If there is one thing HK Express has proven, it’s that Hong Kong folks have an appetite for low cost air travel – that plus the fact that with the right incentive and marketing, residents of this densely populated city will also book online and direct.
I caught up with CEO Andrew Cowen (above) on the sidelines of the CAPA Asia Aviation Summit in Singapore late last year. The aviation veteran, who was brought in to reboot the airline into an independent low cost entity in June 2013, away from its parent HK Airlines, spoke about the challenges of transformation including rebooting its digital strategy.
Cowen: “The first thing we did was set up a decent website and focused on SEO and social media.”
Website direct from 15% to 85%: How did it do it?
What I found most interesting was the fact that online sales from its own website has gone from less than 15% to 85%, flying in the face of the often-touted observation that Hong Kong folks still prefer traditional means of booking travel. It proves that with the right incentive and if you do it right, the city’s residents, who are as value-conscious as any in Asia, will book direct and online.
Expedia and Hotels.com are both seeing phenomenal growth in their Hong Kong business, for example.
Said Cowen, “I don’t think people are tied to traditional distribution models necessarily, we’ve seen that with our own experience. One of the first things we did was to set up a decent website, and focused on SEO and social media. With the combination of digital marketing and price, we’ve managed to increase direct web sales. It’s a question of how you advertise the price.
“We went quite heavy on price-driven promotions, putting actual quantity of seats on sale – between 30,000 and 60,000 seats – with eye-catching fares.
“For our second birthday, we did a HK$22 fare (before taxes) and everybody told everybody about it. It had a strong viral effect.
“We’ve found digital and social media channels to be so much more effective than TV commercials with general branding – young girls may talk about the handsome boy (in the Jeju Air commercial) but they don’t share the ads, talk about the price and buy the seats.”
Cowen said the direct approach worked well especially with its key demographic – two thirds of its customers are 18-34 years old, marginally more women. “Singles, groups of friends, young families are naturally more interested in low cost airlines and they use mobile devices – more than 50% of access to our website is via mobile. The booking percentage is less.
“This demographic has no idea what a travel agent is. Many of them don’t use a fixed phone line and they use messaging.
“Traditional distribution models only hold true where it is heavily dependent on connecting passengers.”
The rebooting of HK Express into a low cost carrier
HK Express is Hong Kong’s first low cost airline. It was originally set up in 2004 by Macau casino entrepreneur Stanley Ho, as a helicopter operator taking gamblers from Hong Kong to Macau. In 2006, HNA Group, the parent company of Hainan Airlines, which recently invested in Azul Brazilian Airlines and Tuniu Group, acquired a 45% stake in Hong Kong Express.
The decision to transform into a low cost airline called HK Express was taken in June 2013 and its first flight as a LCC was on October 27 to five destinations in Asia.
Recalling his first days of restructuring, Cowen said, “I was brought in 2013 to look at it and in my opinion, I felt we had to peel away HK Express from HK Airlines, keep the functioning operating kernel and then build an LCC around it. So it was a combination of restructuring the operating kernel and building a completely new airline.”
One key challenge was changing mindset. “All new employees came with the right mindset but on the operational side, restructuring has been difficult. It’s not easy to fully bring in the LCC culture into an existing technical operation whose skills we respect,” said Cowen.
Having said that, two-thirds of employees are new hires and knitting together the old and new has been top priority. Rebuilding the network has also been critical to the transformation.
“The previous network was a bit of a ragbag of routes – there was no clear separate identity from HK Airlines. It was essentially a combined airline operating an inbound network from mainland China.
“What was missing was outbound from Hong Kong and when we surveyed Hong Kong people on where they wanted to fly to, they said Japan, Korea, South-east Asia.
“We restructured our network on outbound routes and did everything we could to position ourselves as Hong Kong’s own LCC. How crazy was it that Hong Kong didn’t have its own LCC? It was a glaring opportunity staring at us in the face.”
The first destination it focused on was to Japan, which is its biggest market. “Fares were very high, it was easy to establish a viable alternative. We are now the second biggest operator between Hong Kong and Japan, after Cathay, but bigger than JAL and ANA combined,” said Cowen.
It also worked on its on-time performance. “We had a reputation for being late and today we are the number one on-time carrier in Hong Kong. If you get the basics right – increased utilisation, safety record, on-time performance, good network – you’re on the right path. That, and cost of sale improvement – distributing 85% of sales through the web versus travel agents is far more effective.”
It’s also worked on ancillaries, which now form 20% of revenues. It switched from Travelsky “which had no decent ancillary capability” to Navitaire at the end of 2014.
Bright future for low cost air travel in North Asia
The airline now flies to 18 destinations, and will increase to 22 by this summer. It will expand its network to South-east Asia, eyeing Phuket, Chiang Mai, Siem Reap, Danang, Yangon and Mandalay in Myanmar, and Luang Prabang in Laos. By the end of this year, it aims to fly to between 30 and 35 destinations.
Cowen said there are advantages to Hong Kong being very late in the game as far as LCCs are concerned. “It gave us a chance to learn.”
He’s excited about the future of low cost air travel in North Asia. “Just consider the sheer demographics and economic considerations – the numbers are huge. Hong Kong is a major component of the Pearl River Delta, which has 70-80 million people. EasyJet and RyanAir enabled British hairdressers to have holidays in Spain. The same thing is going to happen in Asia.”