News
Hong Kong Airlines cancels Auckland – start of a restructuring?
February 15th 2019
Hong Kong Airlines (HKA) will withdraw services to Auckland from 22 May this year. The route was launched in November 2016 and is being flown five to seven times a week with a 283-seat A330-200. Read More » The airline cited “market forces”, a nomenclature commonly employed by Chinese airlines, although the airline is Hong Kong headquartered.
While HKA has been adjusting its long-haul network, this is the first outright cancellation of a route since the airline’s performance became more challenged. It could signal that Hong Kong Airlines is restructuring.
Apart from being cheaper than Cathay Pacific, the airline needs stronger feed for its long-haul routes and better recognition in its home market. More far-reaching questions to be answered include understanding its partnership and deciding if the airline should fly to under-served secondary cities rather than prestigious but competitive blue chip destinations.
The Auckland exit was announced alongside the commencement of a scheduled fourth daily Hong Kong –Beijing service. Expanding in the Mainland’s capital was positive news, but the message from the statement inferred the carrier was giving up on long-haul rather than fixing it. Arguably it needs the efficiency of long-haul flying to lower its cost base. Only flying regionally places limits on CASK reduction.
The carrier has put fleet additions on hold. It was bullish on New York services, but it was when the airline’s ultimate parent, HNA Group, was growing its business presence in the city and wanted its airlines to follow. It received additional Canadian traffic rights for a Toronto service, but has not announced it. The viability of a year-round Toronto service has been questioned and not just by HKA. Cathay Pacific has plans to downgrade Toronto.
HKA wanted to return to London with a sensible aircraft configuration rather than its short-lived all-premium A330 offering. The route would likely have been conditional on a partnership with Virgin Atlantic. Separately, HKA was expected to use A330-200s to reach secondary European cities, galvanising Cathay to expand on the continent.
Long-haul routes have a long start-up phase and HKA intercontinental expansion has been held back by over-capacity, especially in the trans-Pacific. Faced with a number of poorly-performing routes, it may be making a strategic decision that North America is more important long-term than Auckland.
Last October, HKA stopped Hong Kong -Cairns-Gold Coast services, but did so after its partner, Virgin Australia, entered Hong Kong from the more lucrative cities of Melbourne and Sydney, two cities where Hong Kong Airlines is shut out by bilateral restrictions. It is unclear if HKA will seek greater partnership access to New Zealand via Virgin Australia.
This is the second notable exit for New Zealand aviation after AirAsia X ended Auckland services via Australia. NZ media lamented the loss of competition, but Auckland slots are constrained.
New Zealand’s focus turns to the Air New Zealand-Cathay Pacific joint venture. The carriers appear to have added capacity and a seasonal Hong Kong-Christchurch route because New Zealand felt it was not growing capacity as successfully as the Air New Zealand -Singapore Airlines JV. The Air NZ-Cathay JV could use HKA’s Auckland exit as evidence of market difficulties and a justification to reduce their own capacity while boosting yields and profits.
