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March 2008
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May 2008

The mobile phone that isn't

Sometimes you have to admire the ingenuity of Hong Kong companies in overcoming problems - and wonder why the government couldn't make life simpler.

Problem #1.  Smartone would like to steal some of PCCW's fixed-line customers, but they don't have a fixed line network. 

Solution - launch a mobile service masquerading as a fixed-line service (HomePhone+).  As far as I can tell, it's a standard mobile phone (using the GSM network), but adapted so that if you take it outside your home it doesn't work.  Brilliant. 

You might ask why they would want to do this.  Good question.  Smartone want PCCW subscribers to be able to transfer their fixed-line numbers to Smartone.  To do this they need to convince the Telecommunications Authority that this is a fixed-line service, and apparently they have managed to pull the wool over their eyes do so.  

Smartone have been advertising this new service quite extensively and are offering to pay the cancellation fees for PCCW subscribers who are on fixed-term contracts (up to a maximum of 6 months) and give them a free phone.  Yes, that's the "special" phone that only works on HomePhone+. 

PCCW are fighting back with adverts that point out the limitations of the new service.  They say that the 2G network is not as reliable as their fixed-line service, and that during a typhoon (or any other time the mobile phone network is overloaded), it might not work.  We've been here before, of course, with IP-based phones - then the argument put forward by PCCW was that the phone wouldn't work if the mains power supply went down (and that if you called 999 they wouldn't know where you were, unless, you, er, told them).   I don't think it would put many people off.

What puzzles me is that HomePhone+ is only slightly cheaper than PCCW's conventional fixed-line service, and not obviously superior.  Well, yes, it allows you to use an IP phone service without having a broadband connection, but surely the people who might think of using an IP phone service are precisely the people who already have a broadband connection.  Smartone also make great play of the value-added services (caller display, call waiting), but you can have these from PCCW if you pay a little extra.

In fact, of all the alternatives to PCCW's fixed-line service, this one looks the least attractive.  If you want to save money, Cable TV can offer a broadband connection and an IP phone service together for less than PCCW's broadband service alone - though it does mean contending with their legendary customer service.

Not that I'm complaining.  Anything that forces PCCW to reduce their prices sounds good to me.   Mind you, the government could increase competition and simplify things greatly by allowing fixed-line numbers to be transferred to a mobile service (and vice versa).  I think that would see HomePhone+ radidly withdrawn.  

Problem #2.  Pay-TV operators are not allowed to re-broadcast terrestrial TV.

PCCW have come up with a fairly ingenious solution to this bizarre problem.  Their new set-top boxes for Now TV have the digital terrestrial channels on the channels below 100, and the Now TV channels from 100-999.  You don't need to press any buttons to switch between the two functions, so from a user perspective it is totally seamless.  It  uses one only power socket, and only one HDMI connection to your TV.  Everything is available from one remote control.     

However, this is another problem that could easily be solved in an even simpler way.  If the government allowed Cable TV and Now TV to re-broadcast the free-to-air channels (digital and analogue) no new set-top boxes would be required.

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.   

Looking very silly

By general consent, the English Premier League is the #1 league in the world, as demonstrated by the fact that PCCW paid a small fortune to secure the exclusive rights to show the games in Hong Kong.

Yet Cable TV apparently know better, and has decided that its viewers are more interested in La Liga, Serie A and the German Bundesliga than the EPL.  The sports news on Cable TV News starts with brief highlights, results and tables from an assortment of continental leagues, before finally and reluctantly giving viewers a quick rundown of happenings in the EPL.

I believe that they could show the goals from the EPL, but to do so they would need to give a credit to Now TV, and presumably that would be a bit too humiliating for them.  Well, that's their choice, but they do look extremely silly when they try to pretend that the EPL is suddenly less important than the Bundesliga. 

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.

Multiple Entry Visas for China - not now!!

As reported in Sunday's SCMP (on the front page just above the big news about Vegemite), the government of China has decided to stop issuing multiple entry visas until October.  Now it seems that you cannot even get a single or double-entry visa at the border and instead have to wait 1-2 days.

This is hugely inconvenient to anyone in Hong Kong who does not have Chinese nationality, many of whom need to travel across the border regularly for work.

Some people will be in the fortunate position of having a visa that doesn't expire until the end of this year (or later), but there will be a significant number of people who will be suffering serious inconvenience in the coming weeks.

So a new blog (the imaginatively titled China Visa Blog) has been set up by someone who wants to protest against this bizarre decision. 

Personally, I think it's ridiculous that anyone with a Hong Kong Permanent ID Card even needs to have a visa to travel across the border.  Having to renew it every year (and pay) is bad enough, but withdrawing this facility without any advance warning is just plain stupid.

Front page news


Anyone who has lived in Hong Kong for very long will be familiar with the problem of favourite products disappearing from supermarket shelves.  Sometimes they are back a few weeks later, sometimes they are gone permanently.

A few weeks ago there was the great "Egg Nog" scandal, when Nestle Dairy Farm decided not to bother manufacturing it in Hong Kong any more.  The same company also seems to have stopped distributing cottage cheese to almost all the supermarkets I visit. 

All part of life in this great city of ours. I know it's tough, but somehow we manage to survive.

So what do we find on the front page of Hong Kong's leading English newspaper this morning?  What big scoop does ace investigative reporter Barclay Crawford have for us?

Yes, that's right, the second lead on the front page today is that there is a temporary shortage of Vegemite in Hong Kong.  Some Australians are distraught.  Oh dear.

If they are really planning to run a front-page story every time a favourite gweilo food goes missing from the shelves of Hong Kong's incredibly well-run supermarkets there really won't be room for anything else.

Continue reading "Front page news" »

Cathay Pacific's new Economy Class

It's hard to avoid the adverts from Singapore Airlines for their new First Class suites and ultra-wide Business Class.  Over the last few years, airlines have come up with countless upgrades to the front part of the plane, and these improvements have been accompanied by significant increases in fares, particularly in Long-Haul.  Meanwhile the economy cabin (and fares) have stayed pretty much the same.

So it's interesting to see that Cathay are introducing a new Economy Class.  The seat isn't any wider and the "pitch" stays at 32", but it certainly is different.  The most revolutionary change is that the seat is enclosed in its own "hard shell" (like many long-haul Business Class seats) so that you don't suffer when the person in front reclines their seat.  Instead the seat cushion moves forward, and they have tried to create more legroom by shifting the seat pocket to under your knees rather than in front of them.

It also has a bigger (more solid) tray table, and a larger TV screen with a wide selection of video-on demand (VOD), so you can watch whenever you want and pause and rewind at will - something that Virgin have been offering in all classes for some time.

In concept it owes something to the old Business Class on Virgin (subsequently copied by other airlines), which was also ingenious but not universally loved by passengers (OK, so some people hated it).  Subsequently, Virgin and most other airlines have increased the seat pitch and put in totally flat beds, but clearly that's never going to happen at the back of the place.  

I've never found sleeping in Economy very easy, and I doubt that this new seat is going to help much.  However, it is more comfortable when you are awake.  If you have a laptop, the new table should be a big improvement, and the VOD is excellent.  But the best part is that you don't have to worry about the person in front reclining their seat.

After a flight in Business Class I always think that it probably wasn't worth the extra cost, and that maybe cattle class would have been OK.  On the other hand, when I'm in Economy I wish I was in Business.  The new seat probably isn't going to change the way I feel, but somehow the thought of flying in the back of the plane doesn't seem quite so horrible.