HNA-controled Hong Kong Airline to be transformed into budget airline

Hong Kong Express Airways Ltd. plans to transform itself into a budget airline this year, joining the growing ranks of Asian carriers seeking to profit from the region's boom in low-cost flights.

The full-service carrier's president, Yang Jianhong, said it aims to unveil in late May the details of its plan to turn the airline into a budget carrier by the third quarter.

"We see rapid growth potential for budget-carrier services, as penetration in Asia remains low compared with more developed markets in Europe and the U.S.," he said. The airline has appointed consultants to advise the company about its changes.

The shift in Hong Kong Express's business follows weakened demand for full-service flights and first- and business-class seats amid the global economic slowdown. Asia's largest airlines have been quick to take advantage of the growing demand for budget fares by launching their own brands: Scoot from Singapore Airlines Ltd., Jetstar Japan from Japan Airlines Corp. and Thai Smile from Thai Airways International PCL.

Jetstar Group, a unit of Australia's Qantas Airways Ltd., is also setting up a Hong Kong-based budget carrier under a joint venture with China Eastern Airlines Corp. Jetstar Hong Kong aims to start services toward the end of this year, but the plan is still awaiting approval from the city's aviation regulator.

Mr. Yang declined to identify target routes, but said Hong Kong Express has rights to fly to most of Asia's major cities. It currently operates flights between Hong Kong and mainland China's Guilin, Taiwan's Taichung and Hainan Island's Sanya.

Hong Kong Express is controlled by Hainan-based HNA Group, one of China's largest private companies. Over the past year, HNA had been studying ways to overhaul the airline's business to better compete with its larger Hong Kong rival, Cathay Pacific Airways Ltd., and other airlines.

HNA also controls Hong Kong Airlines Ltd., which shares ticketing, fleet management and other facilities with Hong Kong Express.

Mr. Yang said Hong Kong Airlines, which operates more than 20 Airbus 320s and 330s, has transferred two A320s to Hong Kong Express in preparation for the budget carrier's launch.

"The launch will improve utilization of our fleet in the group," he said.

Hong Kong Express was founded in 2004 by Macau casino magnate Stanley Ho Hung-sun, who in 2006 sold a 45% stake in the carrier to HNA.

HNA also runs China's fourth-largest carrier by fleet size, Hainan Airlines Co.