Premium Hong Kong airline Cathay Pacific has moved into the budget airline market by picking up HK Express from HNA Aviation Group in a $HK4.93 billion (A$885 million) deal.
Cathay will pay HNA $HK2.25 billion in cash for the low-cost carrier, which offers budget flights from HK to cities across Asia. As part of the deal, Cathay has also pledged to repay $HK2.68 billion of debt held by Hong Kong Express.
In a statement to the Stock Exchange of Hong Kong, Cathay Pacific said the deal was “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,” Cathay Pacific said.
Cathay Pacific and HNA Group have been in discussions over a possible deal for HK Express since the beginning of this month.
HK Express will continue to operate as a standalone business, Cathay said in the statement.
The move could have wider ramifications for the Australian airline industry.
Cathay Pacific is moving towards a codesharing agreement with Australia’s largest carrier Qantas, which Virgin Australia has objected to.
Hong Kong Airlines, which is part of HNA Group, codeshares on Virgin Australia’s flights from Melbourne and Sydney to Hong Kong, and on domestic Australian and trans-Tasman services as well.
HNA also owns a 20% stake in Virgin, which has attracted interest from potential bidders as the company looks to offload assets.
The deal comes amid a flurry of activity in the aviation merger and acquisition space as carriers look to expand their reach and reduce costs.
Asia Pacific is expected to be one of the largest markets by 2037, with up to 3.9 billion passengers according to the International Air Transport Association (IATA).
Cathay is under pressure from emerging low-cost operators in the region like AirAsia and big competitors out of China like China Southern and China Eastern.
The company is also facing pressure from the west with Middle Eastern carriers like Emirate and Etihad taking a significant chunk of southeast Asian travel to Europe. Emirates and Etihad are thought to be interested in a mega-merger.
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