A Budget Airline In Hong Kong

A cipher Airline In Hong Kong compute respiratory tracts have become a trend in aviation industry all over a few decades all over the world, however, as a Asian cosmopolitan city- Hong Kong hasnt have genius yet, in that respectfore a research need to be set up to look on its feasibility. This project proposal aims to assist to accomplish a research by growing a plan earlierhand. Firstly, the cathode-ray oscilloscope of work out flight paths and problem statement would be stated proscribed, then a literature review would be carried out in order to find out its research value, after(prenominal) that, the researchaim and objectives could be set up as a research goal, last but not least, research rule and project plan could be discussed on how, where and when to carry out this research.2. Background/ problem statementBefore DeregulationIn the United State before 1978, all charge passage passenger services were regulated and controlled by the Civil Aeronautics Board (CAB) . Only 10 trunk air ducts were authorized to issue a grandfather certificate by CAB at that time. Underneath this certificate, all major scheduled air passages route structures and f ars were controlled and ruled. For an airlines route structure, stops and intermediate stops were contract and passengers carrying between stops were limit, a new promoted route demand to go through and through a lengthy procedure and hearings, even a stoppage of a route service was still needed the CABs approval. For an airlines f be, all provender wrongs were strictly controlled by the CAB. (John Clinton, 1984)After DeregulationAfter passing the Airline Deregulation accomplishment of 1978, CAB no longer had an absolute authority on an airlines entry, exit, routes and fares. Airlines were pull inn freedom on setting up their own fares within a gigantic range, route applicant would be submitted and passed easily without whatever restriction when it performed air transportation properly. (Joh n Clinton, 1984)First advantageful calculate airlineIn 1967, the first thriving work out airline was born and started its business in Texas in America, it named itself as Southwest Airlines (SWA). The comp whatsoever began when the US foodstuff was deregulated. Its successful model had been influencing a mount of other fol small-scaleing budget airlines. It provides low-cost, high rate of short pinch flying and this made itself maintain a most profitable airline through years. (Peter, David, Gillen, Otto and Hans, 2005)What is Budget Airline?A low-cost postman or low-cost airline (also known as a no-frills, discount or budget mail carrier or airline) is an airline that generally has lower fares and fewer comforts. To make up for revenue lost in decreased ticket prices, the airline may maintenance for extras like food, priority boarding, seat allocating, and baggage etc.Todays budget airlineNowadays, the value for money is a great emphasis placed by travelers. They are ent rusting to buy cheaper tickets to trade off some other aspect such as leg room during flying. However, to determine whether a budget airline can survive and drive down the cost, it mainly depends on government and major airports will to open up the skies. Therefore, opposite areas are in different sideslips, but every consumer loves a low price ticket and somehow the developments are very similar in nature and continue in vary ways.As in US, budget airlines have dominated the market as travelers are price driven in Europe, much local airports are needed to be opened up to let more budget airlines to fly in in Asia, on that point are more opportunities to gallop the unanimous market but the path is not easy, since the market is still dominated by the national flag carriers. Besides, they are also supported by the cargo business. (Scott Lee, 2004)Problems arguingAs we can see, budget airlines business not besides become a trend over the globe, but also bring out more travel ers and so to extend the economy of our own country or region, however, there is no budget airline at all currently in Hong Kong, what are the reasons? Few years ago there was once a low cost carrier- Hong Kong Oasis airway which offered long haul low fare was bankrupted after 18 months of operation, why would that happen? An Malaysian budget airline- Air Asia already developed its third home base in Thailand, meanwhile, there still arent any budget airlines setting up in Hong Kong as a home base, why? What are the success factors for a budget airline to develop? Is there feasibility for a budget airline to set up and form a home base in Hong Kong?3. Literature Review3.1. seam strategy of Budget AirlineMarkus (2005) once said The business strategy of these low cost airlines to save costs is to offerno frills, have fast turn-rounds, use solo a single-type fleet of planes, and to fly mainly to cheap secondary airports..They also save a huge amount of administration costs by only acce pting credit card payments and thus reducing the paperwork to a minimum (Markus, p.269, 2005)In other word, they minimize their cost in management, aircraft maintenance, crew training, landing fee, position fee, administration work, etc. Any additional cost, they will stay in the air ticket and let the passenger pay for it. This would rise out a question, would the passengers in Hong Kong be willing to pay for a low cost just to get to a destination or a high price to buy a good quality of service?Budget airline is a trend?Start from the next two years as announcing in late May, the Singapore airline would establish a subsidiary-a no frill, low cost airline, using wide body aircrafts to serve medium to long haul routes. According to the company after years of markets of extensive review and analysis, they have to admit that there is a large growing demand for low fare travel. The low fare airlines assist to stimulate the growing demand of travel. The company pauperisms to launch this service to push its single-digit growth to a double-digit growth as this low fare market is growing hugely. (Govindasamy, 2011)This has showed us which the low fare air travel marketis growing and even an Asian state-owned conventional airline want to join in to gain share, therefore there is lots of room for more new budget airlines to be set up and serve the demand.Budget airline comparing with conventional airline over the globeGraham Dunn (2011) state in the airline magazine, Data from four years of the Airline Business low-cost carrier and world airline ranking surveys shows that while the 10 largest network carriers were highly profitable in 2006 and 2007, seven lost money in 2008 and eight were in the red in 2009 at an run level. Contrast this with the top 10 lost-cost carriers- only two lost money in 2009, trio in 2008 and one apieve in 2007 and 2006. In this case as we know, during the economic crisis between 2008 and 2009, we can see that the low cost carrier is on a steady growth and earn money, but the conventional airlines are greatly affected.In fact, the magazine also shows that the budget airlines are growing at a double-digit development round the USA and Europe, and there are still more room for them to rise. In South East Asia, the larger low-cost carriers already expand beneath their home market and set up more home base in other country around the region as there has been a great demand for cheap air travel, such as Airasia has also set up a home base in Indonesia and Thailand beyond Malaysia. (Graham Dunn,2011)Therefore, even Hong Kong set up a budget airline, there are still lots of other competitors around the region, and can it survive?The Background and Success of Air Asia and the Asia regionApparently in the 21st century, if the more preferable demography and economic trend persist, Asia would be well focused by the exclusively world, in other words, more people would be willing to travel in and out of Asia by plane for busi ness and leisure. (Joseph, 2011)Air Asia now is one of the largest low cost carriers in South East Asia. It used to be built up by the Malaysia government from 1993 and started its own operation as a flag conventional airline in 1996, however, within those five years, it was a cracked airline which only have two Boeing 747, 250 staffs, four destination and a debt of $11 million. But in 2001, it was bought by Tune air and turned it and re-launched as a low cost carrier, then it start to become a profitable business. In 2007, Air Asia X was set and launched as a low cost long haul carrier which flies to Europe and Australia. Currently, the whole Air Asia Group has owned 102 aircrafts, flies 150 routes and 68 destinations, it has been still continuing to expand its fleet and market share. In the past two year, it has already accomplished a Double-digit capacity growth. Certainly, there are some advantages that it already fully take, such aslow-price labor, a helpful economical hub at K uala Lumpur. (Joseph, 2011)In this case, are there any success factors we can learn from and use in Hong Kong?The Background and failure of Oasis Hong Kong airwayOasis Hong Kong airline claimed to be the first long haul low cost airline based in Hong Kong, Reverend Raymond Lee led a starting capital of $ coke million with several Hong Kong investors. It began its operation and launch to serve passengers from October 2006, but after 18 months of operation, it halted all operation and collapsed as financial liquidation. It used to own 4 Boeing 747 and flew two routes, and three destinations Hong Kong, Vancouver and London. During the operation period of time, the price of jet fuel has jumped from $600 a tonne when Oasis started flying to a current level of around $1,137 a tonne. Besides, the company did not run as an short haul, no service model but provide a full service such as inflight meal and entertainment. (Robin, 2008)In this case, a rise of jet fuel price can push a company to fall, are there any other critical threats which exist? Or the whole Hong Kong aviation environment is not suitable for an budget airline to exist?Disadvantages and advantages of budget airlinesFor traveling with budget airline, there are also some disadvantages that you may want to take account for, such as youmay only have a limited meal with probably peanuts at all for the whole flight, you may not choose your own seat, they have less flexibility which you cant cancel your flight or get a refund, any extra checked bags will be charged, they often land on remote airports with no bus confederacy and they are usually booked through internet. (Shewanda, 2011)However, there are also some advantages you may want to consider, such as the fare with budget airline is relatively small which you can save the money for other things, they often fly to more locations and smaller cities that you may interest, and as money are saved, thus more travels will be encouraged and more people can aff ord it.(Jennifer, 2011)Therefore, when the Hong Kong customers compare the advantages and disadvantages of budget airlines, will they still choose budget airline? What is the low fare travel market like in Hong Kong?Challenges and Background of the local dominant airline in Hong KongThe company began in 1946. It was found by two world-war 2 pilots. They first flew to carry passenger to Manila, Bangkok, Singapore and Shanghai. However in 1948, some of the shares was bought by a UK company, Butterfield Swire (today known as the Swire Group) which took a 45% share. Therefore John Kidston Swire took the leadership work Butterfield Swire became wholly responsible for the managementof the airline. And then it has been expanding through time. In 1998, the Cathay City was built, and in 2006, the dragon air was bought to be involved in Cathay Pacific Group. Right now it owns 128 aircrafts and has ordered more than 100 aircrafts. Its route has covered more than 150 destinations in 41 countr ies. It ranks as the worlds 2nd most profitable airline by net profit and the 7th largest airline in the world by operating profit. Its staffs number is 19,850 worldwide. (From Cathay Pacifics Website)In this case, its customers do not only include leisure and business travelers but also the regional people. If a budget airline was being set up, this airline would be the biggest local competitor.Potential low cost carrier that will be set in Hong KongThere will be two potential budget airlines setting up in Hong Kong- the Hong Kong express and the Jetstar subsidiary. The Hong Kong Express will transform to a low cost carrier in Jul-2012 or Aug-2012, operating under its new low-cost model to cities in mainland China, South Korea, Japan and Southeast Asia. As a Foreign budget airline- Jetstar is also looking forward to establishing a subsidiary in Hong Kong, it may try to co-operate with Hong Kong Airline. (CAPA, 2011)This case has showed us that many companies are interested in devel oping a low cost carrier in Hong Kong, therefore in other words, there isfeasibility for Hong Kong to set up an low cost carrier.4. betokenThrough analyzing all the haveive information collected to determine whether it is possible to set up an budget airline in Hong Kong or not.5. ObjectivesTo explore the background training and business model of budget airlineTo explore the operation, cost structure, strategy of low cost carrier in AsiaTo carry out a case study the success story of Airasia and the failure story of OasisTo set up a survey to ask about Hong Kong frequent flyers expectations on budget airlines servicesTo calculate all operating cost and expense to run this businessTo compare the price of flying with an existing conventional airline with a hypothetical budget airline to find out the feasibility6. Research methodFor this research, I will use the inductive method near, because my aim is explore the feasibility to set up an successful budget airline which could last f or a long time in Hong Kong through observing variety of data such as budget airline business model, cost structure, government policy and so to analyze and find out the answers for it. And I will select the survey strategy for gaining Hong Kong peoples opinion of service they wish to add in without any additional cost for a budget airline service in order to calculate the operating cost of an hypothetical budget airline and so to set up thebest price of a fare to pair the cost. Then I will pick the memo-method as my unique data collection method, and carry out the cross-sectional study as the data would give me the result. For data collection, I will use questionnaire and the interview.6.1 QuestionnaireFor the Questionnaire, I plan to interview 50 people, they are mostly business travelers and leisure travelers, I will approach them through my friends who are frequent flyers.6.2 InterviewFor individual interview, I hope that I can make an appointment with some of the staffs who wo rk as an airline accountant and inside the airport authority, and gain financial information of running an airline company.7. Project PlanI would like to spend half a year to complete my project. Here is my work breakdown structure