Planes stay on the ground and protests bite, as HK Airlines struggles to beat financial woes

22-Nov-2019 Intellasia | South China Morning Post | 6:02 AM Print This Post

Up to a quarter of Hong Kong Airlines’ (HKA) 39 planes are no longer flying, shining a light on the scale of pressure from authorities to shrink its operations and cut losses.

At Hong Kong International Airport (HKIA), several of its aircraft can be seen idle, with their engines covered. The city’s third largest airline said aircraft that are out of action are being returned to leasing companies, grounded, put under maintenance, or being transferred to other airlines, without specifying how many.

But experts doubt that route and schedule cuts are enough to improve the airline’s financial issues, as worsening public perceptions keep customers away.

“I don’t recall airlines being able to shrink themselves into profitability, outside the equivalent of bankruptcy,” said Henry Harteveldt, principal at Atmosphere Research, a United States-based travel analysis firm.

“As HKA cuts its route network and flight frequencies, it further reduces its viability and utility to connecting passengers. For example, it may no longer offer the most convenient schedules. The airline’s actions practically hand customers to its competitors.”

HKA’s finances have deteriorated as Hong Kong’s increasingly violent civil unrest has continued for more than five months, leading thousands of people to cancel or defer trips.

The 13-year-old airline, backed by the debt-laden mainland Chinese conglomerate HNA, used to fly to 38 destinations, but now goes to 32 mainly in North Asia and parts of Southeast Asia. It will withdraw from the United States by February.

It has cut flights or reduced frequencies to 11 destinations, including Tokyo Narita, Seoul and Osaka.

Since the start of the year, it has seen 400 crew leave, including 70 pilots and more than 300 flight attendants. It now has 562 pilots and 1,594 flight attendants, according to figures for November seen by the Post. It employs a total of 3,500 staff.

In October, the Air Licensing Transport Authority a statutory body with power to shut down carriers and approve new ones warned that it would impose measures if HKA’s financial situation did not improve.

The Transport and Housing Bureau confirmed it had been scrutinising HKA’s finances for a long time, but a government spokeswoman said it had nothing else to say about the airline for now.

As of November 4, however, the bureau’s view was that the airline remained a concern to the authorities as its finances had not improved.

According to the FlightRadar24 flight tracker, two of HKA’s 12 Airbus A320s have not flown since October 14. Six of its 11 A330-200 aircraft were not flying between January 31 and October 20, at least. Three of its six A350s have been stored, two since October 20 and an earlier aircraft that was sent to Tarbes in France a month earlier.

A spokeswoman for the airline said: “A small number of our aircraft are not in service due to ongoing adjustments in our network, scheduled maintenance, waiting to be returned to lessor or be redeployed based on our operational requirements.

“Hong Kong Airlines will continue to review our resources regularly to respond to changing economic conditions and sustain our long-term growth.”

Brokerage Bocom International’s transport analyst Luya You said the ongoing anti-government protests have highlighted the contrasting struggles of Hong Kong’s two airlines. Unlike HKA, Cathay Pacific presents itself as having a better business model and sound backing to weather the storm.

“Cathay has a major fallback as opposed to Hong Kong Airlines,” You said, referring to Cathay’s efforts to shore up business by attracting passengers to take connecting flights through HKIA without stopping in Hong Kong.

HKA is unable to do the same as it does not have a substantive long-haul network.

Unlike HKA, Cathay has said it will not ground aircraft or force staff to take unpaid leave. However, it has reduced flights to 15 destinations, suspended two for the winter and trimmed its capacity by 6 per cent.

It said grounding planes was far more costly than merging services with multiple frequencies which not only saved a lot of money, but also retained passengers.

Industry analyst Harteveldt said: “I recognise the circumstances in Hong Kong are unique, and it’s better to have the airline curtail flights ahead of the holidays than think they can run the operation, only to find out at the last minute that they’re financially unable to do so and leave people stranded.”

Transport analyst You noted that Cathay could afford to cut capacity “tactically”, whereas HKA needed to cut costs everywhere, including on key routes.

“As we’ve seen from Cathay’s strategy moving forward, rarely do carriers cut capacity on high-profit routes first, unless it’s more of a last resort as a result of mounting costs,” added You.

Scary time for white knights

With HKA privately-held, information about its state of affairs is hard to come by. Its money troubles only became public late last year over concerns it was unable to repay a large debt.

The airline had admitted to shareholders earlier this year it lost HK$3 billion (US$382 million) in 2018 and it admitted to shareholders earlier this year that it required HK$2 billion to keep its government-issued licence flying.

Earlier this year, it endured months of boardroom turmoil, sudden management changes and a shareholder battle for control of the ailing airline.

For now, HKA remains up for sale, though hopes are fading that an investor will turn up to inject much-needed cash, say people familiar with the matter.

There was talk last July of a consortium including China’s largest state-owned investor pumping HK$2.2 billion (US$291 million) into HKA, including absorbing some of its debt, but interest has appeared to wane as protests gripped Hong Kong, and the airline’s cash needs grew.

Albert Lam Kwong-yu, a former director of civil aviation for Hong Kong, said: “The unfortunate thing is, social unrest is turning away passengers.

“Even if you were a white knight, you wouldn’t want to put your money in at this time because you do not know what the money will be worth down the line.”

https://sg.news.yahoo.com/planes-stay-ground-protests-bite-090532217.html

 


Category: Hong Kong

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