Cathay enters no-frills market with Hong Kong Express deal

Bloomberg

Cathay Pacific Airways Ltd agreed to pay $287 million in cash for Hong Kong’s only budget airline to enter the no-frills market, after more than a decade resisting such a move to focus on premium services.
Cathay plans to operate Hong Kong Express Airways, part of HNA Group, as a standalone carrier after the transaction is completed by December 31, the flag carrier said. “HK Express captures
a unique market segment,” Cathay said.
“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.”
The acquisition will give Cathay a crucial piece of business that’s missing from its operations and additional landing slots in Hong Kong, home to Asia’s busiest international airport.
It will provide Cathay with a new revenue source as the region’s growing economies allow more people to fly, and as Chinese rivals expand with direct long-haul flights, bypassing the need to transit in Hong Kong.
The company will use its existing funds for the cash payment. As part of the transaction, Cathay also pledged to repay HK$2.68 billion of debt held by Hong Kong Express in the form of promissory notes.
Asia Pacific’s burgeoning market will probably see the largest increase in air traffic worldwide, with almost 4 billion passenger journeys expected in the next two decades.
Cathay is more than a decade behind Asian arch rival Singapore Airlines Ltd in entering the no-frills business, and has seen demand for some shorter routes eroded by low-cost airlines while Chinese and Middle Eastern carriers chip away at premium and long-haul demand.