A long way to go
On paper, the concept behind creating a low-fare, long-haul-only airline seemed simple enough. People want direct, non-stop flights to long-haul destinations but prefer the generally lower prices offered on routes that include one or two stops along the way. By marrying the two, local start-up Oasis Hong Kong Airlines, its backers believe, will be primed to capitalise on this market.
Unfortunately, the second-hand Singapore Airlines 747-400 that is currently being flown - half of the airline's fleet of two - was grounded on Wednesday for its maiden flight to London's Gatwick Airport after permission to fly through Russian airspace was denied at the last minute. The flight took off the next day and arrived at Gatwick on Friday, although the return leg passed over the Middle East as Russian authorities had granted permission only for the maiden flight.
'That is a complexity that we do have as a long-haul carrier. If you're flying in the US, you don't need to have overflight rights for anywhere else. That's a complexity we have, but it's not one that is unresolvable,' Oasis commercial director Kenneth Chad said.
Whereas carriers in the US and Europe ply their trades in single markets, Asia's budget start-ups face substantial regulatory hurdles.
'The biggest issue here is international traffic rights,' said Derek Sadubin, general manager of the Sydney-based Centre for Asia Pacific Aviation. 'But we have been seeing a gradual liberalisation of air services agreements across Asia.'
Traditionally, the bilateral rights for any two countries' most lucrative routes have been awarded to their flag carriers; in many cases, they are the sole airlines within those countries. But governments, eager to maintain their country's economic momentum, are under increasing pressure to open the biggest travel centres to more competition.
'There are still some pockets of protectionism, but, by and large, we are seeing greater liberalisation,' Mr Sadubin said. And that looks set to continue. The Association of Southeast Asian Nations recently committed to lift by 2008 restrictions on the number of flights allowed between the capital cities of its 10 member nations.
The number of seats offered by low-cost carriers in Asia last month jumped 63 per cent as the aggressive budget brigade mounted an additional 17,000 flights compared with last year, according to OAG Worldwide, a travel and transport information firm. They now account for 9 per cent of the seats available in the region, up from 1 per cent just five years ago. One in 10 scheduled flights will be offered by budget carriers this year, compared with 6 per cent last year.
However, Oasis' inaugural flight notwithstanding, the budget long-haul business model remains untested. Investors have been slow to warm to it because the traditional wisdom has been that budget carriers need to fly short sectors with single-aisle aircraft to minimise turnaround times and offer no-frills service.
Long-haul flights, for example, require food to be served.
'If we were just economy class, it would be very difficult for us to compete, but we're not,' Mr Chad said.
'What we see is, in fact, a convergence to what we are. We are easyJet meets Emirates. We take the best of both models. We fly an asset where we get very high productivity - we're only long haul. That's what the short-haul carriers are going for.'
Oasis will introduce other revenue streams in the near future, such as charging for seat selection, Mr Chad said.
Over longer distances, selling a high proportion of seats is critical.
'If you're flying an empty seat, that seat remains empty for a longer time and distance,' Mr Sadubin said.
Mr Chad agrees, which is why Oasis is trying to get its product up and running and expand its fleet as quickly as possible.
'We're aiming for high utilisation. But critics who really understand the industry will say that you've got only one aircraft now, and only two aircraft later, and you're going to fly these aircraft only on a daily service to Gatwick. If you do the calculation, you're not getting that super-high utilisation you're talking about. Now I accept that entirely,' Mr Chad said.
'But we don't do things without having a reason. In the beginning, we want to get into this industry, get the product going ... when we get our system running, then we'll increase utilisation. But to do that, we necessarily need more aircraft, so we are aggressively looking for more aircraft, and it's a challenging exercise.'
Major international carriers, like Singapore Airlines, that have placed orders for the delayed Airbus A380 aircraft are now holding on to their fleet of 747-400s rather than releasing them to budget airlines like Oasis. The 747-400 is preferred for its high number of seats, allowing for greater economies of scale, Mr Chad said. A two-class configuration can seat a maximum of 524 passengers.
'The Oasis model is untested as yet,' airline industry practitioner Gilbert Chow Wun-cheung said. 'But I think budget airlines are here to stay.'
Expressing optimism, Travel Industry Council executive director Joseph Tung Yao-chung said he was not deterred by the last-minute hiccup.
'The prospect can be good - it all depends on how it operates. The long-haul [budget] flight is rare in Hong Kong and it can offer alternative choices to passengers,' Mr Tung said. 'Now Oasis offers only a Hong Kong to London flight. I believe some passengers will find the offer attractive.'
Susanna Lau Mei-sze, general manager of Hong Tai Travel, said it had a 36-member tour, including the guide, joining the maiden Oasis flight. Six of them dropped out after the flight was delayed.
'We are in a deal with Oasis that projects our co-operation as a long-term one. They also said they would start a North American destination and we are also interested in it,' Ms Lau said.
Oasis will fly to Oakland in San Francisco early next year. Its flights to Gatwick will increase from four a week to a daily service starting from November 25. Other destinations will include Cologne/Bonn, Milan and Berlin in Europe, and Chicago. Applications to operate routes to Vancouver, Toronto, Zurich, Paris, New York and Los Angeles have been filed.
Jetstar International, Qantas Airway's answer to the budget phenomenon, has watched Oasis's launch with keen interest. From November 23, Jetstar will begin rolling out low-cost wide-body services from Sydney, Melbourne and Brisbane to Bali, Phuket, Bangkok, Ho Chi Minh City and Osaka.
