Not flat, but not packed

Today's SCMP (subscription required) reports Oasis are now applying for permission to fly to Vancouver (their 3rd destination after London and Oakland).  Apparently Chicago is another destination they are considering.

I am still not convinced that Oasis is a budget airline, and I have argued before that what gives them a real edge is having a competitively-priced business class (starting at around one-third of what Cathay/BA/Virgin charge), so I was interested to see this quote from Steve Miller (in the Christian Science Monitor):

Competitive edge in business class?

So how can they keep fares so low? The secret, says Steve Miller, CEO of Oasis, lies in the efficient use of aircraft and crews, flexible pricing, and an attractive business class. Advertised one-way fares from Hong Kong to London start at $147, but most flyers pay more, and business-class seats start at $920. Fares between Hong Kong and Oakland, due to begin in June, will be slightly higher on this longer route, he says.

At the front of its Boeing 747-400 plane, where business-class passengers can stretch out on reclining beds, is where Oasis spies a competitive edge among self-employed travelers who pay their own way, unlike corporate fliers. Business people who would otherwise settle for coach can now afford an upgrade. "Every business man or woman should be able to fly business class and arrive in a state where he or she can get down to work immediately," says Miller.

That may sound ominous for large carriers who rely on business-class revenues to cover their overheads. But industry analysts say that growth in low-cost airlines in Asia has expanded the market by luring price-sensitive passengers who might otherwise not travel, particularly on short vacations or family visits, so start-up carriers may not directly cannibalize full-service airlines.

In the last ten years, airlines such as BA, Cathay, Virgin and Air New Zealand have made huge improvements to their long-haul business class, and increased prices to match.  What Oasis are offering is something similar to old-style business class with a big seat, lots of legroom and recline, but not a flat bed - and for a lot less money.  That strikes me as a fairly attractive proposition.

UPDATE (16/02/07): Business Week has a story on Oasis that suggests that they are not being as successful with Business Class as I had expected:

Competition on the London-Hong Kong route is fierce, with five well-established carriers operating non-stop services between the two cities. But Miller says Oasis is going after a different market from British Airways, Virgin Atlantic, Cathay Pacific, Qantas, and Air New Zealand. Instead, Oasis is targeting passengers travelling between Hong Kong and London on the dozen or so carriers such as Emirates, Gulf Air, and Finnair that now offer one-stop connections between the two cities at cheaper fares than the likes of British Airways or Cathay.

Oasis also hopes to lure cost-conscious small and medium-size businesses "who pay their own way," instead of big corporate customers who have established deals in place with the major carriers. But so far, filling business class seats has been tougher than expected, with average passenger loads running at around 40% compared to more than 70% in economy class.

40% is not very good.  Strange really, considering their prices.

A bicycle with seats

The SCMP had another go at analyzing Oasis Hong Kong Airlines on Sunday, but I think they're still missing the point by asking "can an airline be both budget and long-haul?" 

As I have said before Oasis really have very little in common with budget airlines such as Southwest, Easyjet and Ryanair - the world's least favourite airline.  They haven't taken out the toilets or reduced legroom to cram in more seats, they do have seatback TVs (even if the films are a bit old), and they do serve complimentary food.  They also offer business class (which no other budget airline offers, as far as I know).

Also, if you were planning a budget airline, I don't think you would start out by operating on one of the most competitive routes in the world (BA, Cathay, Virgin, Qantas & Air New Zealand curently fly direct between Hong Kong and London, with a host of other airlines offering indirect services).  Nor would you fly from a high-cost airport such as Chek Lap Kok.  That's certainly not how Ryanair or Easyjet started out. 

So I'm sticking with my theory that Oasis is not a budget airline, and that the description of it as the "budget airline with frills" is about as helpful as describing a car as a bicycle with four wheels and seats and a roof and an engine.

Yet the Commercial Director of the company, Kenneth Chad, is quoted in the article as saying that Oasis are "Easyjet meets Emirates".  This is a bit puzzling, as if someone was starting a new supermarket and said that it was "Fortnum & Mason meets Aldi".  I'm sorry, but you really can't have it both ways.  Mr Chad thinks that the key to this puzzle is high utilization, and that long-haul gives higher utilization.  This may be true in the sense of the number of flying hours you can get from a plane, but what really matters is how much revenue you can generate per day.  Anyway, I am sure that the same thought must have occurred to every other airline, and you have to wonder how Oasis could get significantly better utilization from their fleet than say Virgin or Cathay.  With great difficulty, I suspect.

However, Mr Chad rightly points out that Oasis have to get established first.  He says that they can then start to worry about utilization later, but I think there is another way of looking at. 

As things stand, Oasis are simply operating the planes they purchased from Singapore Airlines in the same configuration as when they bought them (and trying to offer competitive prices).  It suits them to be known as the "budget airline with frills", but I think they must know that this doesn't really make any sense and that they will have to re-think their business model before too long.   Rather than trying to offer the cheapest economy seats, perhaps they could offer a lower-priced 'premium economy' service. Or switch to all-business service similar to MAXjet or Eos.  Or even, who knows, become a real long-haul budget airline - but I think they'd have to be fairly desperate to try that.   

Meanwhile, the official Russian explanation for the problems Oasis had last week (Russia delays flight of Hong Kong Boeing for security reasons) is that:

the application for a flight over the Russian territory submitted by the airline “did not conform to the established form.” Moreover, it was submitted behind schedule, specifically less than “12 hours before the flight”.  

However, it seems that Oasis will continue to avoid Russia for the time being.  In spite of the initial statement that this would not add anything to the flight time, they have now conceded that it will add an extra hour to the journey.

More on Oasis:

One day late (26/10/06)
Weeks rather than years (24/10/06)
What's the story? (03/10/2006)
Up in the Sky (07/09/06)
Missing the point (as usual) (07/07/06)
Cheaper flights (06/07/06)
Even more options (05/07/06)
In the holiday mood (13/04/06)
I hate Heathrow (02/02/06)

One day late

Well, it seems that Oasis finally got their inaugural flight to London off the ground, almost exactly 24 hours late.  Not a good start, but at least everyone knows about the company now!

What amuses me about this is that everyone seems to have fallen for the 'budget airline" angle.  It's all very well to quote the price for a one-way fare exclusive of taxes, but when you double it and add taxes it isn't really so much cheaper than the special offers from the established airlines - and these prices only apply for a limited number of tickets. 

Weeks rather than years

At the beginning of the month, both the SCMP and The Standard ran stories about Oasis Hong Kong Airlines not having received government approval to operate (see earlier post).  The Standard was particularly alarmist, quoting a government spokesman as saying that it might take years.   However, the company appeared to be optimistic, and it seems they were correct, because last Friday the Civil Aviation Department issued the company with their Air Operator’s Certificate.  You can read the company's press release here, and their first flight is due to depart tomorrow afternoon.

The SCMP's story was negative in a different way, reporting that travel agents were advising people to use other airlines.  This prompted a curious reply from one of the agents, saying that Oasis were an important business partner and their company had not advised people against booking with them.  This was published as a letter rather than a correction, so I think they were saying that the individual employee who had made the comment was not reflecting company policy.  As I said before, travel agents will surely prefer to sell more expensive tickets on the established airlines, but I suppose they have no wish to upset Oasis.  Equally, I don't think Oasis are relying too much on travel agents to sell their tickets.

Later this week, Air New Zealand start flying to London, and they have some special offers - their Premium Economy at HK$8,700 (plus taxes) seems like a good deal as they have more legroom than Virgin & BA, and they also have more legroom in economy than anyone else flying this route.  Competition has to be a good thing!!   

UPDATE: The BBC News website first reported that the first flight took off as scheduled - and then changed their mind and informed us that it had been delayed because of problems getting permission to fly over Russia.  I think they hope to fly on Thursday instead.  Not a very auspicious way to start business.

What's the story?

Both the English language newspapers had stories about Oasis over the weekend.  The Standard reported that Oasis does not yet have an operating licence, and could be forced to cancel flights if it doesn't receive it soon (Budget carrier in race to win flights license):

Oasis entered the limelight earlier this month when it began selling its "hot deal" - a one-way trip from Hong Kong to London for HK$1,000 - to celebrate its inaugural flight on October 25. Tickets sold like hotcakes, averaging 1,100 a day, with more than 10,000 sold in the first two weeks - or more than half of total inventory, according to a company spokesman.

What on earth does "more than half of total inventory" mean?  Could the journalist translate this into plain English for us?

But here's the catch: the airline, which applied for a license in Hong Kong over a year ago, cannot fly until it receives government approval.

The consequences of failing may be fatal for Oasis. The airline, which began selling tickets on September 4, has already sold them for flights as far ahead as March 26, 2007. Beginning November, according to the company, flight frequency will increase from four times a week to daily from both Hong Kong and London.  The high-stakes bet by Oasis has alarmed the Civil Aviation Department, which said it has "repeatedly" reminded the airline to warn its customers of the situation and have refunds ready.

As the approval process for an operating license is "long and complicated," there is no guarantee Oasis will receive approval before its October 25 deadline, a department spokesman said Friday.  He added that licensing depends on many factors, including aircraft condition, maintenance arrangements and suitable manpower. "There's no usual timeframe for completing the process. Taking several years is not unusual," the spokesman said.  To date, the Hong Kong government has only granted an air operator's license to nine airlines, including Cathay Pacific, Dragonair and Air Hong Kong.

But an Oasis spokesman Friday said the airline is confident it will receive approval by mid-October - just days before its first departure. He added the airline is already scheduled to perform a test flight of its aircraft for government officials, representing one of the last stages of the licensing process.

The SCMP put its ace investigative reporter on the story, and he seems to have discovered that travel agents would prefer to sell more expensive tickets from established airlines (Agents advise against using two-plane Oasis):

Though Oasis offers one-way flights to London for as little as HK$1,000 plus taxes, landing charges and fuel surcharge, agents from Travel Expert and business service Travelux recommend customers fly with other airlines whose fares are four times as expensive.

Most Oasis tickets are booked online or through a company call centre, bypassing agents [my emphasis].

One agent at Travelux said there was a high chance of delays and cancellations because the airline was using two Boeing 747-400 aircraft bought from Singapore Airlines, which entered service in 1989.  "If one of the planes suffers mechanical problems, it will completely throw out their schedule," the agent said. "The airline has not got its licence yet to fly from Hong Kong either, so there is a risk all you will get is a refund."

An agent from Travel Expert advised a "better option" would be to fly with an established airline if it was affordable. "There is no history for the airline yet, so you might be better to wait and see how good they are first," the agent said.

I don't really understand why Oasis is selling tickets through travel agents, but I think I may understand why agents might be all that bothered about selling them.  I also wonder whether anyone might have an interest in getting negative stories about Oasis in the local press.

Up in the Sky

I'm still trying to figure out Oasis Hong Kong Airlines.  It's clearly not a budget airline in the mould of Southwest, Ryanair & Easyjet, so what is it?

They have now announced fares and schedules on their website.  No big surprises - they have bought two planes from Singapore Airlines, and have maintained the 32" legroom in Economy (the same as Cathay, slightly more than Virgin/BA).  They will also have seat-back TVs and provide complimentary hot meals, so this is clearly not a "no-frills" service.

Fares in economy range from around HK$3,600 to HK$5,600, so again we are not talking about anything radically different to what the established airlines can offer.

Where I think they may have an edge is in the Business cabin.  Here prices start at around HK$15,000 for an advance purchase non-flexible ticket or HK$22,000 if you want to be able to change the date (subject to a penalty).  Both of these fares are substantially lower than on Cathay/BA/Virgin - and here we are talking about Oasis offering something close to a "no frills" option - albeit with a a 60" seat pitch (nearly double what you get in Economy, and significantly better than Premium Economy at 38"). 

Today's long-haul Business Class is probably superior to First Class of ten years or so ago, and fares have increased substantially as a consequence (Virgin Upper Class cost HK$25,000 10 years ago, but now you'll pay over HK$40,000).  Of course, Oasis won't provide a limousine or an airport lounge or a flat bed or a massage or most of the other luxuries that Virgin offer, but at less than half the price I think I am prepared to make a few sacrifices.  However, I can't see anyone paying the full price of HK$42,000 to fly with Oasis!

Outbound flights leave Hong Kong at 1.30 am and arrive at Gatwick at 6.20 a.m. An earlier departure time would be better, but I suppose that restrictions on night flights at Gatwick make this impossible. Various airlines (including Easyjet) fly to European destinations from Gatwick, and there is a railway station right next to the airport if you want to go to Central London or the south coast. 

Will Oasis be successful?  In Economy the differences are marginal, and they will have to slug it out with Cathay, BA, Virgin, Qantas, Air New Zealand and the rest, but in Business I think they do have something a bit different and could do well.

Missing the point (as usual)

The SCMP has picked up on the announcement by Hong Kong Oasis Airlines that I mentioned yesterday.  They quote "industry sources" who appear to be sceptical, but who also seem to have missed the point:

The fare, just 40 per cent of the cost of a comparable ticket with competitors, will cover an economy seat on a Boeing 747-400 and include a basic meal.  Including taxes and surcharges, the fare will be $1,600, as opposed to $4,070 and $3,790 offered by Cathay Pacific and Virgin Atlantic respectively. 

The budget carrier will run just five flights a week against Cathay's four daily flights on the same route.

Industry sources predict Oasis' price-cutting strategy will have little impact on its rivals.  A disadvantage for the airline is that it will serve only Gatwick Airport, 30 minutes by rail from central London's Victoria Station.

With the operating cost of a flight from Hong Kong to London running at around $1.1 million, analysts said they did not expect the airline to be able to maintain the cheap fares. To break even, it would have to fill all 278 economy seats on the 359-seat B747-400 and sell the remaining luxury seats for $10,000 each.

"It's an impossible task for a start-up airline," an industry source said.

What a load of old rubbish.  Firstly, the fare that Oasis announced was HK$1,000 one way, which equates to about HK$3,200 return including taxes (20-30% cheaper than the competition, not 60%).  Also, it seems fairly obvious that this will be the price only if you book in advance, and they will charge more for later bookings and at peak times (just like all other budget airlines).  Cheap, but not unreasonably so.

As for Gatwick, there are advantages and disadvantages.  Personally, I prefer Gatwick to Heathrow because it is smaller, but the disadvantage is that there are less choice of connecting flights - though there are more cheap flights (from Easyjet and others).  The Heathrow Express may be faster than the Gatwick Express, but 15 minutes is fairly marginal when the total journey door-to-door is 16+ hours, and anyway Victoria is more central than Paddington.

Budget airlines have been successful because they offer something a bit different.  If you want to fly to Heathrow on Cathay/BA/Virgin/Qantas then that's fine, but soon you will have another choice.

Cheaper flights

Cheap flights direct to London?  From The Guardian:

Oasis Hong Kong Airlines yesterday announced plans to operate five direct Gatwick-Hong Kong flights a week from October, with tickets costing from £75 one way, plus taxes.

Presumably this means that a small number of seats will be available at this price if you book far enough ahead, and prices will rise for later bookings - the classic "budget airline" model.

The start-up Asian carrier will offer free food and some business-class accommodation. Passengers can also pay a supplement to upgrade their meals. The new London service will be operated using Boeing 747s.

The airline will be competing directly against British Airways, Cathay Pacific and Virgin Atlantic on the route. BA's lowest Hong Kong return fare is currently £389 flying out of Heathrow.

Gatwick is an altogether more pleasant place than Heathrow (with a direct train service to central London).  No news on the schedule or the seat pitch (but they bought the planes from Singapore Airlines, and I suppose they won't have made many changes to the configuration).  Apparently there will be 81 business class seats, and 278 in economy.  Their website is here (but currently has no real information).

I predict that Virgin, BA & Cathay will offer a limited number of seats at a lower price (for advance booking) to try to reduce the impact made by their new competitor.

Even more options

Virgin will add a second flight between London and Hong Kong starting on 3 November.  For the first 3 months it will operate three days a week, and then it will be daily from 2 February.

The flight will leave Hong Kong at 1.20 a.m. (in the winter) and 12.40 a.m. (in the summer) and arrive in London at 7.10 a.m.  I suppose this must be because there are no spare spots for early morning arrivals.  It's a big issue - people living near Heathrow like to be able get a good night's sleep - but selfishly I'd like to be on my way before the rush hour starts, so the later flight will not be my first choice. 

Virgin did briefly have a 2nd service about five years ago (only 3 days a week, as I recall), but then they (quietly) abandoned it and started operating 747s instead (because of lack of demand elsewhere after 9/11), though that didn't last all that long either and they switched to the A340-600.  Now they are also operating through to Sydney, and have talked about a service to Melbourne as well, so I guess they need more capacity.

I'm losing count of the number of flights to London (BA, Cathay, Virgin, Qantas and soon Air New Zealand and possibly Oasis).  Cheap flights, anyone?  Please?   

I hate Heathrow

It seems that Hong Kong is soon to have a new budget airline, called Oasis [via salty water].  I am not sure that "budget airline" actually means anything very much in Asia, because each company seems to have its own business model, none of which are quite the same as the well-established US and UK companies.  Oasis say will they will offer non-stop flights for the price of flights with an inconvenient stopover, which means a modest discount to what you would currently pay with Cathay/BA/Virgin - better than nothing, but hardly earth-shattering. 

What is interesting about Oasis is that they plan to fly to Europe and the States rather than within Asia.  Destinations include Gatwick and Cologne/Bonn (which they helpfully point out is in Germany, for anyone planning to fly there maybe thinking that it was in Canada).

Having used both of those airports, I can confidently say that they are a hundred times better than Heathrow and most of the other large airports in Europe.  Gatwick is next to the mainline London-Brighton railway, and these days Easyjet fly to many European destinations from there.  Now, obviously it's not as much of a "hub" as Heathrow, so if you want bigger crowds and a wider choice of more expensive flights then it may not be what you're looking for, but it would suit me just fine.

The airline claim that the seat pitch will be "generous", but they haven't explained what that means.  If it's better than cattle class in BA/Virgin/Cathay then I forsee a price war, which has got to be good news.