Challenges of Hong Kong
Challenges of Hong Kong
Topic: Challenges of Hong Kong’s full service airlines facing today This essay examines the challenges faced by Hong Kong’s full service airlines nowadays. Air transportation serves not only to encourage trade and growth in the tourism industry in Hong Kong, but also to improve people’s mobility and to form a modern society. In this essay, full service airline is defined as traditional airline that provides services such as allocated seat, transfer of baggage between flights, blankets and meals. Full service airlines suffer several challenges in the aspect of production cost for developing advanced system and competition with low-cost airlines nowadays. For this reason, I would like to investigate the challenges in depth according to the above aspects and figure out possible solutions.
Challenge 1: Low-cost airline invasion
In recent years, the airline industry has undergone a revolution caused by the growth in population of low-cost carriers, which are airlines that provide discounted fares and no-frills service to passengers, and the increase in the number of low-cost carriers caused a huge growth in departure and arrival of regional airports and established a brand new market in short-break tourism. While low-cost airlines are gaining an increased market share within the industry, the full-service airlines are struggling. Numbers of full-service airlines are on the edge of bankruptcy, and some even had to sign agreements or mergers to ensure their long-run existence.
To compete with the no-frills airlines, some full service airlines had set up their own low-cost subsidiary, but a few of them ended up in operational losses, forced to sell their subsidiary. Pels (2008) describes full service airlines as aiming to offer ‘quality’, whereas no-frills carriers aim to keep costs low. He states that although it may be difficult for low-cost airlines to earn money on ticket sales, they may gain profit on board by selling snacks and beverages, and from the airports depart from or land on. Moreover, most low-cost airlines promote themselves for their transparency in the pricing system, thus keeping air travel remarkably affordable, despite the high cost of jet fuel.
As low-fare airlines ‘invades’ the airline industry, full service airlines will not only encounter fare pressure, but will also have to progressively fight with the upstarts for takeoff, landing slots and gate space in Hong Kong or other crowded airports in Asia. In order to encounter this challenge, the airline should emphasize on the services it provides, and focus on improving their flights operations both in the air and on the ground, utilizing optimum flight management procedures and providing customers with sustainable products and services, in order to compete with the rising trend of low-cost airlines.
Challenge 2: Managing destinations
Full service airlines use the Hub and Spoke System, which enables passengers to travel from one smaller city to another smaller city via a hub or even two hubs. This system not only service more cities at a lower cost, but also maximizes passenger loads, thus saving fuels. Low-cost airlines use ‘simple’ point-to-point networks, as they operate routes which originate or end at a major airport, which allows them to enter any market they see fit. Thus, if the route turns out to be unprofitable, the low-cost carrier will close it down. According to Pels (2008), full service airlines cannot easily withdraw from a market, even if it is hardly profitable, because a full-service carrier’s link between a hub airport and spoke airport serves many different indirect markets. If this route is closed because of the decrease in load factor due to competition on the market between the hub airports and spoke airports, passengers and profits, in all other markets using this link are lost.
According to a survey by the Company Barclaycard, a relatively large number of the business travellers (71%) used low-cost airlines for business trips. This indicates that passenger preferences may be shifting to low-cost, less service airlines. The low-cost carrier attracts passengers from the full-service airlines, thus causes competition and reduces load factors and profits for the full-service airlines. In order to solve this problem, full-service airlines can offer more low-fare tickets on short-haul routes, and use short-haul routes as feeders for the global markets where they make most profits. Even though the competition for indirect travellers is very intense, they will allow conventional airlines to maintain a large network with relatively high frequencies.
Challenge 3: Investment on the advanced technology
With the rapid development in advanced technologies and popular use in mobile gadgets, reserving a seat on the plane is just one click ahead. Simply by browsing the website of their desired airline, customers will be able to get all the relevant information they will need to plan their trip, including the list of fares in specific dates and allocation of the seats on the aircraft. In addition, systems like automatic airport check-ins and ticketless air travel are getting more popular, and will be the future trends in the airline industry. Therefore, in order to provide the passengers accessibility in online reservations and to build up the image of a green airline, investments are needed to be made on improving the systems.
Acknowledging the numerous benefits provided by the internet, airlines have been investing resources in their websites. Standing (2000) claimed that the Web has changed from pushing firms and services to pulling clients into value-added opportunities that a company provides. Airlines do not only compete among each other, they also compete with online travel agents such as Expedia. Thus, to solve this challenge, the airlines should entice travellers to book their trips via the airline’s website, by providing extra benefits to customers when they purchase online.
To summarize, the challenges that full service airlines in Hong Kong faced are the rising of low-cost airlines, the managing of destinations and huge investments made on developing and improving the systems for reservation and check-ins. It is crucial for airlines to understand that when passengers purchase an airline seat, they are not just paying for a seat in the aircraft; they also purchase the service behind. In order to attract a consumer’s attention, benefits or attributes of using full service airlines and low cost carriers such as price, safety, network connections, and service will be important.
Cooper C. and et al. (1999) Tourism: Principles and Practice, 2nd ed., Longman Publishing: Harlow. Driver, J. (1999). Developments in airline marketing practice. Journal of Marketing Practice: Applied Marketing Science, 5 (5), 134–150. Law, R. & Leung, R. (2000). A Study of Airlines’
Online Reservation Services on the Internet. Journal of Travel Research, 39 (2), 202-211. Moiseiwitsch, J. (2012). Budget airlines find Hong Kong a tough market to crack. In South China Morning Post. Retrieved November 6, 2014 from http://www.scmp.com/business/companies/article/1404255/budget-airlines-find-hong-kong-tough-market-crack Pels, E. (2008). Airline network competition: Full-service airlines, low-cost airlines and long-haul markets. Research in Transportation Economics, 24 (1), 68-74. Sigala M. (2003) The Information and Communication Technologies Productivity Impact on the UK Hotel Sector, International Journal of Operations & Production Management, 23(10), 1224-45. Wang, J. & Lee, S. (2014). Asia’s Budget Airline Invasion. In Bloomberg Businessweek. Retrieved November 6, 2014 from http://www.businessweek.com/articles/2014-02-13/asias-budget-airline-invasion-cathay-pacific-defends-hong-kong