Cathay Pacific acknowledged the reports that they are negotiating to purchase the budget carrier Hong Kong Express which is owned by the HNA Group, a Chinese conglomerate. According to Cathay, the company is in active discussions about an acquisition involving the HKE.
The news about the talks was first publicized by Bloomberg last month. The talks show the interest of Cathay in expanding its operations amid the continuously growing competition and demand in Asia's cheaper travel options.
Cathay's expansion shows the growing tourism industry in Asia. It was recently reported that Asia is in need of more pilots to cater to the growing demands of the aviation industry. According to reports, some of the airlines chose to fund their own training camps to support their own airlines and support the need of the industry. There is a great demand for cheap travel in the Asian region. The analysis by the industry information portal Anna Aero said that Asia's market share for budget carriers by seat capacity increased to 28 percent last year from 10 percent a decade ago. Cathay's other competition in the Asian market, Singapore Airlines, recently expanded into a budget carrier business by purchasing the Tigerair in 2014.
Cathay's plan to purchase the Hong Kong Express comes as it prepares to post its first profit in three years for 2018. The company's estimate placed its shareholder's profit at 2.3 billion Hong Kong dollars.
Michael Brekelmans, managing director at consulting firm SCP/Asia, said that HK Express is a competitor in Cathay's home market, Hong Kong. He added that this would be one way to take out competition and to prevent the future entrance into this segment. He also said that HK Express grown rapidly in recent years and now competes head-to-head with Cathay's wholly owned subsidiary Hong Kong Dragon Airlines, more commonly known as Cathay Dragon, which specializes in short-distance travel within the region.
Cathay Pacific also purchased some of its competitors in the past which included the Dragon Air, and Air Hong Kong. Its plan to purchase Hong Kong Airlines from the NHA is not yet confirmed by the Chinese conglomerate.
Its acquisition announcement came at a time when the company seeks new revenue sources after suffering a rough patch in recent years. Brekelmans said that the thinking is that if you don't do it, someone else would do it, especially in a big market like Hong Kong. He also said that the company has realized either we let HK Express grow bigger and become more of a problem, or just acquire it and do it ourselves.
