Hong Kong Express Will Continue To Operate Independently After Acquisition

As the first airline established in Hong Kong, Cathay Pacific has been a leader in the global aviation industry for decades. Whether it is route network, service quality or innovation, it has been regarded as a model by Chinese airlines.

21st Century Business Herald

However, such a good airline has suffered consecutive losses in 2016 and 2017, setting a first consecutive loss in its 73 years of existence, and the quality of service has also declined. In order to reverse the situation, Cathay Pacific launched a three-year transformation plan in early 2017. Now, the three-year transformation plan is coming to an end.

  • What kind of changes has Cathay Pacific made in the past two years?
  • What are the successful experiences and unsatisfactory?

On March 27, 2019, Cathay Pacific Airways announced that it will acquire Hong Kong Express this year. Why did Cathay, which has never been involved in low-cost airlines, suddenly make a move to Hong Kong Express? Lu Jiapei, customer and business president of Cathay Pacific Airways, accepted an exclusive interview with the 21st Century Business Herald on April 17th to explain the Central Committee.

Three years of transformation effectiveness

“21st Century”: Regarding the restructuring plan of your company, what changes have been made to the company’s structure in the past few years?

Lu Jiapei: In 2017, it was mainly the adjustment of the head office, especially the management. The purpose of the restructuring is not only to reduce costs, but to speed up the decision-making of the entire organizational structure. The restructuring of overseas branches was mainly done last year, except for one or two countries, the entire restructuring was basically completed.

“21st Century”: Can you more specifically explain what has changed within the company after the restructuring?

Lu Jiapei: We mainly look at how the organization can cooperate with the company’s development. For example, to create a new product, the entire process of communication will be in the same team, so the whole process will be clearer.

There are several major changes overseas. For example, in the airport area, the former terminal department has a special organization, and the airport freight service is also separated. Now it is centralized by the same director. Because the aircraft is especially a passenger aircraft, there are passenger luggage and freight transportation below, so the cooperation between the two teams is very important. In addition, e-commerce and online marketing talents are recruited overseas, because many things are now data.

“21st Century”: In the two years of the implementation of the restructuring plan, what do you think you have done right? What are the places that are not quite satisfactory?

Lu Jiapei: In fact, one or two years is a very short time for airlines, so in the past, we have mainly done the most basic – how to manage our income and improve service levels. In addition, we have long-term plans, such as the development of the fleet and route network in the future, to prepare for the opening of the third runway in Hong Kong. More importantly, the development of the entire Greater Bay District in the next few years, we have also spent a lot of thoughts on these aspects.

As for the unsatisfactory places, I will tell my colleagues to pay attention to three points. The first point is be down-to-earth. Second, to response faster. The world is changing fast, and you need to make changes in a short time. The third is that innovation must be bolder. Some time ago we did not do well in these three areas.

Hong Kong Express will continue to operate independently after the acquisition.

“21st Century”: Cathay Pacific is acquiring Hong Kong Express. After the completion of the acquisition, what plans does Cathay Pacific have for the development of express delivery?

Lu Jiapei: The basic plan is there. We hope that Express will continue to be a low-cost airline that will not turn it into another Cathay. Its operations will also be relatively independent. In fact, it is not yet fully acquired, but it is expected to be completed within this year.

“21st Century”: Why is Cathay Pacific involved in the low-cost market?

Lu Jiapei: In fact, we have been observing the development of low-cost airlines for a long time, and there are many examples at home and abroad (acquisition of low-cost airlines). We never said that we should not do cheap flights, just now the opportunity is coming. In addition, we have seen that the market has certain demand for low-cost flights, and this part is lacking by Cathay.

“21st Century”: After the acquisition of Hong Kong Express, Cathay Pacific accounted for more than half of the Hong Kong market, will the price system be more stable?

Lu Jiapei: Competition has always been very intense in Hong Kong. In addition to local companies, there are now more than 110 airlines flying to Hong Kong airports. There are also more than a dozen low-cost modes local plus foreigns. This kind of competition will certainly put some pressure on the price. In fact, non-low-cost carriers including us sometimes have very competitive prices. In the future, we will continue to do more promotion of fares.

As for the acquisition of the HK Express whether it would be more stable in terms of price, it is hard to say. Because the price is mainly determined by the market. For the customer, it is not just one of our airlines that can decide. But our view is that prices must be attractive, but safety comes first, and overall service and branding are important too.

“21st Century”: When the Dragonair was acquired, the two companies spent a long time to integrate. Now that Hong Kong Express is controlled by a completely different mainland company, will it bring integration problems?

Lu Jiapei: We hope that the operation of HK Express is relatively independent. Nowadays, many airlines in the world have developed low-cost subsidiaries, but at the beginning many companies have not joined together. Slowly, many companies have transit arrangements. So although the Express will operate relatively independently, we hope to make the transfer seamless (cohesion). Therefore, we will not spend a lot of time to integrate Express into Cathay Pacific. Instead, we must pay more attention to the transfer arrangements of our passengers.

Utilize the new positioning and coordinated development of the Greater Bay Area

“21st Century”: Is Guangdong, Hong Kong, Macau the Greater Bay Area an opportunity or a challenge for Cathay Pacific?

Lu Jiapei: A few weeks ago, I took a group of general managers to visit some companies in the Greater Bay Area, including some technology companies. There are many technology companies in the Greater Bay Area that are developing very fast. The things they develop may help the airlines. In turn, Hong Kong’s advantages in internationalization and marketization may help them to go out.

In fact, airlines are a very interesting role. On the one hand we are their customers, and many of the things they have developed may be useful to us. On the other hand, they are also our customers. In fact, we added ten new destinations last year, especially in foreign countries. Our new destinations and flights over the past few years, Boston, Dublin, Seattle, etc. are all IT centers. This will allow the Greater Bay Area to connect with the international IT center, which is a small contribution made by Cathay Pacific as a Greater Bay Area airline.

“21st Century”: In the planning of the Greater Bay Area, Guangdong will also add and expand several airports, will it intensify the competitive pressure on Hong Kong routes, how to deal with it?

Lu Jiapei: This issue can be seen from several different perspectives.

First, the market in the entire the Greater Bay Area has developed rapidly. Now that Hong Kong is building its third runway, both Shenzhen and Guangzhou have made new progress. But with so much investment and new construction, it is still unable to meet the demand, so the market is getting bigger and bigger, and it is definitely enough for everyone.

Second, as an international airline, we have a long history and more than 200 locations around the world. Our overseas branches are also responsible for sending guests and investment travel to Hong Kong and then going to the Greater Bay Area through Hong Kong. This is a big advantage for us.

There is also the development of the entire the Greater Bay Area. In fact, different airports, different companies, cooperation is very important. Although every airport on the ground is building new terminals and runways, the coordination of airspace requires each unit to participate in cooperation. We know that the National Civil Aviation Administration has spent a lot of thoughts to connect different airports and so on, and try to coordinate the development of each airport. In terms of positioning, the relevant documents of the Greater Bay Area are very clear: Hong Kong is the central hub of international air transport. As a Hong Kong airline, we are a very important player.

In addition, we have a lot of actions in the intermodal business. Since the beginning of the previous year, we have already had a joint venture in the maritime industry. We started with Hong Kong and Macao. In November last year, we cooperated with the Pearl River passenger transport. Now, basically all the shipping in the the Greater Bay Area has been connected. The next step is the bus joint venture. In January this year, the Civil Aviation Authority signed a new agreement with the Hong Kong SAR Government to develop a bus line through the Hong Kong-Zhuhai-Macao Bridge. We look forward to connecting the rails later, which will involve a lot of complicated arrangements and it will take time to study.

Albert K. Field

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