Hong Kong Air Reviews A380s After Scrapping London Flights

Hong Kong Airlines, holder of the biggest backlog of Airbus SAS A380 orders in Asia, said it’s reviewing plans to add the superjumbos after scrapping its only intercontinental route.

The fate of the 10-plane order will be decided “based on our future development and the market situation,” President Yang Jianhong told reporters in Hong Kong yesterday. He didn’t give a timeframe for the decision or say whether talks with Airbus were under way.

The carrier, whose fleet size has also been limited by Hong Kong’s regulator, has changed its strategy to focus on serving Asian routes with smaller A320s and A330s, Yang said. The airline is halting its all-business-class service to London’s Gatwick Airport after less than a year as it struggled to lure passengers from Cathay Pacific Airways Ltd. (293) amid a slowing corporate-travel market.

“Given the current high fuel prices and uncertain demand in the market, it is probably not the best time for any airline to expand aggressively,” said Jim Wong, a Hong Kong-based transport analyst at Nomura Holdings Inc. Cathay Pacific will continue to dominate the local market, unless there is a significant easing of access rules, he said.

Cathay Pacific rose 2 percent to HK$13.06, the highest level in about a month, at close of Hong Kong trading today. The city’s benchmark Hang Seng Index fell 0.5 percent.

Regional Services

Hong Kong Air’s regional services are “performing well,” Yang said. Its passenger numbers rose 33 percent in the first seven months of the year to 1.97 million.

First-half profit fell 50 percent, Yang said, without elaborating. Cathay Pacific, the city’s biggest carrier, swung to a loss in the period on a cargo slump and higher fuel prices.

Hong Kong Air also delayed the arrival of six Boeing Co. (BA) 777 freighters, previously scheduled to start next year, until at least the middle of 2014, Vice President Sun Jianfeng said yesterday. Deliveries of A380s may start as early as 2013, Hong Kong Air said in November.

There’s no change in the carrier’s Airbus orders, said Sean Lee, a Singapore-based spokesman for the planemaker.

The airline also postponed a planned initial public offering beyond year-end because of the market slowdown and the possibility of a combination with affiliate Hainan Airlines Ltd., Yang said.

Parent HNA Group will continue to support Hong Kong Air, said Chen Wenli, board director at the Hainan province-backed investment company.

Discussions with Airbus about the A380 order aren’t at an advanced stage, Chen said yesterday, when asked whether HNA will consider transferring the 10-plane order to other airlines in the group.

A380 Backlog

Airbus had a total of 177 outstanding orders for A380s at the end of last month, according to data on its website. That includes five from Kingfisher Airlines Ltd. (KAIR) that were delayed beyond 2016 because of losses at the Indian carrier.

Qantas Airways Ltd. (QAN), the biggest Asia-Pacific customer for the A380, received 12 of the 20 superjumbos it ordered by the end of last month. Singapore Airlines Ltd. had taken delivery of 18 of its 19 planes.

Hong Kong Air operates a fleet of 26 planes. It intends to phase out its Boeing Co. 737s as it switches to an all-Airbus passenger fleet, according to a statement.

Hong Kong’s Civil Aviation Department said Aug. 2 it had limited the carrier’s fleet because the airline needed time to “catch up” following expansion. There are no safety concerns, and the carrier can continue flying its existing fleet, the regulator said.

The limit may be lifted as soon as the carrier demonstrates that it has enough equipment, staffing and other resources to support a larger operation, the regulator said.

To contact the reporter on this story: Jasmine Wang in Hong Kong at jwang513@bloomberg.net

To contact the editor responsible for this story: Neil Denslow at ndenslow@bloomberg.net

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