Cathay Pacific Airways to buy budget airline HK Express for HK$4.93 billion

Hong Kong airline group Cathay Pacific Airways announced on Wednesday it will be purchasing budget airlines HK Express from the HNA Group for HK$4.93 billion.

HK Express will become a wholly-owned subsidiary of Cathay after the deal is completed. Cathay will pay HK$2.25 billion (US$287 million) in cash for HK Express and will purchase HK$2.68 billion in promissory loan notes for the transaction.

The deal is expected to be completed by December 31 this year, Cathay said.

According to Cathay, the transaction is expected to be ‘good for the travelling public, good for the Hong Kong hub and good for the Cathay Group as Cathay and HK Express’s respective businesses and business models are largely complementary.’

The deal represents an ‘attractive and practical way’ for the Cathay Group to support the long-term development and growth of its aviation business. It plans to ‘enhance the competitiveness of the Hong Kong hub during a time of intense regional competition’.

Entry into budget air space

Speculation on an interest from Cathay to take up a stake in HNA’s HK Express surfaced earlier in media reports, but the reports did not indicate how much interest the carrier wished to purchase in HK Express.

The purchase of HK Express will give Cathay a leg up into the budget airlines space as the industry heats up. Last year, low cost carriers accounted for close to 55% of all seats within Southeast Asia and more than 60% in South Asia.

HK Express will add as a new revenue source to Cathay’s business. Cathay’s Asian rival Singapore Airlines has already entered the budget airlines business years ago, with its low-cost airline Scoot.

HK Express flies to cities in countries including China, Japan, Vietnam, and South Korea.

Back in the black

The airline company turned the corner for last year, posting a HK$2.34 billion annual profit, after 2 years of back-to-back losses.

Cathay said it is ‘cautiously optimistic’ for 2019 ahead of the geopolitical and macroeconomic headwinds expected but it is determined to build on its momentum, saying that aims to grow its capacity by 6.9% for this year.

The group said its transformation programme which saw cost cutting measures (leading to improved operational efficiency and returns) is ‘yielding positive results’. The company has turned a corner on a tough couple of years of losses and company-wide restructuring, the group's chief executive Rupert Hogg said.

Cathay’s shares rose 0.15% or HK$0.02 to HK$13.70, at around 10.00am Hong Kong time on Wednesday.