhanced rights to Hong Kong, stating the addition of the route would help it reach its goal of carrying 7 million passengers in 2008.

Cebu Pacific’s application last year to operate from Clark (north of Manila) to Hong Kong, among other destinations, was turned down by the Hong Kong Civil Aviation Department, due to the lack of entitlements under the existing bilateral air services agreement.

AirAsia is also launching services in the next two months to Ho Chi Minh City and Haikou. As with other new AirAsia routes, the Ho Chi Minh City operation will involve both the Kuala Lumpur and Bangkok-based arms of the airline converging on the city. It is probably only a matter of time before Thai AirAsia steps into the Hong Kong market as well.