Cathay Pacific is to acquire the low-cost carrier and competitor HK Express. The news comes after Simple Flying reported that Cathay Pacific was looking into the acquisition at the start of March. The deal is valued at 4.93 billion Hong Kong Dollars, that is to say roughly $630 million US dollars.
Cathay Pacific is the flag carrier of Hong Kong, having operated since 1946. Recently, it has faced increased competition with the launch of a low-cost rival, in addition to the arrival of a high-speed rail link.
Main Hong Kong carrier
The purchase of HK Express will mean that Cathay Pacific once again has control of the Hong Kong aviation market. Cathay Pacific currently also owns Cathay Dragon, its regional subsidiary. Additionally, the other competitors include HK Express and Hong Kong Airlines. The acquisition will surely be welcomed by Cathay Pacific as their market share has been dropping in recent years.
Back in September, a new high-speed rail link opened, connecting Hong Kong to mainland China. There was concern that this could seriously affect Cathay Pacific’s market share due to a wealth of new connections. At a cost of $10bn, the new railway link extends 16 miles to connect to China’s high-speed network at Guangzhou. The opening of this new link saw direct competition on 11 of Cathay’s domestic routes.
Opposition to the deal
While the deal is still conditional, there is one party which is not supportive of the deal. This party is widely believed to be the HK Express chairman, Zhong Guosong. It has been reported by the South China Morning Post that he is reluctant to sell his share in the business. He has also suggested that he will potentially launch legal action regarding the sale. The airline indicated that overcoming this opposition could be the biggest hurdle for the deal.
About HK Express
HK Express is one of Hong Kong’s four carriers. It currently operates using the low-cost carrier model, in contrast to Cathay’s full-service model. The airline was founded in 2004, and carries the slogan “Hong Kong’s Low-Fare Airline”. Unlike European LCC Ryanair, the low cost carrier has opted for an all Airbus fleet. This currently consists of eight A320-200s, five A320neos, and 11 A321-200s as of January. The airline did, however, operate Boeing 737-800s and Embraer 170s historically.
In acquiring the low cost carrier, Cathay Pacific has said that they will not change the day to day operations of HK Express. The acquisition of the carrier means that Cathay will now command a 45% share of Hong Kong’s runway slots. The airline told the SCMP “The transaction is expected to be good for the travelling public, good for the Hong Kong hub. [The] respective businesses and business models are largely complementary.”
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