Oasis

Hong Kong Airlines follows Oasis out of Gatwick

Not a big surprise.  It was an interesting concept, but the combination of being known as a budget airline (and one that is owned by a PRC company) and flying to Gatwick (rather than Heathrow) appears not to have been a winner.  

Hong Kong Airlines abandons Gatwick

London's business-class-only link to Hong Kong is to be axed after just six months – providing more evidence that insufficient numbers of airline passengers are prepared to pay a premium to avoid the riff-raff.

Hong Kong Airlines launched the luxury flight from Gatwick in March. But this week the company said flights would end on 10 September. A statement blamed "the continuing weak economic outlook in Europe". In recent weeks, many flights on the route have been cancelled.

The aviation consultant, John Strickland, said: "It reflects the highly competitive nature of the Hong Kong-London market, one where there is substantial capacity from established players and not enough premium traffic to support the dedicated business service of a newcomer."

Cathay Pacific alone has four flights a day each way between Heathrow and Hong Kong, offering business travellers flexibility. It competes with British Airways, Virgin Atlantic and Air New Zealand from Heathrow, a route with two million passengers annually.

Hong Kong Airlines' service was launched with much fanfare in March, using new Airbus A330 aircraft configured with just 112 seats – 78 in "Club Classic", roughly between premium economy and business, and 34 in "Club Premier", with lie-flat beds.

Fares were set to undercut rival carriers, at less than £2,000 for the cheaper class and £3,000 for the top grade. But many seats have flown empty, and the schedule obliges an aircraft to stand idle on the ground at Gatwick for 15 hours between arrival and departure.

This was the same problem Oasis had, of course. 

It is the second time a Gatwick-Hong Kong venture has failed; Oasis Hong Kong Airlines went bust four years ago after flying the route from Sussex to the Far East for 18 months. But unlike Oasis, Hong Kong Airlines is still very mch a going concern, and no passenger with a forward booking will lose out. They will either be rebooked on Air New Zealand, BA or Virgin, or given a full refund. Juliette White, from Jersey, is booked to fly with Hong Kong Airlines from Gatwick in October. She said: "I'm hoping for a replacement ticket on another airline. I do not see me getting a business-class flight as cheaply if I have to rebook."

Yang Jian Hong, president of Hong Kong Airlines, said: "Our plan is to re-deploy the three specially equipped, all-business-class A330s which currently service the London route to charter flights."


Budget? Well, not really

I found this article in The Guardian about Air Asia X, another allegedly budget long-haul airline: 'This is budget travel. We demand to suffer'

Ryan, a 33-year-old electrician standing behind me in the queue, is moving to Melbourne with his girlfriend to start a new life. "I tried to book as soon as I heard about the £99 deal last November," he says. Sadly he missed out (only about a fifth of travellers, says AirAsia X, will travel for the rock-bottom fare) and had to settle for a - still rather impressive - £171 one-way fare [London to Kuala Lumpur). A tall chap, Ryan admits he is concerned about the legroom.

Well, excuse me, but £342 for a return flight between London and Asia is not that special.  Virgin and other airlines have been offering return flights from Hong Kong to London for HK$2,000 (yes, I know that's not the price you actually pay, but I'm guessing that the fare quoted for Air Asia X doesn't include taxes and surcharges either).  So what was it like on this so-called budget airline?

Finally we board, and I'm in for a shock. The legroom is not just OK, it feels rather generous. There are eight seats across the cabin, with two aisles running between the pairs of window seats and a central island of four. Even though the seats are reportedly 15.8in wide, rather than the standard 16in, and the pitch between the rows of seats (the distance between one point on a seat and the identical point on the seat in front) is 30in compared with the usual 32, it doesn't feel a problem. And yes, contrary to rumour, the seats even recline. Quite a bit.

Well, yes, that's only slightly less than Virgin and BA, who offer you a 31"  pitch (Cathay offer 32"), and of course it's rather more than on short-haul budget airlines such as Easyjet and Ryanair. 

What really amused me about the story was the correction they published a few days later:

AirAsia X is not the first budget long-haul airline to fly from Britain to Asia. Oasis Hong Kong Airlines, which went into liquidation in April 2008, beat them to it when it launched flights between London and Hong Kong in October 2006.

Well, except that Oasis clearly wasn't a budget airline (32" seat pitch in economy, free food and drinks, free films, etc., etc.), as I may have mentioned once or twice.  At least Air Asia behaves a bit like a budget airline (charging for food, drinks and entertainment; flying from Stanstead), but it really ought to be obvious that the true budget airline model can't be used on long-haul flights.


The blame game

The collapse of Oasis was accompanied by claims that the directors did not agree with each other on certain key issues.  Now we have legal action in prospect:

Two Oasis founders sued over share sale

Two founders of defunct Oasis Hong Kong Airlines have been sued over claims that they orchestrated a deal to buy worthless shares in the company's operating division.  Reverend Raymond Lee Cho-min and his wife, Priscilla Hwang Lee, allegedly gave a green light to a US$4.8 million plan without company approval or an independent valuation of the money-losing unit, according to a writ filed in the High Court.

The couple, who could not be reached for comment last night, also failed to disclose that they had a personal stake in the deal, said the lawsuit filed by Oasis Mezzanine Funding, the airline's capital-raising division.

"Raymond Lee and Priscilla Lee failed to disclose or declare to OMF their conflicting interests" and had a duty not to "engage in secret profiteering or self dealing", the writ said.  Instead, Mr Lee and his wife "misappropriated" US$4.8 million that was raised based on an "unjustifiable and grossly overstated" US$350 million value for Oasis Hong Kong Airlines, the lawsuit claimed.

The cash-starved unit ran the airline's day to day operations, the writ said.  The couple allegedly ordered that Oasis Mezzanine Funding buy shares in Oasis Hong Kong Airlines, the writ said.  But Oasis Hong Kong Airlines' value in September last year was "not more than zero" and would now be "negative", the writ said.

Oasis, the world's first budget long-haul airline, grounded flights in April after operating for less than 18 months.  About 700 staff lost their jobs and around 50,000 passengers were affected.

Mr Lee had said the carrier went under because of higher-than-expected costs for jet fuel and planes.  News reports earlier this year suggested that the airline fell apart after investors disagreed with Mr Lee about whether to pump more money into the airline.

In May, a High Court judge ruled that Mr Lee and other Oasis founders had placed the company in voluntary liquidation to avoid paying a HK$170 million debt owed to the Bank of China.  Meanwhile, the writ said that Mr Lee and his wife, a former executive director at Oasis, had ignored requests for a valuation report or evidence that the company approved the plan.

"The share purchase transaction was not properly authorised by OMF," it said.

Oh dear.  There's obviously a rule at the SCMP that Oasis has to be described as "the world's first budget long-haul airline".  It wasn't a budget airline in any meaningful sense of that phrase.

Continue reading "The blame game" »


Did Cathay try to stop Oasis getting a licence?

I know I'm very late on this one, but having followed the rise and fall of Oasis I was interested by this fact check from David Webb, in response to a letter in the SCMP by Tony Tyler of Cathay Pacific, who wanted to assure everyone that (ahem) Cathay welcomed competition and claimed that "We never objected to any of Oasis' applications".  David Webb thinks otherwise:

Um, that's not quite true, is it Tony? While SCMP's first statement [that Cathay had earlier objected to the airline's application for an air operator's certificate from the Civil Aviation Department] was false, it wasn't far off the mark, and the second one ["Cathay Pacific...opposed Oasis' attempt to enter the market"] was true.

Fact: Cathay opposed Oasis' application to the Air Transport Licensing Authority (ATLA) for Air Services Licences (to provide service on particular routes) on the grounds that Oasis must first acquire an Air Operator's Certificate before applying for licenses. ATLA rejected Cathay's submission in its judgement published on 30-Nov-05, in which Cathay is named as the "Opponent".

At that time, Cathay's spin machine called it's opposition a "representation" rather than an "objection", but the practical effect of Cathay's opposition to the application was to delay the issue of licenses, which were first applied for on 26-Apr-05, until the ATLA ruling on 30-Nov-05. Two other companies formally objected, but withdrew their objections before the hearing.

Mr Tyler concluded:

"We take no pleasure from the demise of an airline, as we believe competition is good for the aviation industry, as it is for all businesses"

Spare us the crocodile tears, Mr Tyler. Competition is of course good for consumers, but bad for business owners, as any self-respecting member of Hong Kong's cartels will tell you.

Cathay knew that "making representations" might have had the effect of delaying the issue of a licence to Oasis, and must have known that this would not be helpful to a potential competitor.  Oasis duly put this forward as one of the explanations for their cashflow problems, claiming that a deal they had to lease some aircraft fell through and they were forced to buy instead. 

Does any airline really genuinely welcome competition?  I doubt it.


What went wrong?

The Standard is still following up on the collapse of Oasis.  As I mentioned last week, it does appear that the directors of the company had some serious disagreements (Feud not fuel downed Oasis):

Quarrelling between various investors led to the collapse of Oasis Hong Kong Airlines not high oil prices or a flawed business model as previously thought, sources told The Standard.

The likely demise of the start-up carrier was triggered by a fallout between the partners in the company, people familiar with the situation said. Chairman Raymond Lee Cho-min wanted to keep Oasis in business, but other investors were unwilling to pour in more money after additional cash injections and wanted to pull out following repeated disagreements, the sources said.

The revelation left open a brighter glimmer of hope that the citys only long-haul budget airline could be resurrected, and flights could take off again, if the shareholders quarrel is resolved. A source close to one investor said there may be progress on finding a white knight in about a week.

Budget airline?  I think not.  Anyway, the story goes on to say that the other directors were unhappy with Raymond Lee because he had not made any further investment in the company.  However it does appear that he did take out a loan:

Unable to raise more funding from existing investors, chairman Lee is believed to have pledged his stake in the company as collateral to take out a US$10 million personal loan from Cheung Kong Group.

Despite fighting amongst the company's partners, sources close to the bank creditors of Oasis Airlines said they were comfortable with the company's financial situation after Raymond Lee's US$10 million injection and had not triggered the provisional liquidation.

The irony being that this loan appears to have prevented the rescue of the company that was being discussed early last week (because Lee's shares were pledged as collateral).  I think we can safely conclude that the other directors would have been happy to sell out to a new investor, whereas Lee felt that the company could survive, and so he took out the loan to try to keep it going.  Maybe he would have been successful if the other directors had agreed - or maybe the other directors were correct that the best strategy was to sell out.  Since they couldn't agree, the company went into liquidation. 

The latest rumour is that either Cheung Kong or Victor Li plan to acquire Oasis.  This has some logic to it, given that Li had previously bid for Air Canada, but Cheung Kong have issued a fairly comprehensive denial.  The problem with reviving Oasis is that the new company would need to offer a very comprehensive guarantee to cover tickets that were issued, and that would presumably have a major impact on cash flow.  I suppose the other question is whether anyone has a workable business plan.

I think everyone agrees that Oasis had a flawed business plan, but not on what was wrong with it.  Here's one view (Flawed model led to airline's demise):

The demise of Oasis stemmed from a flawed business model allocating too many seats for the premium class, according to the Centre for Asia Pacific Aviation.

Oasis marked out 22 percent of its total seating capacity to 81 business seats in a generous layout, whereas Malaysia's AirAsia X will only set aside 7 percent or 28 seats in its new planes and Australia's Jetstar allocates 12.5 percent to business-class seating.

"The Oasis example reinforces our view that a sustainable low-cost, long-haul airline model must stick to core principles of high aircraft utilization and high seat density to achieve a sustainable cost position," said AirAsia X chief executive Azran Osman- Rani.

I don't agree that it was a mistake to have a large business class cabin.  If Oasis could sell all 81 seats at HK$10,000 (one-way), that is HK$810,000 of revenue.  Selling the remaining 368 economy-class seats at HK$1,800 that would only generate HK$662,000.  Reducing the number of business class seats would not have increased income. 

It's well-known that business class is more profitable than economy, and "premium economy" can also be very profitable for those airlines that offer it.  The way that budget airlines make economy pay is to pack in as many seats as possible and maximise the number of flights every day, neither of which are feasible if you are operating from Hong Kong to London and Vancouver.  So Oasis needed to do something else, and a cut-price business class was as good as anything else.   


Repeat after me - Oasis wasn't a budget airline

Both the SCMP and The Standard have the collapse of Oasis on their front pages - with much more coverage inside. It's also the lead story on the TV news, where the main focus is the stranded passengers.  Bizarrely, it still seems to be compulsory to refer to Oasis as a "budget airline", even though it wasn't one.

A particularly splendid explain of this nonsense comes in the leader article in today's SCMP, which starts off down that blind alley only to come to its senses in the third paragraph:

Our city's first budget airline, Oasis Hong Kong, got off to a shaky start 18 months ago. Since then it has attracted thousands of customers and won an international award. But the story had a sad ending yesterday, when the airline voluntarily filed for insolvency and told the government of its demise.

The company's collapse does not bode well for the future of budget air travel in Hong Kong. This is despite the sizeable market for Oasis' discounted long-haul flights to cities such as London and Vancouver. Tens of thousands of Hong Kong students, for example, study in these cities and were attracted by the cut-price fares Oasis offered. The demise is all the more depressing in that Oasis was voted the world's best new airline only last year by travel professionals worldwide. Its safety record was impeccable. In short, it was a bold venture that could have made the city proud. In its short lifespan, Oasis sold more than 360,000 tickets and employed about 700 staff. Unfortunately, those who bought tickets for flights which will not now take off look likely to lose their money. We can only hope that the airline's failure will not deter other ambitious entrepreneurs from investing in budget airlines.

The problem with Oasis was the high operational costs required to fly long-haul flights, especially at a time of soaring fuel prices. Though often billed as a budget airline, it was more accurately described as a value airline. Its tickets were offered at a discount, but some of them were by no means cheap. For example, it ran a fully fledged business-class section. And unlike most budget airlines, Oasis provided full services for economy-class passengers such as booking, ticketing, meals and baggage handling. Most budget airlines make passengers pay extra. The add-on services made Oasis attractive, and helped it gain market share in a short time. But they also incurred costs that made them unsustainable.

Good grief. If Oasis wasn't a budget airline, then its collapse can't tell us anything about "the future of budget air travel in Hong Kong", can it? So the whole of the second paragraph is nonsense. Of course people were happy to pay less for a flight to London or Vancouver, especially as they didn't need to sacrifice comfort in order to do so. However, it must also be clear that not enough people flew with Oasis for it to survive as a "value airline" (whatever that might be).

It seems to me that there are two reasons why budget airlines are unlikely to prosper on routes out of Hong Kong. The first is that Chek Lap Kop is an expensive airport, and the second is that most routes are already very competitive - with fares to match. The way that budget airlines have prospered is to identify routes with minimal competition (and high fares) or to start new routes using secondary airports, not to fly on a route on already has five carriers competing. Or at least fly from Macau to Stanstead - not Hong Kong to Gatwick. 

Yes, there is Jetstar flying from Hong Kong to Singapore, but their cheapest return fare is around HK$1,600 (if you book in advance), which is quite attractive but not in the same league as some of the savings that Ryanair and Easyjet offered when they started competing with the established airlines in Europe.

The SCMP leads with the rumour that the rescue of Oasis failed because the chairman of the company "had pledged his shares in the carrier as collateral for a personal loan". Which doesn't exactly make sense, but what is clear is that shareholders of Oasis seem to have fallen out in a big way, and are now trying to blame each other for what has happened.


Oasis goes into liquidation

Shocking, but perhaps not surprising news (Hong Kong budget carrier to stop flying):

HONG KONG: Oasis Hong Kong Airlines, a 17- month-old budget carrier, said it will stop flying, becoming at least the fourth airline worldwide to halt operations in less than two weeks amid surging fuel costs.

The carrier has applied for a voluntary liquidator, Stephen Miller, the chief executive officer of Oasis, said at a Hong Kong press conference Wednesday.

The closely held airline has accumulated losses of as much as $1 billion Hong Kong dollars, or $128 million, The Hong Kong Economic Times said, adding that the airline is losing more than $1 million per flight. The price of fuel has surged 73 percent in the past year.

"If Oasis is in trouble, then others surely will follow," said Martin Marnick, head of equity trading at Helmsman Global Trading in Hong Kong. "It does go to prove what a high-cost, low-margin business this is."

Oasis began flying to London in October 2006 and added services to Vancouver a year ago in a bid to challenge Cathay Pacific Airways, which is also based in Hong Kong. It initially offered tickets to London Gatwick Airport for as little as $1,000 each way, less than 20 percent the price then charged by Cathay for flights to Heathrow.

Of course that's rubbish.  Cathay were not charging HK$10,000 for a return economy class ticket to London (as this would imply).  In fact, if you include the surcharges and taxes, the Oasis fare was only a little less than BA/Virgin/Cathay were charging (if you booked in advance).  Why fly with Oasis when you can choose an established airline for only a little more? 

The truth is that Oasis have never really been a budget airline.  Instead they operated as a normal airline, offering a slightly inferior product at a slightly lower price.  Which is a very long way from Ryanair and Easyjet, and a tough sell - especially on a route as competitive as London to Hong Kong. 

Cathay could easily afford to offer special lower fares on the route whilst offering a superior service, which they duly did.  This seems to have prompted Oasis to try to go upmarket and increase their fares, which a very strange way for a so-called budget airline to respond.  Except that, of course, they weren't a budget airline. Did I mention that?

It's interesting to consider what might have happened if Oasis had really been a budget airline - Cathay might have been forced to respond by cutting fares and trimming their service.  Instead they have invested in a new economy class (as well as the inevitable new business class) in the belief that they can charge more for a premium product.

I thought that low-cost business class might have been what saved Oasis, but once again they lost their nerve by improving the quality of the product and increasing the price.  Which begs the question - why would I pay HK$20,000 for a ticket on Oasis when Cathay offer some tickets for HK$23,000 and have a flat-seat in their new business class? 

I still think that there's a gap in the market for an airline offering a lower priced all-business service - but given that Maxjet recently went bust trying to do that between London and New York it might well be another way to lose money.


Oasis wins an award

I see that Oasis has won an award.  Cathay must be a bit worried, because they have come up with a curious style of advert that tries to make out that they are a budget airline (except, of course, so much better, lah).  And, yes, they only use to advertise services to Vancouver and London (the two Oasis destinations).

Meanwhile, Oasis appear to be trying to move their Business Class upmarket (with price increases to match, no doubt):

businessOasis passengers will soon receive the ultimate business class service experience, with increased one-to-one service from flight crew, incorporating, amongst other new touches, a full split meal service.

Oasis is moving away from the standard on board catering service and instead offering its businessOasis passengers a quality restaurant-like service, where each course of the meal is presented, then cleared, before the next is delivered. After the main course the crew will offer a service trolley featuring sumptuous dessert and cheese rather than pre-plated choices, so the customer can select the after-meal delights for themselves.

The meal will be provided on high quality new crockery, with new cutlery and glassware, and a stylish, custom-made Oasis mug.

The new mug will feature in a new and luxurious tea and coffee service, where a range of biodynamic and fair-trade certified teas will be offered in a wooden presentation box for passengers to choose their tea of choice: English Breakfast, Earl Grey, Green, Peppermint, Lemon Valerian or Chinese Tea.

Ho hum - biodynamic tea in a wooden box. I still think that they'd be better advised to keep it simple. 

Continue reading "Oasis wins an award" »


Oasis

I have to admit that I'm still intrigued by Oasis.  Here's an interesting quote (in The Australian):

Stephen Miller, chief executive of Oasis, said: "Where are traditional carriers most vulnerable? They are vulnerable at the front (of the aircraft)."

I think that's correct (and I've been arguing that for a long time).  This summer, Cathay and Virgin were offering discounted business class fares in July and August, and that must partially be a response to Oasis.

I have flown Oasis, and I have to say that their Business Class cabin is very good indeed (certainly for the price I paid), with masses of legroom and excellent service.  The food is OK for the prices they charge, but not as good as Cathy or Virgin.

Less positively, the in-flight entertainment is quite poor (though you could buy a portable DVD player and a stack of DVDs with the money you save compared to flying Business Class with Virgin, Cathay or BA), and the lounge they use at Gatwick gets very crowded and has very little food available.  The CNAC lounge in Hong Kong is better - basic, but with hot food and certainly not crowded.

Those are small drawbacks, and for the price it really does provide an attractive alternative to the traditional carriers. 

They must be doing well, because they are now adding an extra flight to London 3 days a week. It's an afternoon departure, arriving at Gatwick in the early evening.  They say that the timing is in response to popular demand, but I have my doubts about that - it seems more likely that was the only slot they could get (or that if fits better with their flight schedule).  Long haul daytime flights are not something I have ever enjoyed.

Another sign that Oasis are on the up is that they are making their special offers less attractive.  The 'buy one, get one free' offer in Business Class now only applies if you buy a more expensive ticket (HK$13,800 one way), and they have got to be, er, kidding with the 'kids go free' offer, which requires the purchase of a return ticket at HK$29,000 (in business class) or HK$5,180 (economy).  On top of that you need to pay taxes and surcharges on both the paid and free tickets.  Not terribly attractive, I feel.    

Meanwhile, Virgin's phantom 2nd daily flight to London seems to have completely disappeared from their website, though I suppose it might happen one day,  presumably if they ever start flying to Melbourne as well as Sydney.


The Economist on Oasis

I must have been busy, because I seem to have only just got round to reading The Economist from 2 weeks ago, which has an article about Oasis Hong Kong Airways (Fare game):

Part of the formula is familiar: flying one type of aircraft to reduce maintenance costs, landing at second-division airports, vigorous outsourcing and so on. But translating the low-cost model to long-haul markets is hard. Airliners are already in the air much of the time, reducing the scope to work them harder. Rules on night flights and rest periods for cabin crew stretch turnaround times. And passengers enduring a 12-hour flight are less willing to skimp on food and legroom.

Setting up a long-haul network also takes tiresome negotiations with aviation authorities in many countries. Oasis's inaugural flight was cancelled because it did not have rights to fly over Russian airspace. Most long-haul routes still rely on connecting traffic to fill seats, whereas low-cost airlines offer point-to-point routes.

High-paying business-class passengers at the front of the aircraft enable established carriers to compete fiercely on bargains at the back. According to Nigel Dennis of the University of Westminster, the best that low-cost airlines can hope for on an all-economy long-haul service is a slender 20% price advantage over the established carriers.

“We ran the numbers for an economy service and they didn't add up,” agrees Stephen Miller, chief executive of Oasis. His answer is to combine a low-cost approach with a continued focus on high-margin activities where there is more fat to trim. Oasis's business-class service accounts for just over one-fifth of seat capacity and 60% of revenues. Cargo, traditionally disregarded by low-cost carriers in short-haul markets, brings in another 15-20%.

[..]

For bigger carriers, the new entrants are not yet much of a threat. The most profitable business-class travellers will be loth to give up either frequent-flyer miles or the convenience of a full timetable. But the cheaper long-haul alternatives inject more urgency into the big carriers' efforts to cut costs. Mr Laker would surely have been pleased by that.

Hard to argue with any of that, unlike most of the rubbish one reads in lesser publications.  It seems to reinforce what I keep saying, namely that the key to success for Oasis will be to sell enough business class seats.  The Economist is correct that it won't be attractive to everyone, but for anyone who travels in Premium Economy on Virgin or BA (and now on Air New Zealand as well), Business Class on Oasis should be worth considering.

However, it seems that sales are not going very well (as I mentioned previously), so they are trying to do something about it - their latest offer is that if you buy a return Business Class ticket to London, they will give you another one free.  This isn't available with their cheapest fare, and you have to add on the various taxes and surcharges (for both tickets), so it isn't quite as cheap as it might appear at first, but it's not a bad deal.  They also have another offer of a free child ticket with each adult ticket, in both classes, and this does seem to be available with the cheapest Business Class fare.

They have just agreed to buy 3 more planes, 747-400s again, this time from Japanese Airline ANA, presumably for the services they have already announced to the States, so I think we can assume that they are going to be around for a while.  I hope they succeed.