"Dragonair Thinks Positive And Finds Common Ground With Cathay"

With his airline cutting capacity by 25 percent because of the SARS outbreak, and with a decision pending on Cathay Pacific’s application to penetrate his lucrative China routes, Dragonair CEO Stanley Hui could have been forgiven for striking a sombre tone in his address to the HAMA quarterly luncheon, held in association with the Aerospace Forum Asia.

But instead Hui began by stating that both SARS and the upcoming decision by the Air Transport Licensing Authority on Cathay’s application were both off the agenda of his speech. Instead he gave what Aerospace Forum Asia President Martin Craigs praised as a comprehensive and positive presentation on Dragonair, charting its stellar growth and outlining some of the issues confronting it on its future course. He also gave his thoughts on a number of other topics, including the viability or otherwise of the development of low-cost airlines in Asia on the European and American model.

By 2005, Dragonair plans to have doubled its fleet compared with 2000, reaching 29 or 30 aircraft, he said, citing two main reasons for the airline’s double-digit growth in ASK, RPK and ATK: firstly the rapid development of China’s economy, and secondly the lack of direct flights between Taiwan and the Mainland. About 80 per cent of the airline’s revenue comes from Hong Kong, Taiwan and Mainland China – with the Mainland portion increasing rapidly. Cargo has been a particular success for Dragonair, growing about seven times in five years, and now accounting for about 30 percent of revenues.

Stressing the importance of Hong Kong as a hub, Hui said Dragonair’s strategy in building up its network was to add frequencies as fast as possible throughout China. “The more frequencies we can bring into Hong Kong, we can also enhance and strengthen the Hong Kong hub in terms of connectivity with anyone coming into Hong Kong.” As well as its major revenue-earning routes in China, Dragonair needs to look at thinner secondary routes in the Mainland.

On cargo, Hui said Dragonair was very interested in cargo conversions of Boeing 747-400 aircraft. “Boeing has indicated they are going ahead with this conversion. We certainly think this is the right aircraft for us to start going into the U.S. market.” Dragonair currently flies 747 Classics on cargo routes to Europe, the carrier’s only flights outside of Asia.

He supported the Hong Kong government’s policy to integrate economically in the Pearl River Delta (P.R.D.) saying it will help Hong Kong to further strengthen as an air cargo centre in the Delta. He described the new airport in Guangzhou, due to open later this year as an “up-and-coming competitor.”

Looking at the impact when direct flights start between the two sides of the Taiwan Strait, the Dragonair chief cited reports that the Hong Kong Airport Authority estimated that eight percent of throughput at Chek Lap Kok was transit traffic between Taiwan and the Mainland. “We tend to support this statement,” Hui said adding that between 3.5 million and four million passengers basically travel through Hong Kong in transit between Taiwan and the Mainland each year. “So when (direct flights) come, in what shape we don’t know - plenty of ifs – that will actually hit all of us very, very hard.”

At a Q and A session, Hui was asked if he saw opportunities for low-cost airlines in Asia. “My gut feeling is no,” he said, adding that he did not believe the U.S. or European business models of low-cost carriers could be imported to Asia - for several simple reasons.” Asia does not have many secondary airports of the type favoured by low-cost airlines, and in addition, the region has regulatory constraints and controls that do not exist in Europe or America.

He also questioned how the HK Airport Authority could remain ever-handed if it become a shareholder in any of the other P.R.D. Airports.

Finally Hui was bluntly asked by a CX representative if he thought that the famously high fees at Hong Kong airport were too steep. The Dragonair boss did not have to answer because the question drew roars of laughter and applause from the 160-strong audience. ‘Your applause is the answer,’ Hui said. Common ground indeed for CX/KA at last!