Cathay Pacific has moved to protect its flanks from the cut-throat competition by buying 100 percent of low-cost carrier Hong Kong Express for $HK4.93 ($US628m) billion.
The Hong Kong carrier announced Wednesday that it had entered into a share purchase agreement that would see it pay $HK2.25 billion in cash with a non-cash component of $HK2.68 billion.
It expects to complete the transaction on or before December 31, 2019, and for Hong Kong Express (HKE) to become a wholly-owned subsidiary operating as a stand-alone carrier.
The acquisition will boost Cathay’s market share in Hong Kong to more than 50 percent and gives it entry into the low-cost market at a time it faces intense competition, particularly from Chinese carriers.
It joins rival Singapore Airlines and alliance partner Qantas as airline groups with low-cost arms that now allow them to compete against rivals such as Malaysia’s AirAsia.
But there are potential implications for Australia’s Virgin Australia which is already facing a tough time on its Hong Kong routes and partners with HKE.
READ: Virgin opposes Cathay-Qantas codeshare deal.
Cathay said the transaction was expected to be good for the traveling public and the group as Cathay’s and HKE’s businesses and business models were largely complementary.
“We intend to continue to operate HK Express as a stand-alone airline using the low-cost carrier business model,” it said in a statement.
“HKE captures a unique market segment and together with the extensive network of the Cathay Group could multiply connection opportunities through Hong Kong.
“This represents an attractive and practical way for the Cathay Group to support the long-term development and growth of our aviation business and to enhance the competitiveness of the Hong Kong hub during a time of intense regional competition.”
Hong Kong’s dominant carrier in 2018 reversed two years of losses to post a profit of $HK2.35 billion ($US300m) as it benefitted from robust freight demand, rising yields and a transformation program aimed at cutting cost and boosting revenue.
READ: Cathay expects to weather tough times in profit turnaround.
Chairman John Slosar warned competition would remain intense, especially in economy class on long haul routes, but said he was confident the airline’s transformation program would deliver sustainable long-term performance.
