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.