HK Express CEO says fruitful partnerships will provide plenty of business opportunities in Asia
Were you happy with the airline’s 2016 performance?
In general, yes, the year went well. The first half of the year was strong but the second half was weaker due to the general backdrop of economic softening in the region.
But, overall, we’re very pleased with the performance. We’ve now flown more than 6 million guests since we became a low-cost carrier (LCC) three years ago, and the final figures for the year show that we carried nearly 3 million guests in 2016 alone.
We have achieved a very high load factor of 89% and we continue to have the best on-time performance for a Hong Kong-based airline. And there have been some awards too, including a Google award for being the most searched travel brand in Hong Kong.
We are the first airline in North Asia to operate the A320neo and the first in the world to configure it with 188 seats. Our A321 offers 230 seats compared with the normal configuration of fewer than 200 seats. This business model definitely helps foster unit cost saving.
Are ancillary revenues important to your bottom line?
Ancillary revenue is a term that the industry generally uses to describe money made from “add-ons”.
However, for HK Express, it means something different. If passengers could click their fingers and be at their desired destinations, they would definitely do so. But the fact is they are required to buy a seat.
Ancillary services are often environmentally appropriate and we shouldn’t forget that
For us, the additional options are actually about freedom of choice rather than add-on revenue. It enables our guests to tailor their journey to their exact requirements. Plenty of them have a small baggage allowance going to Japan but a large allowance on the return trip, for example. Their itinerary is shaped to their exact needs.
About two-thirds of our guests are in the 18-30 age range and this is how they want to be empowered. This is true customer service.
So, it is win-win for the guests and for the airline because we can have greater control of our costs. But there is another element, another win here too. Inflight meals. When they are paid for, the take-up is usually fairly small. That means less food waste, less fuel needed and so fewer emissions.
Ancillary services are often environmentally appropriate and we shouldn’t forget that.
Are you happy with the infrastructure development in Hong Kong?
The good news is that the third runway at Hong Kong International Airport (HKIA) has been approved and construction is underway.
And recently the air traffic control system was replaced with a more advanced model that provides greater capacity. These developments have gone ahead despite a difficult political environment.
We could grow quicker and make more of a contribution to the Hong Kong economy if we could have more slots
However, these should have happened five years ago. The lack of slots at HKIA is the biggest business issue faced by HK Express.
We could grow quicker and make more of a contribution to the Hong Kong economy if we could have more slots.
It is also part of the reason why we have such high seat density, as we have to optimize a scarce resource.
Despite the softening in the Asia-Pacific market, are you still bullish about the prospects for the region?
I hope to finish my career in Hong Kong at HK Express because the market opportunity is second to none.
It’s amazing to think that most people in Asia haven’t been on an aircraft. There is a huge upside and we are beginning to see that crystallize in China. There will always be up and downs, but the trend is clear.
LCC penetration in Hong Kong and North Asia is about 10% while in southeast Asia it is more than 50%. I’m not saying we’re going to reach those heights but there’s no reason why we won’t get to 25% or more in the next 10 years. Infrastructure is the main constraint we face.
How does the U-FLY Alliance integrate with a low-fare business model?
U-FLY Alliance is the world’s first LCC alliance. Actually, this alliance is designed to address those infrastructure constraints. As mentioned, HK Express can’t grow quickly enough, but with the collaboration of like-minded low-cost carriers we can grow and develop our network faster.
LCC passengers self-interline anyway so all we are doing is facilitating that. It’s simple stuff like getting the bag all the way through. Each carrier is still fiercely independent and follows its own business model.
We do have new members in the pipeline and it would be good to grow the alliance
Setting up a joint venture (JV) in another country would have the benefit of consistency of service, but it would take a lot of work since there is plenty of regulation to follow. Also, it is an enormous risk. For example, we know nothing about operating business in mainland China.
It would be far easier to partner with Chinese LCCs, as we’re doing so with the alliance.
These Chinese LCCs know what they’re doing and they have good brand reputation. The risk is low and the lead time to get the deal going is short.
There’s no intention to take the integration between alliance members further.
We don’t want any of the carriers to lose focus on their markets. But we do have new members in the pipeline and it would be good to grow the alliance.
You are expecting delivery of a large number of aircraft. Will you look to compete into mainland China in any significant way or will you grow your network elsewhere?
Additional flights to China would enable us to participate directly in their travel growth. But a Chinese LCC has a better chance of selling in a market where they have good insight and a strong brand. Thus, the alliance remains significant.
China has a population of about 1.3 billion, there is a growing number of people using air transport and they have many different requirements and interests.
There is huge potential for HK Express to serve those travelers by interlining with Chinese LCCs and having them feed into our network. We’ve started serving Guam and Saipan, for example.
Those destinations are simply too far from northern China unless you operate a widebody. An LCC doesn’t want to do that and so we believe that our new routes work for other alliance members.
How do you attract and train the huge numbers of staff you need to cope with your expansion?
We had 18 aircraft at the end of 2016 and we expect to have 50 aircraft by the end of 2018.
HK Express is lucky to have a vibrant, cosmopolitan city as its base
That means we need to recruit pilots, cabin crew and engineers. Getting the right talent is something we have to work on. But HK Express is lucky to have a vibrant, cosmopolitan city as its base. People like living here.
Aviation is an exciting industry, too. That helps attract cabin crew. And, fortunately, Asia has a strong engineering tradition so we can get hold of engineers as well. We expect to have 1,300 staff by the end of 2017 to handle our expanding aircraft fleet and network. Getting to those numbers won’t be easy but is definitely achievable.
You put a lot of emphasis on safety, including setting up a Just Culture Committee. What are the next steps for the aviation industry to improve safety?
Airlines are nothing if they can’t transport passengers safely. At HK Express, all our meetings involve safety. Because this isn’t about bells and whistles programs, it is about everything, every day.
That’s why we set up a Just Culture Committee. We wanted to be public about our commitment to safety and to have staff know that we will deal with all issues in a just and transparent way.
Fatigue is an important issue going forward. As an LCC, we are all about high productivity. To achieve that, we need to be efficient.
We are therefore very interested in getting a better understanding of how we can improve our fatigue risk management.
This is only the beginning of using predictive tools to judge fatigue. It can’t just be about somebody saying, “I’m tired.” That could be for any number of reasons. An airline needs more information so it can adjust rostering and so forth to ensure fatigue is not down to anything within airline control.
What are the technologies or industry trends that you expect to have the biggest impact on your business in the years ahead?
The big trend for us is, of course, the growth in Asia. Much has been made of the slowdown in China but this must be put in perspective. Most countries would be ecstatic to achieve the same growth rates as China, even now.
The country is delivering, even in a downturn
It’s strange governments say they want to improve their economy and yet burden aviation with petty rules and taxes
It is going to have a huge effect on air travel in the decades ahead. Day-to-day technology will also be important. There are new ways to pay, for example, that are far better than existing models. And in Asia we often jump a generation of technology. Products tend to be put through their paces in Europe and the United States. That means we have to pay attention and act quickly.
There needs to be greater harmonization in standards too. Take the A320 as an example. They differ in each jurisdiction in terms of maintenance, repair and overhaul regulations. It just wastes time and money.
Broadly speaking, we need more deregulation as well. It’s strange that governments say they want to improve their economy, boost tourism and so forth, and yet burden aviation with so many petty, inconsistent rules and taxes. Look at Japan. It relaxed its visa requirements and inbound tourism is growing.
There are many benefits to aviation. And if those benefits are to be delivered in both a safe and environmentally responsible way, then governments need to clear the decks a little and regulate proportionally, where and when necessary.