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Cathay tries the limbo rock

Vijay Verghese, Editor, Smart Travel AsiaCathay Pacific takes the plunge to bring a low cost carrier into its fold. How will this unlikely marriage pan out for the airline and passengers?

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by Vijay Verghese/ Editor

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Cathay Pacific plans to buy budget airline HK Express and bring it into the fold

As Audrey Hepburn might exasperatedly ask, 'Will HK Express be made to say O not Ow?'

THE big screen is rife with maudlin yet tickling tales of wealthy mandarins who open their homes to penurious scamps to 'civilize' them at considerable risk to the practiced calm of the manor. What ensues is a capricious cultural collision. Professor Higgins struggled with Eliza Doolittle to say 'O not Ow' and luxury hotels and legacy airlines today are wrestling with their own bratty brands, embarrassingly downscale but seemingly necessary to get a bigger bite of the pie.

After years of stubborn nose-up disdain for the bruising hurly-burly of low cost operations, Cathay Pacific has taken the plunge with a HK$4.93bn offer for homegrown Hong Kong LCC, HK Express, which brings to the stable planes with names like 'siu maai' (pork dumpling). Will this be a marriage made in hell? Or a lifesaver, for a carrier finally struggling out of badly hedged aviation fuel bets? A face-saving and much delayed HK$2.3bn profit in 2018 was a shot in the arm for Cathay, which has lost some of its premium gloss over the years.

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In 2003 when Singapore Airlines launched Tigerair as its family budget airline, Cathay demurred preferring to use its greater capacity, larger comfortable aircraft, good landing slots, and multiple frequencies, as a means to compete and keep seat costs attractive.

{The real challenge is for Cathay Pacific to remain true to its premium roots so it may evolve in this direction rather than devolving into a one-shoe-fits-all airline

AirAsia had already launched in Kuala Lumpur in November 1996 and, after a buyout in 2001 by mercurial music man Tony Fernandes, has expanded to 165 destinations with an astonishing flying cost of "US$0.023 per available seat kilometre (ASK)." Several national airlines have little scamps of their own that pootle about the region selling seats for a pittance with stripped down comforts and insouciant service. Passengers seem not to mind the inconvenience. SIA runs Scoot, Qantas has its brisk Jetstar – Jetstar Hong Kong was quashed by regulators in 2015 after intense lobbying by Cathay – Japan's All Nippon owns Peach and even loss-making Air India has its Air India Express for yet more dismal service.

For Cathay the low cost threat peaked with the launch of HK Express in 2013. Chinese airlines too have chipped away at its profit margins.

How does a legacy dowager manage its Doolittle dalliance? With the rebranding of Cathay Dragon (now more fully integrated with CX) and the HK Express acquisition, the Cathay combine could control close to 50 percent of the passenger capacity at Hong Kong International Airport giving it unprecedented clout. That sort of consolidation is not the best news for deal hungry travellers but if HK Express is tasked with barking loudly at the low cost competition it will have served its role and may succeed in preventing some revenue leakage. In 2018, low cost carriers had just about a 10 percent market share in Hong Kong, considerably lower than the 30 percent for Singapore. This is more reflective of the city's exorbitantly high costs than any lack of interest on the part of LCCs.

The real challenge is for Cathay Pacific to remain true to its premium roots so it may evolve in this direction rather than devolving into a one-shoe-fits-all airline. HK Express affords Cathay the luxury of separating itself from the bottom-feeder fray, while enabling it to engage aggressively (as a group) with low cost rivals.

Yet as with massive multi-label hotels there is a tendency to slowly come together as a brand, something CX CEO Rupert Hogg alluded to in an earlier interview: "If you go forward 10 years, I am not sure what the real difference will be between a low-cost carrier and a full-service carrier. The two models are both learning from each other and morphing towards each other."

This is an issue that plagues big travel houses like Marriott and ACCOR where brand standards need to be separated and maintained though few fully understand what these differences are. As general managers and staff move within the group they bring with them old habits, stern or social, rigid or relaxed, eventually causing a blurring in lines. This has nothing to do with written manuals. It has to do with human foibles and habits.

In Cathay's case the question is whether it will allow HK Express free rein to operate in the scrum without clipping its wings and re-educating it or demanding it take on social graces and learn to say 'O not Ow.'

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