Cathay Pacific Acquiring HK Express For 4.93 Billion HKD

Filed Under: Cathay Pacific, Other Airlines

At the beginning of March I wrote about how Cathay Pacific confirmed that they were in talks to acquire HK Express from HNA Group. Then just a couple of days ago it became clear that an announcement was imminent, and now it has been made.

The details of Cathay Pacific’s acquisition of HK Express

Cathay Pacific has entered into a share purchase agreement for 100% of HK Express shares for 4.93 billion HKD (~630 million USD). This includes 2.25 billion HKD in cash, and 2.68 billion HKD in promissory notes.

The takeover is expected to be completed within the coming months, though Cathay Pacific also notes that there’s some opposition to the deal:

A firm of solicitors acting for a shareholder of an intermediate holding company of HKE has written to the Company indicating an intention to contest the Seller’s entry into an agreement for the Transaction.

As of now Cathay Pacific has just released mostly financial information regarding the deal, though they do state the following regarding the reasons and benefits of the transaction:

Reasons for, and benefits of, the Transaction The Transaction is expected to generate synergies as the businesses and business models of Cathay Pacific and HKE are largely complementary. The Transaction represents an attractive and practical way for the Cathay Pacific Group to support the long-term development and growth of its aviation business and to enhance its competitiveness. It is intended to continue to operate HKE as a standalone airline using the low-cost carrier business model.

Now let me share a bit of the background on all of this that I’ve shared in some previous posts.

Cathay Pacific A350 Business Class
Cathay Pacific A350

Hong Kong’s current airline scene

It’s an interesting time for aviation in Hong Kong:

  • Cathay Pacific has been working their way back to profitability, and just reported a profit for 2018, meaning they’re once again on the right track
  • Cathay Dragon is Cathay Pacific’s wholly owned subsidiary; they aren’t a low cost carrier, but rather are Cathay Pacific’s regional arm, and operate many routes to mainland China
  • Hong Kong Airlines is trying to compete with Cathay Pacific both short-haul and longhaul, though the airline is reportedly in financial trouble; Hong Kong Airlines is owned by HNA Group, the troubled conglomerate that has been selling off lots of assets lately
  • HK Express operates a fleet of narrowbody aircraft, primarily to destinations in China and Korea, and has been owned by HNA Group


Hong Kong Airlines A330

What could Cathay Pacific do with HK Express?

As mentioned above, HK Express is a low cost carrier operating a fleet of 24 Airbus A320 family aircraft on regional flights.

HK Express operates to nearly a dozen destinations in Japan, and then also operates to several destinations in South Korea, Thailand, and more. Think of them as essentially offering flights to leisure destinations that are popular with tourists from Hong Kong.

For example, in Thailand they fly to Chiang Mai, Chiang Rai, and Phuket, and in Vietnam they fly to Da Nang and Nha Trang.

The first thing we’ve heard is that Cathay Pacific expects to make a big management shift at HK Express, which in late 2017 had a bunch of executives come from Hainan Airlines and parent company HNA, clearing out the previous management team.

Beyond that, what could Cathay Pacific’s interests in HK Express look like? There are a few directions they could go:

  • They could continue to operate HK Express independently, and essentially create a third airline unit (after Cathay Pacific and Cathay Dragon) that’s actually a low cost carrier; many people don’t realize that Cathay Dragon isn’t intended to be a low cost carrier, but rather is just intended to be more regionally focused
  • They could fold HK Express into Cathay Dragon; Cathay Pacific doesn’t directly operate any narrowbody aircraft while Cathay Dragon does, so it seems like a better fit for the Cathay Dragon fleet
  • In theory they could use HK Express to add narrowbody aircraft to Cathay Pacific’s fleet, though personally that seems unlikely to me


Cathay Dragon A330

Personally it seems highly likely to me that Cathay Pacific will continue to operate HK Express independently as a low cost carrier. Cathay Pacific doesn’t currently have a low cost carrier, yet there’s huge demand for something like that.

I think the bigger question is how they choose to brand the airline. Will it maintain the HK Express branding, or will it somehow get Cathay Pacific branding. maybe Cathay Express?

Bottom line

Cathay Pacific’s intended takeover of HK Express is now official. It should all happen within the coming months, assuming one of the contingencies proves to be a bigger issue than expected. Now we’ll just have to wait to fully see what Cathay Pacific has planned for the airline, and how they’ll brand it.

My money is on the airline continuing to operate as a low cost carrier, and likely even continuing to be branded independently. I say that because a full service airline like Cathay Pacific probably wants to provide enough differentiation between the brand names, or else a low cost carrier being associated with the “Cathay” name may bring down the impression people have of the airline.

What do you make of Cathay Pacific’s acquisition of HK Express?

Comments
  1. It’s rumoured that HK Express is actually quite profitable. I wouldn’t be surprised because most of the time when I check their fares it was always more expensive than the full service Hong Kong Airlines, and everytime I took their flight it was mostly full. Not to mention the lower cost base of being a LCC and running narrow bodies A320/321 fleet only.

    And HK Express have some nice airport slots that Cathay might be after.

  2. “I could see them rebranding the airline — maybe as Cathay Express”

    I had the same thought. If they did, I wonder what color scheme they would use.

    But hey, why not add have a LLC version of Cathay?

  3. When I first heard Cathay is in talk to acquire HKA last week, I thought to myself it’d be interesting if CX buy HK Express instead. There’s been a lot of debate on whether CX should have a low cost carrier, and now the opportunity presents itself, why not explore the possibility. HKE got a common fleet with KA and CX; got some good slots at HKG; and HKE network can add to the existing CX/KA network and enhance their hub that’s consistent with their strategy lately – adding more destinations.

    I don’t think HK Express has to change its name. Cathay may want to keep the low cost carrier separate in terms of branding. Think SQ and Tiger Airways/Scoot. Dragonair changed its name because Cathay brand is not as well known as Dragonair in China; thus, the new brand can help Cathay’s name recognition in China and letting people know these two airlines are related. It’d be interesting to see flying HK Express would earn Asia Miles if CX acquired HKE.

  4. HK Express is a pretty solid LCC. Fares are great, seats are not too bad. Hope they can stay independent and keep selling cheap tickets.

  5. It is definitely in Cathay’s best interest to launch a lcc. HK Express has everything they need! The name Cathay Express would be really nice. This Express airline would continue to do a good job to capture the leisure market of travelers. Cathay has done a good job becoming profitable once again!

  6. No reason not to just buy it and keep it as a separate LCC. Also no reason to change the name – this has the double benefit of not “tainting” the Cathay premium name and HK express is already well known in the region.

  7. I hate that when they change Dragonair to Cathay dragon and change the name and the logo, which essentially is the representation. Cathay, please don’t ruin another airline with the word CATHAY and the shark fin logo on it

  8. If they acquire Hong Kong Airlines as well then they will definitely be absorbed into the main Cathay Pacific

  9. Oh no, I take their Taiwan – HKG flight quite a bit. They fly twice daily to Taichung which is a small airport with only 6 gates, and the fare is only 100-150usd round trip. It’s the cheapest way from Taiwan to Hong Kong, and it’s almost always full.

  10. I’m supposed to be taking Hong Kong Airlines next Monday on their mistake fare to BKK. After all of these rumors over the last two months, the only mistake was my buying the ticket.

  11. Cathay Pacific bought around 30% shares in Dragonair in 1990 (5 years after founding), and until September 2006, they’re effectively competing against Cathay Pacific in non-Mainland China routes, such as Bangkok, Tokyo and Taipei. They even wanted to buy higher MTOW A330s in order to fly to Sydney in 2005 (might be one reason that Dragonair was took over by Cathay Pacific in 2006). I guess Cathay Pacific could hold a minority state in HK Express and wait for few years before taking over.

  12. Flew them a few weeks back to/from Nha Trang. Decent flight, just really sucked having to be bussed to/from the plane in HKG. That’s not a fun experience imo. Especially if you’re on the first bus and have to wait for 2 more…you end up sitting on the tarmac for quite a while.

  13. Cathay Pacific might be shutting all HK Express routes and transfer their A320s to Cathay Dragon, so they can renew their fleets for a much cheaper price (ps: all HK Express A320s are far newer than Cathay Dragon A320s). Not surprising if they decide to cancel current A321neo orders. Now HNA ran out of money, so by this sale, they can receive short-term cash boost. It’s a win-win situation if that actually go through.

  14. I predict that Hong Kong Airlines will also be acquired by Cathay and if that does happen I would expect to see the airline being folded into the main Cathay Pacific and possibly Cathay Dragon as well.

  15. Then the entire city of HK will be held hostage by a single airline… well, not my problem, i will just avoid HKG when routing through Asia.

  16. @Lucky I believe the independent option is the best one. Problem is going to be the unions, especially in times of profitability.

  17. The reason why CX acquires UO is to block Jetstar from entering HKG.
    Jetstar works on establishing a subsidiary in Hong Kong for so many years, but CX against it every time.
    If CX owns UO, CX can claim that HKG doesn’t need another LLC and keep Jetstar outside the door forever.
    CX didn’t fold KA because CX can only fly to PEK and PVG. The other China destinations are belong to KA. If CX folds KA, they can’t take over the rights. That’s the point to keep KA alive.

  18. @Woot how would or could an entire city be held hostage by one airline when there are countless other airlines that fly in and out of Hong Kong every day and multiple times a day for several airlines?

  19. I have taken HK Express once to Japan, and it is fine as a mode of transport – it will get you from A to B without any bells and whistles. However, what I found most shocking was that you are not permitted to bring your own food on board – surely, that’s not fair? It’s one thing if you ban everyone from eating and drinking (like on the Hong Kong subway), but quite another when a public transport carrier prohibits you from eating unless you buy the food from it!

  20. It’s now official: Cathay and HNA agreed HK Express transaction for US$628 million, pending government approval

  21. Cryptic quote “We intend to continue to operate Hong Kong Express as a stand-alone airline using the low-cost carrier business model,”

    but suggests they will change the name

  22. @Lucky you have the 4.93 billion HKD in the title, but in the actual story it is written at 4.93 million HKD instead. Thanks for all of your wonderful stories and updates. It is a treat to read your articles and sorry for being so nit picky, hehe.

  23. Flew HK Express once from Tokyo to Hong Kong in 2017, red-eye. At the time they were small but the flight was crazy cheap and fit within my travel schedule. My only complaint was the leg-room.. it was cramped.

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