Hong Kong-based Cathay Pacific has finalized its acquisition of low-cost carrier Hong Kong Express. Hong Kong Express, referred to as HK Express, will retain its identity as a low-cost carrier.
Business Traveller is reporting that the deal cost USD$632 million. Of that, USD$228 will be paid in cash and the remainder in promissory notes held by HK Express. The purchase is another sign that Cathay Pacific is returning to form.
After a string of losses, Cathay Pacific has recently announced it is back in the black and the purchase of HK Express indicates the airline is looking to grow its business.
In a statement provided to Simple Flying, Cathay Pacific CEO Rupert Hogg said that,
“The acquisition of HK Express is an attractive and practical way for the Cathay Pacific Group to develop and grow its aviation business over the long term, while also enhancing the competitiveness of its Hong Kong home base as a leading aviation hub.”
The deal has been some months in the making. HK Express was owned by HNA, a Chinese conglomerate having some troubles of its own.
The purchase price was settled back in March 2019. Of the four carriers that call Hong Kong home, the Cathay Pacific Group now controls three of them. In addition to Cathay Pacific and HK Express, it has Dragon Cathay.
What’s in this for Cathay Pacific?
Dragon Cathay focuses on short-haul East Asian routes. The only remaining airline calling Hong Kong home, Hong Kong Airlines, remains under the control of HNA. But with 45% of Hong Kong’s landing slots, the Cathay Pacific Group of airlines is once again King of Hong Kong’s Check Lap Kok Airport.
Cathay Pacific sees HK Express as complementing its mainline services. It will open up more destinations to passengers transiting through Hong Kong on Cathay Pacific. It also works in the opposite direction, bringing passengers into Hong Kong on the low-cost carrier and transferring them onto Cathy Pacific for continuing travel.
HK Express flies to 27 destinations around regional Asia, including Japan, China, Vietnam, South Korea and Thailand. The aviation market in this part of the world is fiercely competitive. In addition to growing its passenger numbers transiting in Hong Kong, the acquisition of HK Express allows Cathay Pacific to command a greater overall share of the greater market segment.
In his media statement, Cathay’s CEO went on to say;
“HK Express will continue to operate as a stand-alone airline using the low-cost carrier business model. I would also like to reassure HK Express customers that there is no change to the airline’s operating model and that business will continue as usual. There will be more value fares and more destinations available to travelers.“
Despite the rosy picture being painted, the news isn’t so good for many HK Express employees. Forbes is reporting that layoffs have already begun.
Former HK Express president Louis Li departed the HK EXpress on 15 July 2019, just days prior to the finalization of purchase announcement by Cathay Pacific. Other managers, many with close ties to HNA, are also expected to leave.
Forbes raises the point whether Cathay’s new parachuted in senior management at HK Express really understand the DNA of a low-cost airline.
No doubt Mr Li and his confederates will find at home back in the wider HNA Group. One hopes that employees further down the corporate food chain keep their jobs. Cathay Pacific will be looking for efficiencies and having dual systems in some areas of operations isn’t that.
Nonetheless, mergers, acquisitions and buyouts are a part of the business life cycle. Cathay Pacific sees it as all positive, offering benefits for the travelling public.
And for their bottom line.